MAC: Mines and Communities

The Great Steal

Published by MAC on 2007-10-10

The Great Steal

10th October 2007

China's steel industry contributes some 3% to Global Greenhouse Gas Emissions (GGE). The spectacular growth of its blast-furnace-based steel industry now renders the country responsible for half the sector's global emissions, according to a survey in the Financial Times.

As a whole, steel production accounts for between 5% and 6% of "man-made" CO2 emissions - placing it just ahead of cement manufacture and "far ahead of any other industrial sector".

Seeking to put an optimistic spin on the industry's responsibility as a whole for global greenhouse gas emissions, the International Iron and Steel Institute (IISI) claims that the sector contributes only 3-4% of worldwide, man-made, GGE and that a new data collection scheme will set environmental standards for steel production. China's own Iron & Steel Association says it backs the move.

However, implementation of the plan won't occur until 2012; it will be voluntary not mandatory; and, according to Reuter's PlanetArk, the IISI has given "no indication of how it believed emissions should be reduced."

FT REPORT - STEEL: Climate change poses stern challenge

By Chris Beauman, Financial Times

8th October 2007

If the world is to make radical reductions in carbon intensity, the steel industry has a lot to do.

It accounts for 5-6 per cent of man-made carbon dioxide emissions. It is one of the giants among the direct emitters of manufacturing industry, accounting for 27 per cent of the total - just ahead of cement and far ahead of any other industrial sector.

Ninety per cent of the sector's emissions come directly from the primary blast furnace method, which accounts for 60-65 per cent of steelmaking.

The principle alternative process, the electric arc furnace (EAF), indirectly contributes 10 per cent of emissions, but is limited by the availability of scrap and scrap substitutes. The spectacular growth of China's blast-furnace-based steel industry now gives it half the sector's global emissions.

The Stern Review, produced by an adviser to the UK government, gives steelmakers a daunting challenge. If carbon finance is to be the principle weapon with which to fight climate change, how can the pioneers avoid adding to industry costs and accelerating relocation to countries outside the system? Discussions in Brussels and in Bali in the next few weeks may help answer this question.

The steel industry in the European Union is at the heart of this debate. It is currently very profitable. But it is now part of the EU Emissions Trading Scheme (EU ETS), which was set up to demonstrate EU leadership on climate change.

So far, the scheme has pushed up power costs for EAF steelmaking but has had little, if any, financial effect on the EU blastfurnace based industry. In 2005-2007 the sector was over-allocated rights to emit. In 2008-2012 the allocation will be stricter.

In July 2007, Michel Wurth, a board member at Arcelor Mittal, said in Poland: "By cutting the allocation of CO 2 quotas, the European Commission will limit our growth opportunities in Europe and encourage a surge of imports from countries unaffected by such controls." But overall 90-100 per cent of allowances will be given out free.

The much more serious crunch comes after 2012. The EU needs to achieve a high CO 2 price within the EU ETS, if it is meet its tough self-imposed targets for 2020 and drive carbon-intensive sectors (especially power) to make big adjustments in their processes. It is discussing auctioning, rather than free allocation.

Some experts think €40 a tonne may be necessary - equivalent to about €80 per tonne of steel.

The power sector can switch to gas, it can develop nuclear or renewables, and if its costs do rise, its customers will have to pay. The steel industry has no immediate technological fixes, and faces severe international competition. The EU blast-furnace-based industry could be at risk. At worst, steelmaking might migrate to lower-cost locations with higher CO 2 intensity - a perverse result.

Eurofer, the European steel industry confederation, has said the EU ETS "ignores global reality as far as the steel industry is concerned". It has sought to develop an alternative "baseline and credit" scheme that would encourage industry best practice and penalise the worst performers. It will be a daunting task to persuade EU governments that the sector is a special case.

The threat to the EU steel industry posed by the EU ETS is just one factor amid a range of competitive issues. The industry competes primarily on quality and service. It operates within a globalised environment and can source semi-finished or finished steel from lower-cost locations; its big investments in Brazil and Ukraine will assist it to do so.

But it is not easy to construct major new capacity either in these export-driven countries, or in Russia and India with their booming home markets. However, if the industry's strategists see a revamped EU ETS as a permanent burden, then they will plan accordingly.

In the short-term the biggest opportunities for CO2 savings are energy-saving investments in Russia and Ukraine (assisted by the Joint Implementation mechanisms of the Kyoto Protocol), as well as in the older works in China.

Post-2020, technological breakthroughs will be indispensable. It is the traditional OECD steel industries, along with the leading steel plant manufacturers, who should provide them.

Through the International Iron and Steel Institute (IISI), they have sought to co-ordinate research and development. In the EU this is embodied in the Ultra Low Carbon Steel project (ULCOS), co-financed by the steel sector and the Commission, and which aims to achieve a 50 per cent CO 2 reduction per tonne of primary iron produced.

