Eurofer wants more EU support for steel decarbonisation

Market: Electricity, Emissions, Hydrogen, Metals
19/03/21

The European Steel Association (Eurofer) has called for more free emissions allowances for the steel industry, targeted funding and the combination of a carbon border adjustment mechanism (CBAM) with the current emissions trading system (ETS).

In a discussion about EU climate policy hosted by Eurofer, the association welcomed the EU's plan to introduce a CBAM by 2023, but said free emissions allowances will still be necessary in order to protect EU steel exports.

The EU countered that a combination of ETS and CBAM would not be compatible with World Trade Organisation regulations except during a transition period between the two and that free emissions allowances will be phased out.

Eurofer agreed with the EU's proposition for a transition period from the ETS to the CBAM, during which time both policies would be active, as long as this period lasts for about 8 years.

Eurofer also called for more free emissions allowances to be allocated to the steel industry, saying that "in a normal year, the steel industry is short of free allowances by 20pc". But the EU intends to phase out free allocations as it introduces the CBAM, which it considers to be "preferable to the ETS as it would make producers pay carbon costs in the EU and externally and not have that cost distorted by free allocations", a representative said yesterday.

Eurofer called for EU revenues generated by the ETS to be focused more directly on industry. Most ETS revenues are handed out to EU member states, under the condition that half of them are spent on climate action. The EU allocates 1-2pc of ETS revenues to its €30bn innovation fund for industrial decarbonisation projects.

Eurofer says that in order to achieve the emissions reduction targets set out in the Paris agreement, the European steel sector will need an estimated 400TWh of carbon-free energy in 2050, about seven times more energy than it buys annually from the grid today.

There is no guarantee yet that competitively priced green hydrogen will be available in the coming years.

But some steelmakers have invested in cross-sectoral renewable energy projects for hydrogen production. Last week, German steelmaker Salzgitter started testing its new wind power plant located on the site of its steelworks facility. The plant has a total capacity of 30MW and will generate 450 m³/hr of hydrogen. Over time, Salzgitter plans to replace its three blast furnaces at the site with a direct reduction iron (DRI) plant and electric arc furnaces.

In Norrbotten in northern Sweden, new company H2 Green Steel intends to build an integrated steel mill where DRI will be produced using hydrogen from a large-scale electrolyser powered by water and wind energy. The company intends to produce 2.5mn t/yr of hot-rolled and cold-rolled coil by 2026 and 5mn t/yr by 2030, with initial production pegged for 2024. Construction on the plant will begin in the first half of 2022. The firm has pointed to what it sees as an abundance of renewable energy in the region, and the steel mill will be located near the Lule alv river, which generates 14-15TWh. H2 Green Steel expects regional energy prices to fall over the long term, with new projects such as the 1.6GW unit 3 at the Olkiluoto nuclear plant and the 43.2MW Kokkoneva onshore wind farm in Finland scheduled to start production in the first quarter of 2022.

Companies producing low-carbon steel will face the question of how to market higher-priced products. Eurofer said it believes there will be a market for green steel by 2030, but did not clarify how this would come about. Global steelmaker ArcelorMittal is trying to find a way to pass on to buyers the higher costs of low-carbon steel production by offering to sell "green steel certificates" under its new brand, XCarb, launched this week. The company intends to market 600,000t of "certified green steel annually by 2022". One of the largest investors in H2 Green Steel is Swedish truck manufacturer Scania, which has expressed its intention to buy from the steel firm. "By investing in and partnering with H2 Green Steel, we are now further accelerating the journey towards emissions-free products across the whole value chain," Scania said.

By Brendan Kjellberg-Motton

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