U. S. Steel Kosice standpoint on CO2 quota taxation
Author: USS Košice
Kosice, December 2nd, 2010 - U. S. Steel Kosice is strongly concerned over the recently approved amendment to the Law on Income Tax which introduces an 80 percent tax
on earnings from the sale or possession of over allocation of CO2 allowances in the years 2011 and 2012. We believe that introduction of a brand new tax at a non-standard rate of 80 percent
should be accompanied with a financial impact assessment, discussed with the social partners and be subject to interdepartmental review, which has not been the case, although its impact on some
installations may be very severe and only add to problems they have been facing in light of the global financial and economic crisis.
To our best knowledge, Slovakia is the only country in Europe to be adopting a tax mechanism of this kind; moreover, in the course of the ongoing trading period (2008-2012), which could have very negative consequences in terms of equal treatment of domestic businesses with their EU competitors. The tax on transferred, but also on unused emissions quotas, approved by the Slovak Parliament is going to significantly reduce the competitiveness of the Slovak energy intensive and heavy industry to participate in the resumption of the economic activities in the coming years. Indeed, the industrial production which will be necessary to make up the volumes lost to date as result of the global crisis will require the availability of the unused allowances, that remain available tax-free for companies everywhere in Europe, except in Slovakia. This kind of tax adjustment also presents a threat to future stable employment in energy intensive industries that will be negatively impacted and may result in the loss of jobs in the Slovak Republic compared to neighbor states that follow the ETS Directive as intended.
U. S. Steel Kosice was the sole installation in the Slovak Republic to purchase CO2 allowances under the National Allocation Plan I during 2005-2007, due to their under-allocation. We feel that we are being unfairly treated by the approach of the Ministry of Finance SR, since it includes us among the companies with significant over-allocation.
U. S. Steel Kosice prepared its application for NAP II allocation in the year of 2006, based on its historical production levels (2000-2006) and a strategic plan which counted on further (10 percent) expansion of its production capacity due to planned reconstruction of blast furnace #1 and modernization of its two continuous casters. We would like to point out that our final NAP II allocation is only 6 percent higher compared to our verified emissions in the year of 2006, in which the NAP II application for the current period was submitted. For the first seven months of 2008 our production reached record levels, as we had anticipated in our strategic plan. If production had continued with this trend, and if the crisis had not occurred, our emissions would have corresponded to the planned values which were applied in our NAP II application. Importantly however, in 2008, when our production capacity was utilized at 83 percent as result of the global economic and financial crisis, U. S. Steel Kosice verified emissions represented 82.5 percent of its annual allocation. In 2009, the ratio of production capacity utilization totaled 71 percent, which was also reflected in our emissions. Currently USSK holds a surplus of CO2 allowances representing approximately an equivalent of 4 months of its CO2 emissions with an aim to hedge the expected shortage in Phase III due to introduction of new, much stricter, rules from Directive EC/29/2009.
CO2 emissions are inevitable part of the technological process of making steel from iron ore. Any production increase/decrease will therefore result in higher/lower CO2 emissions. Allocation of free allowances under the ongoing period of EU ETS has been granted for the entire period (5 years) for individual companies and is distributed in five equal, annual allocations. Each year companies are obliged to monitor their emissions and prepare an emission report detailing the previous year's actual CO2 emissions. The first reporting requirement was March 15th 2009 (for the year 2008), and the final report will be due by March 15th 2013 (for the year 2012). This means that a surplus or shortfall of allowances under the current period can only be determined some time after 2012, and definitively no sooner than March 2013. Due to volatile business conditions and the need to make long-term investment and planning decisions in a stable regulatory environment, we believe it is not feasible to evaluate shortfall or surpluses on an annual basis as envisaged in the approved law.
We are now analyzing whether the principle of the approved tax mechanism enacted during the running period might disturb the functioning of the quota market as organized at the European level and whether it contradicts the principles of the EU ETS Directive.
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U. S. Steel Kosice, s.r.o.
Tel.: +421 55 673 4476
Fax: +421 55 673 0330