Posts Tagged ‘carbon leakage’

Carbon leakage is a threat to Europe, says TK executive

The move towards pricing carbon dioxde emissions has caused concern that the competetiveness of the industrycould be reduced. These concerns have been further excacerbated by reports in the mainstream media that claim the industrywill profit fromthe ETS.

SBB 18 April So long as it is only in the EU that the steel industry needs to buy emission allowances, carbon leakage will remain an issue for the industry, Dr. Hans-Jörn Weddige of ThyssenKrupp told Steel Business Briefing’s recent Green Steel Strategies conference in Brussels.

The sector is expected to be 19.8% short of permits in phase 3, according to Eurofer, assuming the European Union continues to target a 20% cut in emissions by 2020, compared with 2005. It is a myth to view steel producers as having a huge allowance surplus from the 2008/9 crisis as quoted numbers often omit waste gas emissions and can be very misleading, he added. This assessment was supported by financial analysts at the conference.

Moreover, steel is essential for a CO2-lean European Union. The view that Europe needs to move from brown to green industries is also a myth: the issue is to promote a sustainable industry more generally, and for that steel is central. “It is the brown trunk that gives the green tree its competitive advantage,” Weddige commented.

He also argued against the view that technology options can “easily” save the day. They are still decades from commercial realisation. Governments need to provide a predictable, long-term framework for R&D and investment to speed up the process. Paying more for allowances will decrease the financial capacity for innovation of steel companies, Weddige pointed out.

The EU’s carbon market should focus on effectively allocating allowances – it should not be seen “as money making machines for speculators.” The “market needs time and stability” to work efficiently.


Steelmakers should ‘explore opportunities’ of greener steel

SBB 12 April Production-based accounting for greenhouse gas emissions (GHG) could cause carbon leakage but a consumption-based approach would not, argue Sonia Thimmiah, UK head of sustainability at Accenture, and John Barrett, chair in sustainability research at Leeds University. A consumption-based approach would also benefit steelmakers, they add.

Regulation of GHG emissions currently focuses on producers. However, differing regulations across regions will impose different costs on industry. Steelmaking could therefore move from high-cost to low-cost regions, Thimmiah warned delegates at Steel Business Briefing’s Green Steel Strategies conference.

OECD countries have reduced their direct GHG emissions. However, they import goods which result in GHG emissions during their production. The emissions in goods consumed by OECD countries have increased and consumers should bear some responsibility for this, Thimmiah and Barrett suggest.

An approach based on consumption would not cause carbon leakage as products would face the same regulation no matter where they were made. Measuring carbon emissions across the production, distribution and use phases of a product may also put pressure on consumers to buy responsibly. This would be compatible with the kind of life-cycle approach favoured by groups such as Worldsteel, Thimmiah and Barrett say.

This approach would also allow steelmakers to work with distributors and end-users to reduce the total GHG emissions of their products across the supply chain. This could help cement relationships with customers and would mean the responsibility for combating climate change would not be so focused on industry, they add.

Germany switches sides to approve CO2 benchmarks

The proposed benchmarks for industrial greenhouse gas emissions are no expected to be confirmed by the European parliament later this year. Eurofer still believes that they have been set too low and estimate that the European steel industry could face additional costs of some €1.5-3bn per year. According to SBB‘s broad estimates this could add some 2.5-5% to average European integrated steelmaking costs. However, the most efficient plant in Europe is more likely to see an increase of under 0.5%.

SBB 20 December 2010 The greenhouse gas (GHG) benchmarks for the European steel sector were approved last week after the German environment ministry abandoned its opposition, Steel Business Briefing understands.

The German environment ministry had opposed the benchmarks, presumably as they were too low, and had the power of veto. However, it changed its position to vote in favour at the last minute. The ministry simply “didn’t feel much support” for its view from other governments and decided to compromise, it tells SBB. It described the final decision as well balanced.

The benchmarks will be used to determine the volume of free emission allowances given to the steel industry in phase III (2013-2020) of the European Emissions Trading System (ETS). Polluters which have insufficient allocations to cover their emissions will have to buy in more permits.

Indeed, the agreed benchmarks are still ‘far below where they need to be’, Eurofer’s Axel Eggert tells SBB. They supposedly represent the average of the 10% most efficient plants in terms of GHG emissions, but the benchmark for blast furnaces is still some 7% below the most efficient in Europe, Eurofer suggests.

The result will lead to significant added costs for steel companies in Europe “compared to steel companies that produce steel in regions which do not have similar CO2 costs’, warns ArcelorMittal in a statement sent to SBB.

