Steelmakers may still be concerned about the cpotential costs of Europe’s Emissions Trading System. Although costs will likely be less than estimated by many (see below) the additional cost of power is still a worry. However, this does not change the fact that captive power supply should still cut costs. Power generators expect to be able to pass on thier costs from the ETS to customers in full. As such the additional cost to captive production should be equal to the additional cost of buying in power. Meanwhile, steelmakers with captive power will be able to choose how to allocate their allocated carbon credits, potentially making their additional costts lower.
Platts SBB News – 1 June 2012 German steelmaker Salzgitter is around 60% self-sufficient in electricity across its strip steel plant in Salzgitter and its Peiner beams mill. The electricity generated at the strip mill site – by two in-house power plants – has an annual market value of around €150m, the company told Platts Steel Business Briefing.
The two 110 megawatt units were finished a few years ago and have since been optimised. Strip production in Salzgitter is now 92% self-sufficient, whereas the Peiner meltshop still relies 100% on external power suppliers.
Together, the Salzgitter stations produce roughly one terawatt of power per year, all of which is consumed on site, the company said. Self-supply creates an annual saving for the company of up to €25m, according to the firm’s spokesman.
However, changes to the European Union’s emissions trading scheme for carbon-dioxide from 2013 onwards could mean that Germany’s steel industry incurs extra costs totalling up to €485m/year, according to Salzgitter’s comments to the German press.
This action would add additional costs of between €17 and €37 per tonne of steel produced, according to Salzgitter’s ceo, Heinz Jörg Fuhrmann.
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.
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.
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.
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.