Phillipe Varin, chief executive of Corus, has warned that European steel production will wither unless governments tackle the cost of carbon credits used to offset emissions.
He said that state aid was needed to help steel companies research and develop new technology to cut carbon emissions, warning of the danger of 'carbon leakage' from countries like China where production would likely migrate.
"If we are forced to buy CO2 credits on the market without a system to improve our production process, then we will not produce steel in Europe," said Mr Varin, who is also chairman of the World Steel Association's Climate Change Policy Group. "To cut carbon emissions of steel production, we need breakthrough technology, but this is extremely expensive, costing €200m to €300m to upgrade a one million ton production plant."
Varin, who spoke exclusively to the 'IoS' at the UN Climate Change conference in Poznan, said: "There is no way for us to fund this and pay penalties for our CO2 emissions. This would wipe out all of our profits and put us at a competitive disadvantage with manufacturers in nations which are not subject to carbon caps.
"The only way forward is through improved technology, but this costs money and a carbon tax is not the answer, because manufacturers will just move the growth to other countries. Not only will that kill European industry, but we will produce twice as much CO2."
Corus employs around 25,000 workers in the UK and is in negotiations with unions over pay in an effort to curb large redundancies.
Estimates suggest that every ton of steel produced in China, where factories are older and less efficient, creates twice as many emissions as in Europe. "Our customers will still need steel, so they will have to import from China or another developing nation and then you have the added CO2 associated with shipping," Mr Varin said.
The steel industry, which accounts for 4 per cent of global emissions, was seeking to replace current carbon abatement schemes established under the 1997 Kyoto Protocol, with a "sectoral agreement", he said. Such a system would give manufacturers free carbon allowances up to an industry-set benchmark and encourage technology transfer between East and West.
Steelmakers also want emissions reduction credits for deploying new technologies such as carbon capture and storage, which is currently excluded from the Carbon Development Mechanism.
Mr Varin's suggestion of a sectoral agreement process for carbon credits was criticised by environmental campaigners. A Greenpeace spokesman said: "Replacing emissions caps with a sectoral approach would mean the end of the Kyoto principles and would be disastrous for the price of carbon."
EU leaders meeting in Poznan agreed to reduce greenhouse gas emissions by 20 per cent by 2020.