Canadian steelmakers are pressing the federal government for less ambitious carbon dioxide emission limits because the industry is having a tough time with continuing American tariffs and other market pressures.

"We do believe this will have a serious financial impact. We need to find a solution from the government's current position," said Catherine Cobden, the president of the Canadian Steel Producers Association.

In January the federal government brought forward a regulatory regime — to replace the provincial cap and trade system that was cancelled by Premier Doug Ford — in which heavy industries were assigned emission limits that would invoke penalties if exceeded. In the case of steel, most industries would be limited to 90 per cent of the sector average.

But now the steel sector is saying those expectations are too much.

"We don't want to run away from the climate change issue. But we must have a regulatory regime that addresses and recognizes the challenges that we are currently facing," said Cobden. "We are working with the government to find a solution that actually recognizes these challenges because the current program doesn't go far enough in that recognition in our view."

Instead of a 90 per cent limit, the industry feels 95 per cent or more is justified. Industries vary in targets from 80 per cent to 95 per cent, depending on the sector.

Companies that don't meet their assigned limit would be financially penalized or could buy unused credits from other firms, similar to the cap and trade system that was in place under the former Ontario Liberal government.

The regulatory system for heavy industry is a separate federal initiative from the 4.4 per cent carbon tax on gasoline and other fuels for consumers that was imposed Monday.

University of Toronto steel analyst Peter Warrian says steelmakers are "concerned the whole carbon tax policy was put in place without seriously considering the economic consequences. I think they are right in this."

He noted the global steel industry is slowing down from close to 4 per cent annual growth in 2015 to 1.3 per cent last year, and steel prices have fallen dramatically over the last nine months from a peak of $1,100 in June last year to $783 in the U.S.

"There is no doubt that there is a slowdown in steel compared to what we have experienced in the last five years," he said.

But the 25 per cent tariff on steel is affecting companies differently. Stelco has said it had a very strong year in 2018 partly by adjusting its strategy to focus on Canadian customers rather than American ones.

But other steelmakers say the tariffs and overall market have been devastating. For example, Ivaco Rolling Mills announced 50 permanent layoffs at the company's mill in L'Original in eastern Ontario on Tuesday.

A joint press release from the company and the United Steelworkers said the mill would be switching to a three-crew schedule from the current four to operate the plant, which manufactures steel billets and wire rod, and currently employs 538 people.

"Canada is one of the most exposed steel markets in the world, and the lack of resolution to the U.S. 232 trade action continues to hamper exports and increase flow of diverted steel into Canada, causing significant harm to the industry," said Will Trower, Chief Financial Officer at Ivaco.

A spokesperson for Minister of Environment and Climate Change Catherine McKenna said discussions between the government and industry are continuing and "we will be publishing final OBPS (Output-Based Pricing System) regulations this spring, and we continue to welcome feedback from the steel sector and others, as we finalize them.

"Our government is a strong supporter of the steel sector as they face unjustified U.S. tariffs. In order to defend and protect our Canadian steel and aluminum industries (facing a 10 per cent U.S. tariff) and workers we are making available up to $2 billion in supports."

Lynda Lukasik, the executive director of Environment Hamilton, says she believes the government should hold firm on its emission targets.

"The mills should not be granted increases to their C02 emission limits. They need to be doing all that they can to reduce their emissions — and if they can't reduce any further they should be investing in other actions that will help to mitigate climate impacts."

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She noted "the local steel mills are the giant climate elephant in the room. Their contributions dwarf what the rest of us are contributing — not to suggest we don't all need to take significant action because we do."

mmcneil@thespec.com

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