Over-allocation profits and competition issues in the steel industry

Maria-Eugenia Sanin (University of Evry-Val d’Essonne)



Sectors that are considered to be subject to international competition under the European Emission Trading Scheme (EU-ETS) still benefit from free allocation of European Allowances (EUAs). Herein we study one of those beneficiaries: the crude steel industry. Firstly, we find it is not strongly exposed to international competition. Moreover, we find that the relevant market is concentrated and that the firm with most market power throughout 2005-2018 is the one receiving most of free EUAs capturing most of the over-allocation profits (34.87% in average). Finally, after performing a frontier analysis we find that the market leader is also the least efficient in producing crude steel and consequently the least efficient in terms of CO2 intensity. These findings suggest the EU-ETS has failed to provide incentives for decarbonization in this sector.

Co-authored with Sylvain Sourisseay.