ULCOS is pursuing radical alternatives to the conventional blast furnace route, new techniques for steel smelting, and attempts to integrate steelmaking with new reduction techniques and with carbon capture and storage. Similar programmes are active in the US and Japan. This will soon require serious funding for pilot projects - who pays?

Globally, the industry will want to contribute to any decisions on post-2012 CO 2 targeting that may be taken at the United Nations Framework Convention on Climate Change (UNFCCC) conference to take place in Bali in December.

The IISI has initiated discussion of transnational sectoral agreements, which could form part of an agreement between today's "Kyoto Annex 1" countries and the high-growth developing countries, especially China and India. Any industry-wide policies require compatible systems to measure CO 2 , for which the IISI has also taken the lead.

The steel industry is carbon-intensive in what is an increasingly carbonconstrained world. It needs post-2012 frameworks that are workable for a competitive sector operating within diverse economies.

It has a reputation to maintain both with governments and with investors. It will need bold leadership.

[Christopher Beauman is a senior adviser at the European Bank for Reconstruction and Development]

World Steel Makers to Collect Global Climate Data


10th October 2007

BERLIN - The world steel industry has agreed a global approach on climate change with voluntary collection of pollution data, world industry body International Iron and Steel Institute (IISI) said on Tuesday.

"This involves the collection and reporting of carbon dioxide emissions data by steel plants in all the major steel producing countries," the association said at a news conference at the IISI annual steel congress in Berlin.

"Establishment of the data on a common and consistent basis is the starting point for the setting of (emission) commitments post 2012 on a national or regional basis," an IISI statement said.

The steel industry in North America, west Europe and Japan had reduced energy consumption per unit of production by 49 percent in the last 25 years, it said.

The IISI said the global steel industry accounts for just 3 to 4 percent of world man-made greenhouse gas emissions.

"Over 90 percent of steel industry emissions come from iron production in nine countries or regions: China, the European Union-27, Japan, US., Russia, India, Brazil, Ukraine and Korea," it said.

"Constraining production from the best emission performing plants is not the solution for a globally competitive industry such as steel," said Philippe Varin, IISI executive committee member and CEO of European steelmaker Corus.

"An effective approach for the steel industry requires the participation of all major steel producing countries and a focus on improving emissions per unit of production."

The IISI gave no indication of how it believed emissions should be reduced.

"We need first to collect the data, making commitments before we have the data would not be meaningful," said Varin. Varin said the cost of carbon dioxide emissions was "a very considerable burden" for the steel industry.

Carbon emissions between 2008-2012 would cost about 25 euros a tonne, he said.

"If you assume that this could be as high as 40 euros after 2012 this could add 60 to 70 euros to a tonne of steel," he said. Varin said he believed China's expanding steel industry would participate in the scheme. Environmental protection and energy conservation was now moving up China's political agenda.


China trade body backs check on steel emissions

By Peter Marsh in Berlin

Financial Times

10th October 2007

China's main trade body for the steel industry has thrown its weight behind an effort to combat global warming by monitoring worldwide emissions of carbon dioxide by steelmakers.

The China Iron and Steel Association, which represents companies producing three-quarters of the country's steel, is backing a proposal announced yesterday by the International Iron and Steel Institute, a Brussels-based business organisation for the world's top steelmakers, whose members include companies responsible for only about a fifth of China's steel output.

The institute's project will encourage most of the world's leading steel producers to share data on how much carbon dioxide they produce - a step that could lead to standardised methods to cut down emissions using new technologies.

Zhang Xiaogang, chairman of the CISA, told the FT: "[The IISI proposal] is a good idea. Every iron and steel company in the world should be trying to do something to reduce carbon dioxide output."

Approval of the IISI plan by Chinese steelmakers is essential to the project having any chance of succeeding in cutting emissions by steel plants, which are estimated to contribute 4 per cent of the world's output of man-made greenhouse gases.

China, the biggest steel producer, is responsible for more than a third of the world's output. The country's production of the metal has soared in the past decade.

However, because Chinese steelmakers use relatively old-fashioned technology that creates more carbon dioxide than do plants in western Europe, Japan and the US, they are believed to be responsible for 51 per cent of all the carbon dioxide made by steel plants.

Mr Zhang said he thought the country's largest steelmakers - such as Baosteel, Anshan Iron and Steel and Wuhan - would back the project and offer to monitor their carbon dioxide emissions in a standardised manner to allow global comparisons to be drawn.

Mr Zhang combines his CISA role with being president of Anshan.

However, he acknowledged it would be hard to persuade many smaller Chinese steelmakers - many have extremely rudimentary steel making methods that emit a lot of carbon dioxide - to join the scheme even if they were members of the CISA.

Ian Christmas, director general of the IISI, said he hoped a large number of the world's biggest steelmakers would join the effort that could lead within a few years to the drawing up of league tables that could differentiate between the best and worst companies in terms of emissions.

Such standards could form the basis for benchmarks used by governments to award licences to steelmakers to emit carbon dioxide on the basis of how good their technologies for dealing with the gas were.

Copyright The Financial Times Limited 2007


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