Carbon reduction initiatives spur debate

SBB 25 April  The merits of the European Union’s Emissions Trading System and other carbon reduction initiatives generated a spirited debate during Platts Steel Business Briefing’s third-annual Green Steel Strategies conference in Berlin.

A panel including; Steve Rowlan, Nucor’s gm of environmental affairs; Baroness Worthington, a member of British Parliament and founder of Sandbag; Christopher Beauman, senior adviser to the European Bank for Reconstruction and Development; and Mike Romano, vp of strategic accounts for NALCO; discussed the challenges of operating under current and proposed mandates.

Worthington argued a number of European steelmakers are “sitting on a large set of allowances” under the EU’s carbon trading scheme, as emissions have been below previous estimates.

Some say that’s simply due to reduced steel production amid the recessionary economic climate, and when one panelist questioned whether steel producers believe in the initiative, Worthington fired back: “It’s not whether you believe in it or not. It’s not a ghost or God. It’s actually a functioning policy that’s in place right now to bring carbon [emissions} down.”

Many involved in European carbon trading argue there should be intervention to prop up the sagging carbon price (a result of surplus emissions), such as a set-aside of allowances, as low prices do nothing to spur investment into new technology.

European steelmakers have told Platts SBB there should be no “manipulation” of the market, which is just designed to cut emissions.

Rowlan said cap-and-trade initiatives like those in place in Europe and being considered in the US put steelmakers at a cost disadvantage to competitors in regions without such policies. “To an industry that wants to be competitive, it is all about cost,” he said. “How does the steel industry survive?”

Beauman conceded higher costs “are inevitable” in the effort to reduce global CO2. “The question is at what spread and at what fairness?” he said.

Still, Romano said unproven and costly technologies like carbon sequestration aren’t the answer in the near term. “The technologies aren’t coming to the forefront in the next five years,” he said.

European mills see differing profits from carbon credit sales

In the current period of the European Emissions Trading System, steelmakers have been left with a surplus of carbon credits. This surplus may be reversed as restrictions on emissions become more stringent from next year onwards but for now these credits are a tempting way to bolster ailing balance sheets. However, the key to getting the most out of these credits is a proper strategy and some steelmakers are achieving almost double the return per credit as others, as this story from Platts Steel Business Briefing’s Daily Briefing shows.

SBB 19 March – SSAB sells surplus carbon credits as emissions fall

Sweden-based steel producer SSAB saw greenhouse gas emissions at its European plants decline in line with production last year to 5.5m tonnes of carbon dioxide. The company also took the opportunity to bolster its balance sheet by selling 4.1m surplus carbon credits.

SSAB earned SEK 275m ($40.47m) from the sale of carbon credits last year. This would suggest it earned just $9.87 for each of the credits.

The company sold most of the credits towards the end of the year when SSAB’s blast furnaces were running at low utilisation levels, a SSAB spokesperson says. Carbon credit prices fell sharply in Q4, Platts SBB notes.

ArcelorMittal earned an average of $18.6 per credit last year, indicating a more sustained sale of credits through the year, analysts suggest.

As part of the European Emissions Trading System (ETS), steelworks must report their greenhouse gas emissions and hand over one carbon credit for each tonne of carbon dioxide equivalent emitted. In the current trading period (2008-2012) steelmakers have been given sufficient carbon credits to cover their emissions. In fact they have received more than they have so far used as the allocation was calculated before the 2008 financial crisis and so actual emissions have been lower than previously expected.

SSAB was granted 36.7m credits for 2008-2012 and now has 7.5m remaining to cover emissions this year. SSAB could therefore have more credits to sell unless it increases its European steel production by around 36%. Platts SBB calculates.

EU OKs compensation for big energy users hit by power costs

European steelmakers have oft bemoaned the costs of emissions trading systems. This includes the indirect costs from higher energy prices as weell as the direct costs of emitting greenhouse gases. Now the European Union has agreed to allow some compensationfor higher electricity prices. Although this will not eliminate the added costs to steelmakers, it should, if memebr states provide the cash for compensation, mean that the future of EAF steelmakers in Europe will be decided by market conditions, not by environmental regulation.