EU maintains 20% target, but highlights low incremental cost of 30%

The European Commission report of 26 May highlights the relatively low costs of moving to a 30% target, but suggests that it would only have a “limited” incremental effect on carbon leakage, so long as free allowances and access to international offsets stay in place for industries such as steel. It says border adjustments would also be an option, but it would be hard to make them compatible with WTO requirements.

SBB 27 May European steel producers’ federation Eurofer has expressed relief at the decision by the European Commission not to increase its target for reducing greenhouse gas emissions.

At a feasibility study meeting yesterday, the commission decided against proposing a move from a reduction of 20% to one of 30% by 2020 compared to 1990 levels of EU greenhouse gas emissions.

Eurofer has been lobbying intensively against what it saw as a “unilateral” move that could have harmed the competitiveness of the European steel and manufacturing industries, and result in carbon leakage, as Steel Business Briefing has reported.

This could have led to production moving outside Europe while simultaneously not providing any significant improvement in carbon dioxide efficiency, argues.

However despite yesterday’s decision, the 20% reduction target will still be tough to meet, Eurofer director general Gordon Moffat claims. “This [20%] comes on top of earlier moves [to cut emissions],” he tells SBB. “It will require investment in new technology,” he adds.

US power utilities push for exclusive cap + trade

A recent Reuters reports suggests that US power utilities are pushing the Senate for a cap and trade scheme that would initially, at least exclude steel mills. Would this be good for the steel producers? They would certainly not have to face the threat of carbon leakage in the immediate future, and could gain from new orders for wind turbines

Iron and Steel Generates 5% of World CO2

The iron and steel industry is responsible for at least 5% of global energy-related carbon dioxide emissions. Though inter-governmental talks on setting specific emission targets for future years seem to be going nowhere, most governments agree that much needs to be done to reduce such discharges. The steel industry stands to gain as well as lose from such developments. For further information please click here

 The SBB Green Steel Summit will examine the various ways that the steel industry’s emissions are being viewed and highlight the ways in which steel producers and consumers, as well as industry suppliers and analysts, need to prepare themselves for the likely changes.

The recent failure of the Copenhagen talks to identify a clear follow-up to the Kyoto Protocol has removed some of the earlier impetus for governments and companies to take action on sustainability. SBB believes that this hiatus provides an opportunity for the steel industry to examine its priorities at an independently-hosted meeting.

Many in the industry believe that a full life cycle analysis of the industry’s finished production shows that its CO2 footprint is not as substantial as it might first appear. The widespread reuse of steel in electric arc furnaces, as well as in the converter in integrated producers is clearly a key factor in this view.

In contrast, many governments and pressure groups take a narrower approach. On the one hand, they believe that steel should broadly be subject to the same rules as other manufacturing industries. On the other hand, they also generally accept that stringent controls of emissions would place their steel sectors seriously at risk from carbon leakage (which would involve a shift in steel-making to countries with less rigorous CO2 regulations). The extent of any leakage will depend though, on the price of carbon allowances; currently it is relatively low.

Carbon leakage is of most concern in Europe and North America. At present, it is unclear if the USA will adopt cap and trade legislation as in Europe. However in the long term, carbon emission regulations, whether they be through carbon taxes, direct emission limits or a market based mechanism (such as cap and trade) are expected to reshape the industry. Most expect to see steel-making move to countries such as India, Brazil and Russia.

To counter this, many in the steel industry in North America and the European Union are urging governments to tax steel imports from countries that have lax or no emissions’ legislation. The SBB Green Steel summit will examine these moves and to what extent they are consistent with WTO rules.

Meanwhile in Europe, negotiations are currently focussing on some form of plant-based benchmarking to operate alongside the cap and trade legislation.  This would give free allowances to only a handful of the most efficient steel makers. Others could face harsh cost penalties.

At the same time, many steel consumers, particularly in the car and construction industries are increasingly looking to buy steel manufactured through sustainable routes. This is likely to give an edge to EAF producers, which emit far lower levels of CO2/tonne of steel. But in the future, if insufficient scrap is available in appropriate qualities, then EAF producers may also want to switch to DRI/HBI and or pig iron. The SBB Summit will look at these possibilities, and their availability.

Other industrial sectors such as power generation are also facing the need to buy carbon emission allowances; to mitigate this they are already looking to buy steel of higher grades and in larger volumes. Wind turbines, for example, are quite steel intensive. Car manufacturers too want lighter but tougher steels for new hybrid vehicles to emit less CO2.

At the end of the day, steel makers may be forced to invest in new technologies. The blast furnace route necessarily involves the emission of CO2 from its use of coke. New technologies require R&D, and steel makers are looking for government support for this. Most of the so-called “breakthrough” technologies now under discussion involve the use of Carbon Capture and Storage (CCS). The SBB Washington Summit will examine these proposed technologies and their likely positive and negative impact on the steel industry.

By Roger Manser