REDUCING CO2 IN CARBON-INTENSIVE SECTORS(ESPECIALLY STEEL): SHORT-TERM COMPETITIVENESSISSUES/LONG-TERM PARADIGM CHANGES
Christopher Beauman, Senior Adviser, European Bankfor Reconstruction and Development (in a personalcapacity)(beaumanc@ebrd.com)
A world that seeks to decarbonise poses sharp
problems for carbon-intensive industry. Energyintensive sectors make a disproportionate
contribution to CO2 emissions from industry: threesectors, iron and steel (integrated works), nonmetallic minerals (mainly cement), and chemicals
and petrochemicals account for 70% of directindustrial CO2 emissions. But other sectors, suchas aluminium, iron and steel (electric arcfurnaces), and pulp and paper, are electricityintensive, and account indirectly for substantial
emissions in power supply.
Most of these industries are international. They
compete on cost, on quality and on service. If
climate change policies increase costs in one
country, but not in another, then operations andjobs could move to where costs are lower – “carbonleakage”. If they move from an efficient producer
to a less-efficient producer, this might actually
increase CO2 emissions.
Of these industries, the iron and steel sector isthe most challenging case-study. The integrated
route accounts for 60-65% of steel made and about
2bn tons of CO2. Globally, the production of steel
is now rising fast, principally because of China,
whose production has increased from 150mt in 2001
to 489mt in 2007. This has transformed thecompetitive situation in the steel industry, making
access to raw materials critical and placing newpressures on the integrated steel businesses of theEU,Japan and Korea which rely on sea-borne rawmaterials. In this situation, they strongly oppose
additional burdens from climate change policies.
What are the implications of this for a steel
industry pathway to 2050? Unfortunately there areno quick technological fixes – the classic
integrated works cannot easily be decarbonised.
Steel industry leaders, coordinated through theInternational Iron and Steel Institute (IISI), arenow co-funding work on more radical “breakthroughtechnologies”, including CCS, new smelting
processes based on hydrogen and electricity, andcarbon from sustainable biomass.
One solution proposed to address CO2-intensive
industries is Sectoral Approaches or Agreements(SAs). SAs could set benchmarks of CO2 intensityand encourage the fast diffusion of best practice;they could also provide a framework for publicprivate partnership to achieve technologicalbreakthroughs. Beyond this, SAs could also provide
incentives to reward best practice and penalise
less-good practice. But if they are to avoid
competitive distortions, they would also require
global participation. If global SAs prove
impossible, then the steel industry will call for“border tax adjustment” to limit “carbon-unfair”
imports.
On the road to 2050, the steel industries of the EUand Japan will need to demonstrate theircontribution to decarbonisation by (a) accelerating
the development and implementation of “breakthroughtechnologies” (b) engaging with the steel
industries of emerging – and competitor – countries
such as China to accelerate similar implementationand (c) cooperating with customer industries indeveloping lower-weight, higher value products.
These changes will be disruptive. They require“deep paradigm changes” (IISI). But the stakes arehigh – 2bnt of CO2 in integrated steelworks (andgrowing), more indirectly in electric arc furnaces.