SBB 24 May The European Commission has adopted a framework under which member states may compensate high energy users, including steel producers. This is in response to the higher electricity costs expected to result from a change to the EU Emissions Trading Scheme as from 2013.

The regulation will allow subsidies of up to 85% of the increased cost faced by the most efficient companies in each sector from 2013 to 2015, a cap that will gradually fall to 75% in 2019-2020.

However, European steel industry body Eurofer says that is grossly insufficient and will not restore the level-playing field with competitors outside the EU.

At first glance, the most impacted products (EAF steel and downstream) would be covered by a maximum 50-60% of the indirect CO2 cost, should member states give the maximum they are allowed to as per guidelines, a spokesman for Eurofer told Platts Steel Business Briefing in an emailed response to questions on Wednesday.

“Given the current economic situation and the state of public finance in the EU, we don’t expect member states to give away much,” he added.

China’s steel industry tops 20m UN carbon credits

Earlier this year, China’s steel industry earned its 20 millionth carbon credit. Projects such as the Clean Development Mechanism have helped steelmakers, especially in China and India, to find financing for energy efficiancy investments. With India introducing its own energy efficiency certificate trading suystem and China looking at various ways to price carbon these kinds of scheme are likely to continue aiding investment. To hear what other factors are driving investment in the steel industry come to SBB’s third annual Green Steel Strategies conference in Berlin on 19-20 April.

Platts SBB 10 February The total number of Certified Emission Reductions (CERs) issued to the Chinese steel industry crossed the 20 million mark this week, Steel Business Briefing understands. 33.5m CERs have now been issued to steelmakers globally.

820,320 CERs were issued to China’s Jinan I&S on 8 February, taking the company’s total issued CERs to over 5.9m. The market value of CERs has fallen to around €4/t currently but Chinese steelmakers have mostly entered into contracts with a price of around €7-8/t, analysts tell SBB.

CERs are issued by the UN’s Clean Development Mechanism to projects which lower greenhouse gas emissions. One CER is given for a reduction in greenhouse gas emissions equivalent to one tonne of carbon dioxide.

Jinan I&S earned the latest batch of CERs from a plant it has built to generate power from waste gases at a blast furnace and coking oven at its plant in eastern China’s Shandong province. The plant reduces CO2 emissions by over 2m t/y.

China and India dominate CER issuance in the steel industry, accounting for over 97% of CER granted to the industry. Jinan I&S is the second biggest beneficiary after India’s JSW Group.

Eurofer expects EC to ‘stick to the rules’ on climate change

With international climate change negotiations still making slow progress, regions are taking their own steps to tackle the issue. Steelmakers’ associations, concerned by the added cost to their members, have fought a rearguard action against stricter emissions regulations. Both European Commission’s DG Climate Action and Eurofer have argued firmly about what measures are and are not legitimate. But what is clear is that the steel industry will have to adapt to a more regulated and greener economy. To learn how the industry can adapt to, and even profit from, increased regulation, come to SBB’s third annual Green Steel Strategies conference in berlin on 19-20 April.

SBB 26 December Some EU member states are in favour of moving to a 30% carbon emission reduction target and the European Commission will present a member state-led study of the investment benefits of a 30% target in the first half of 2012, the commission tells Steel Business Briefing.

However, Eurofer says it “does not see how [the] Durban [conference] could have given grounds for any stricter targets in the period before 2020”. In particular, any increase in EU targets is to be linked to binding reductions in other regions. “None of the conditions set by the EU Emissions Trading System (and set in the ETS) have been fulfilled in Durban,” Eurofer notes.

One source states that following the relative success of international climate change negotiations in Durban, proponents of faster reductions have “more energy”.

The European Court decided to include non-EU airlines in the ETS; The commission released guidelines on state compensation for higher energy prices resulting from the ETS; and the European Parliament’s environment and industry committees have approved the removal of 1.4bn carbon phase 3 carbon credits from the ETS, in order to strengthen prices.

