Chinese steel investment needs to avoid lock in: CBI

Spanish Market: Hydrogen, Metals
15/10/24

Chinese investment in steel assets needs to be aligned with a Paris-compatible scenario to avoid locking in emissions and stranded assets, according to a report by non-profit Climate Bonds Initiative (CBI).

Almost 80pc or 730.8mn t/yr of China's existing coal-based blast furnace capacity will need to be retired or require reinvestment by 2030, CBI said in its report released last week. Steel asset lifetimes often exceed 40 years, so "investment decisions made today can lock in billions of tons of emissions and potentially billions of dollars in stranded assets", CBI added.

Steel production currently accounts for around 8pc of global CO2 emissions, and almost 50pc of global steel output is from China, CBI said. China's steel sector is estimated to require at least 1.6 trillion yuan ($226bn) in fixed asset investment for decarbonisation by 2050, according to a joint report by CBI and US-based Rocky Mountain Institute (RMI) earlier this year. Of the Yn1.6 trillion, 33pc should go to energy efficiency, 23pc for electric arc furnaces, 18pc for direct iron reduction (DRI), 14pc for carbon capture, utilisation and storage (CCUS), 7pc for blast furnace hydrogen injection, and 5pc for pellet manufacturing.

Green bonds

Steel companies can obtain financing through labelled green bonds from various categories at the project level, including energy efficiency, heat recycling, waste and resource recycle, green hydrogen, biomass, and CCUS.

A total of Yn4.46 trillion of labelled green bonds had originated from China in domestic and overseas markets as of the end of 2023, according to CBI. But Chinese steel firms had only issued 23 green bonds totalling Yn3.5bn and six sustainability-linked bonds totalling Yn1.6bn by the end of last year, representing 0.1pc of the total Chinese labelled bond market. This Yn5.1bn falls very short of the estimated Yn1.6 trillion needed to decarbonise the Chinese steel sector.

CBI asserts that the labelled bond and loan market can supply the required capital, but issuers operating in the steel sector must be encouraged to price deals with the recommended transparency and credibility.

Recommendations

Several Chinese provinces have already issued provincial-level transition finance guidance, including major steel-producing Hebei province this year. But China's national-level transition finance guidance remains under development.

CBI thus recommends that the national transition taxonomy further align provincial guidelines and "enhance interoperability" between Chinese and international transition taxonomies, incentivise low-carbon production methods, customise financing for small-to-medium companies, and enhance entity-level transition plans.

CBI also suggests that banks incentivise companies to enhance the quality of their information disclosure and integrate such incentives into their transition frameworks. The non-profit also urged steel companies to issue credible transition plans, which should include Paris-aligned emission-reduction targets and clear capital expenditure plans.

Lastly, CBI notes that policies should support hydrogen infrastructure and supply chain development to accelerate green hydrogen deployment for high-emitting sectors. This is especially as current financing to decarbonise heavy industrial sectors have mainly been for mature technologies, such as raising energy efficiency. But green hydrogen can reduce over 90pc of steel production emissions, and steady development in hydrogen infrastructure and supply chain will cut costs and accelerate the steel transition.

CBI also flagged public sector steel procurement as an avenue through which the country can boost demand for green steel, especially since Chinese public authorities buy about 350mn t/yr of steel, which causes around 689mn t/yr of CO2 emissions. Green public procurement (GPP) policies in China would also have a global impact, with steel public procurement demand in China three times that of India's total steel demand of 100mn t/yr. CDI suggests that the Chinese government accelerate adopting national-level standards to ensure consistent embodied emissions reporting, as GPP policies will only be effective when implemented with standardised methodologies.

