Posts Tagged ‘Steel Business Briefing’

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.

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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.

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 http://www.steelbb.com/greensteel/washington10/

 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