Before the set-aside takes effect it must be first voted in by the parliament’s industry committee, the EU member states and the plenary session of the parliament, explains Carine Hemery of carbon market analysts, Orbeo. This is unlikely to be complete before June.

EU carbon compensation may meet 60% of steelmakers’ need

EAF steelmaking produces significant;y less carbon dioxide directly than integrated steelmaking. however, EAFs are far more vulnerable to increasing energy prices. EU compensation is necessary to maintain the competetiveness of the industry. For more information on how steelmakers, rollers and distributors can ensure their businesses are economically, as well as environmentally, sustainable, come to Steel Business Briefing’s third annual Green Steel Strategies conference in Berlin on 19-20 April.

SBB 22 December The European Commission (EC) released, on 21 December, its guidelines on state aid for industry to compensate industry, including EAF steelmakers, for higher electricity prices as a result of the Emissions Trading System (ETS). However, the provision could mean only 60% of steelmakers’ additional costs are met, Eurofer tells Steel Business Briefing

Elements of the document are unjustified, agrees Ian Rodgers, policy director of UK Steel. One key issue is that the document calls for a maximum of 85% of the theoretical additional costs to be compensated, falling to 80% in 2016-2018 and 75% in 2019-2020.

The EC argues that this is to incentivise less efficient facilities to invest in energy efficiency. However, UK Steel argues that this is unnecessary as the calculation of theoretical costs already includes a benchmark. This means that only the most efficient plants could possibly receive full compensation.

The theoretical costs are also calculated using production levels from 2005-2011. For much of this period Europe was in recession and production levels were abnormally low. This would mean lower levels of compensation for EAF plants, the associations complain. Furthermore, the EC can only give a maximum figure for compensation, meaning EU member states could actually give less than this in reality.

Eurofer hopes that EU member states will support its views and force a revision of the document by the end of the consultation period in January. Germany is likely to support amendments, SBB understands and UK Steel confirms it will ask the UK government to act.

Emissions trading should cost steelmakers less than expected

The changing state of the European carbon markets has led analysts to regularly alter their price forecasts for phase two of the Emissions trading System (2012-2020). New forecasts suggest the cost of carbon trading to Europe’s steel industry could be some €8bn less than Eurofer’s first estimates. To see how environmental regulations will affect your business and how you can make your company competetive in a greener economy, come to Steel Business Briefing‘s third annual Green Steel Strategies Conference in Berlin on 19-20 April. For more information, click here.

SBB 2 December The cost to steelmakers of the European Emissions Trading System (ETS) is likely to be far below initial Eurofer estimates because of a collapse in carbon credit prices, Steel Business Briefing estimates. According to the latest price forecast by Barclays Capital, the true cost of the ETS in 2013-2020 could be around two thirds of its earlier estimate.

However, the effect on producer margins could still be disastrous, Eurofer says. Any additional cost is expected to reduce profits, not increase prices, it notes.

According to a Barclays Capital’s forecast of €22 per EUA on average over 20113-2020, the total cost to the steel industry in that period would be around €15.9bn, compared with Eurofer’s first estimate of €24bn. €8.2bn of the costs would be faced by integrated producers, €400m as direct costs for EAF producers and €7.3bn as indirect costs because of higher energy prices for EAF producers, Eurofer calculates.

Eurofer confirms SBB’s calculation that an average price of €22/t would mean an increase of approximately €5/t on average in 2013-2020 in theoretical production costs for EU integrated steelmakers with the lowest emission, more for those which are more polluting. Meanwhile, EAF steelmakers could see added costs of €7.6/t.

This does not account for any offsetting with even cheaper UN carbon credits or using up credits saved during 2008-2012. During this period, steelmakers received far more free carbon credits than they needed. The true cost is therefore likely to be less than €5/t for the low-emission steelmakers.

