Joint letter | Free allocation needs to incentivise circularity for the EU to reach net zero
In the concept note of its Expert Group on Climate Change Policy, the Commission is proposing an extension of the hot metal benchmark to direct reduced iron (DRI) that will lead to wildly different allocation amounts depending on the feedstock and production process of flat steel products. This proposal not only fails to address lawmakers’ instructions given in the amended ETS Directive, but it deliberately disqualifies scrap use as a decarbonisation measure alongside others such as DRI made from hydrogen. The use of scrap has undisputable climate benefits, roughly reducing emissions by 2 tonnes of CO2 per tonne of steel scrap used. It also saves other scarce resources such as electricity compared to other techniques such as hydrogen DRI. Its use should therefore be encouraged at least as much as other abatement techniques .EuRIC and Sandbag think that the upcoming reform of the Free Allocation Regulation has the capacity to speed up decarbonisation, but only if the right incentives are set.