The impacts of climate change are taken seriously

Climate change has attracted increasing attention in Outokumpu in recent years. Both responding to the challenges set by emissions reduction targets and taking these into account in the Group's long-term strategy are important. Outokumpu views climate change as a matter for serious concern and wishes to contribute to targets set by the European Union. While preparations must be made for economic challenges that the Group may face in the future in connection with reducing carbon dioxide emissions, climate change will also present financial opportunities.

Regulatory risks

The greatest regulatory uncertainty for Outokumpu stems from the EU's Emissions Trading Scheme (EU ETS). It creates a financial incentive for companies to restrict their emissions of carbon dioxide as emission allowances that remain unused can be sold on financial markets. Conversely, if the level of a company's emissions exceeds its emission rights, allowances have to be purchased. Our sites in Finland, Sweden and the UK fall within the scheme. While the Group has been granted allowances at no cost in the current trading period (2008–2012), it is highly probable that in the future the Emissions Trading Scheme will mainly be based on auctioning of allowances. This could lead to Outokumpu being placed at a competitive disadvantage compared to stainless steel producers located outside Europe. To dissuade companies currently operating inside the EU from moving to countries without emission reduction targets, industries within the EU that are exposed to high carbon leakage will continue to receive free emission allowances. The iron and steel industry has been identified as a sector that is vulnerable to the risk of carbon leakage and Outokumpu sites will therefore probably receive free allowances even during the 2013–2020 period.

In the future, emission reduction targets will most probably be more stringent and we will have to make preparations for operating in a more restricted environment in connection with carbon dioxide emissions. To manage such risks and prepare for expected developments in the Emissions Trading Scheme, an Emission Management Committee has been established with representatives from different Group functions. The committee's responsibilities include assisting in defining Outokumpu's emissions management strategy and coordinating its implementation.

Price risks

For the Group it is important to secure the cost of compliance for emission allowances. The realised and forecast emissions as well as the granted allowances are monitored regularly. The Group has also aimed at decreasing the cost of compliance by entering into financial transactions such as swapping EU emission allowances to CERs and investing into a carbon fund.

As steel manufacturing is energy intensive, the Group is sensitive to changes in the price of electricity. Power companies transfer the cost of their emission allowances to the prices they charge for electricity, and marginal cost pricing means that all forms of power production are therefore affected by the price of emission allowances. Even though the electricity purchased by Outokumpu is mostly low-carbon, costs of this type have an impact on the Group. The risk related to the future cost of emitting carbon dioxide also adds an element of uncertainty to the planning of new investments and can affect future investment decisions.