Tata Steel welcomes UK carbon compensation plan

SBB 30 November The UK chancellor of the exchequer (finance minister), George Osborne, yesterday announced a £250m (€293m) package to compensate the country’s energy-intensive industries, including the steel industry, for higher energy prices relating to carbon dioxide emissions regulations. The move is a “step in the right direction,” Karl-Ulrich Köhler, Tata Steel’s managing director and chief executive in Europe, tells Steel business Briefing.

Although the exact details are not yet available, this “should probably be adequate for steel producers,” Jeremy Nicholson, director of industry lobby the Energy Intensive Users Group, tells SBB. The steel industry could receive somewhere in the region of £30m per year in compensation, the group believes.

Indirect compensation for the EU’s Emissions Trading System (ETS) can be carried out in accordance with EU guidance, which is currently being drafted. The ETS forces industrial units to account for their carbon dioxide emissions using carbon credits, which can be bought on the market.

Compensation for the UK’s Carbon Price Floor (CPF) is likely to require approval from the European Commission under state aid regulations. “So it is not yet clear whether 100% or some lesser amount of the CPF impact on electricity prices will actually be compensated for by the time the measure receives approval (assuming it does),” Nicholson points out.

“Some of the most crucial detail remains unclear and this relief could be short-lived,” Köhler warns. He also welcomed a number of other measures announced in the chancellor’s report.

Steel industry may support carbon prices in medium term

SBB 14 October Demand for carbon credits from the European steel industry will help to support prices in phase III (2013-2020) of the European Emissions Trading System (ETS) says carbon trader and researcher, Marius Frunza. This source of demand has not been properly factored in by many carbon market analysts, Frunza claims.

As steel production was cut in the aftermath of the financial crisis, the industry was left with an over-allocation of European Union Allowances (EUAs). But from 2013 the industry will need to buy in EUAs, especially if production levels are high. This will result in an entirely new source of demand for EUAs, Frunza points out.

On the other hand, the surplus EUAs built up over 2008-2012 could take some time to be exhausted and so the effect on EUA prices may not be large, counters Barclays Capital’s Trevor Sikorski. The electricity sector will continue to be the main source of demand for EUAs in 2013-2020 and so should have a far more significant effect on prices, he adds.

In the short term, with the eurozone debt crises unresolved, EUA prices are unlikely to move from their current levels, Frunza believes.

UK steelmakers face jump in energy costs

The way in which governments choose to price carbon is a sensitive issue. A global price would ensure that there is no damage to the competitiveness of any aprticular region. However, this can only happen through an international climate change treaty. In the mean time differing carbon pricing regimes will lead to differing costs. The UK’s decision to set a minimum price for carbon credits is likely to lead to higher costs for UK steelmakers relative to their European counterparts. Some of this extra cost is likely to be compensated.

SBB 3 August UK wholesale gas prices which influence power prices have risen strongly in recent months and, to a lesser extent, electricity costs also, Jeremy Nicholson, director of the Energy Intensive Users Group tells Steel Business Briefing. This is especially visible for those currently renewing annual contracts. “Although the wholesale gas price is quite competitive compared to continental Europe, it is at a premium to the US, which has a current oversupply,” he adds.

He continues: “From 2013, the carbon floor price will be introduced by the UK government in order to increase competition for renewable; anyone taking out two-year contracts now will see these increases priced in”. Compared to a year ago power costs have increased by 10-20%, depending on when deals were made, he adds.

He continues: “The current trading price of carbon is around €13-14/tonne of CO2 emitted; the carbon floor price will be around £16/t and in addition to raising the costs for coal/gas power generators and therefore steelmakers, this will not be able to be passed on as it is a UK-only tax, leaving a discrepancy with European counterparts, such as Germany which has an exemption”.

Previous government estimates say carbon factors have already added some 20% to costs compared to year ago. However a new analysis says these could reach 31-51% by 2020, which per year is a more optimistic estimate, Nicholson says. He adds, however, that this analysis could be an underestimate.

The current wholesale electricity price for industrial users is just over £50/MWh, with delivery and supply added it is around £70-75/MWh.