By Francesco Guarascio and Barbara Lewis
BRUSSELS (Reuters) - The European Commission is considering whether to hand out more free pollution allowances for the steel sector next year to counter the risk the industry could be driven out of Europe, EU sources said.
The cost of carbon on the Emissions Trading Scheme (ETS) has collapsed to record low levels under the burden of excess supply. Earlier this month, it hit a new low of 5.61 euros a metric ton (1.1023 tons).
The fall in price has reduced any additional costs for major polluters.
It is, however, expected to rise. Some in heavy industry complain that, in any case, it does not lead to emissions cuts but only to relocation of industry to pollute other nations, where it does not have to buy the permits.
"The Commission is planning to draw up a list of sectors most affected by the ETS regulations and that are, therefore, at risk of relocating their activities outside the EU," a senior Commission official told Reuters on Friday.
"Sectors included in this list should benefit from temporary free emission permits as from 2013," said the source, who asked not to be named. Steel is the sector most likely to get free allowances, another source added.
The Commission has already approved state aid grants in the form of free carbon allowances, specifying the money should be used to modernize energy installations and infrastructure.
For the next phase of the carbon market, beginning next year, the system of handing out free allowances changes markedly, and auctioning becomes the rule for the power sector.
The Commission is still collating "wish lists" - officially referred to as National Implementation Measures - of the installations that could be eligible for free allowances, depending on EU criteria.
Operators will receive any allowances they are given by February 28, 2013, the Commission has said.
Research by the Commission's Joint Research Center looked at various scenarios on energy efficiency and carbon emissions for the EU iron and steel industry.
Under its baseline scenario, assuming current trends stay intact, emissions from the industry were predicted to fall by around 14 percent between 2010 and 2030, compared with the overall EU goal to cut carbon emissions by 20 percent by 2020 from 1990 levels.
Different scenarios involving higher carbon price assumptions could take the cut to as much as 21 percent by 2030, the research said.
The European Steel Association, EUROFER, on Friday issued a statement in response to the research, saying it supported the body's arguments that EU emission targets were "unachievable for the industry and a serious danger for Europe's industrial base".
The European Commission has launched a debate on agreeing green energy targets beyond 2020 when an existing set of goals expires.
The renewable industry and some in the Commission have spoken out in favor of setting challenging goals for renewables and carbon reduction for 2030, while heavy industry and some member states, such as coal-dependent Poland, have resisted tougher regulation.
The Commission has also proposed withdrawing temporarily some of the surplus of carbon allowances, caused by Europe's economic slump, which has depressed the ETS.
At a meeting of technical experts representing the 27 member states on Thursday, around half a dozen nations signaled support for the Commission proposal, while Poland and Malta openly opposed intervention, EU sources said.
(Editing by Jane Baird)