By Tng Yong Li

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16/10/24

Rio Tinto’s iron ore shipments edge higher in 3Q

Beijing, 16 October (Argus) — UK-Australian mining firm Rio Tinto shipped 84.5mn t of iron ore in July-September, up by a slight 1pc compared with a year earlier. The firm maintained its guidance for iron ore shipments from its Western Australia (WA) mines at 323mn-338mn t for 2024 on a 100pc basis, but lowered its equity guidance for output from the Iron Ore Company of Canada (IOC) to 9.1mn-9.6mnt from 9.8mn-11.5mn t previously. IOC production totalled 2.1mn t in the third quarter, 11pc lower than a year earlier because of an 11-day sitewide shutdown caused by wildfires in July. This resulted in a revised mine plan and maintenance schedule, Rio Tinto said. Low-grade SP10 iron ore made up 19pc of the company's WA shipments during July-September, 2pc higher than in the first half of 2024. SP10 levels are expected to remain elevated until replacement projects are delivered, which is subject to approvals and heritage clearance, it said. The firm's Chinese portside sales rose to 20.4mn t in January-September from 17.5mn t in the same period of 2023. Around 90pc of this year's portside sales were either screened or blended in Chinese ports, up by 3pc from a year earlier. Rio Tinto's realised average iron ore price was $99/dry metric tonne (dmt) during July-September, down by 11pc on the second quarter. The company maintained its Pilbara cash operating cost guidance at $21.75-23.50/t for 2024, based on an Australian-US dollar exchange rate of 0.66. The Argus ICX iron ore index was assessed at $105.70/dry metric tonne (dmt) cfr Qingdao on a 62pc Fe basis on 15 October, up from $92.55/dmt on 16 September. Argus assessed the 58pc Fe fines price at $92.85/dmt on 15 October, up from $79.30/dmt on 16 September. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Tax credit delay risks growth of low-CO2 fuels

15/10/24

Tax credit delay risks growth of low-CO2 fuels

New York, 15 October (Argus) — A new US tax credit for low-carbon fuels will likely begin next year without final guidance on how to qualify, leaving refiners, feedstock suppliers, and fuel buyers in a holding pattern. The US Treasury Department this month pledged to finalize guidance around some Inflation Reduction Act tax credits before President Joe Biden leaves office but conspicuously omitted the climate law's "45Z" incentive for clean fuels from its list of priorities. Kicking off in January and lasting through 2027, the credit requires road and aviation fuels to meet an initial carbon intensity threshold and then ups the subsidy as the fuel's emissions fall. The transition to 45Z was always expected to reshape biofuel markets, shifting benefits from blenders to producers and encouraging the use of lower-carbon waste feedstocks, like used cooking oil. And the biofuels industry is used to uncertainty, including lapsed tax credits and retroactive blend mandates. But some in the market say this time is unique, in part because of how different the 45Z credit will be from prior federal incentives. While the credit currently in effect offers $1/USG across the board for biomass-based diesel, for example, it is unclear how much of a credit a gallon of fuel would earn next year since factors like greenhouse gas emissions for various farm practices, feedstocks, and production pathways are now part of the administration's calculations. This delay in issuing guidance has ground to a halt talks around first quarter contracts, which are often hashed out months in advance. Renewable Biofuels chief executive Mike Reed told Argus that his company's Port Neches, Texas, facility — the largest biodiesel plant in the US with a capacity of 180mn USG/yr — has not signed any fuel offtake contracts past the end of the year or any feedstock contracts past November and will idle early next year absent supportive policy signals. Biodiesel traders elsewhere have reported similar challenges. Across the supply chain, the lack of clarity has made it hard to invest. While Biden officials have stressed that domestic agriculture has a role to play in addressing climate change, farmers and oilseed processors have little sense of what "climate-smart" farm practices Treasury will reward. Feedstock deals could slow as early as December, market participants say, because of the risk of shipments arriving late. Slowing alt fuel growth Recent growth in US alternative fuel production could lose momentum because of the delayed guidance. The Energy Information Administration last forecast that the US would produce 230,000 b/d of renewable diesel in 2025, up from 2024 but still 22pc below the agency's initial outlook in January. The agency also sees US biodiesel production falling next year to 103,000 b/d, its lowest level since 2016. The lack of guidance is "going to begin raising the price of fuel simply because it is resulting in fewer gallons of biofuel available," said David Fialkoff, executive vice president of government affairs for the National Association of Truck Stop Operators. And if policy uncertainty is already hurting established fuels like biodiesel and renewable diesel, impacts on more speculative but lower-carbon pathways — such as synthetic SAF produced from clean hydrogen — are potentially substantial. An Argus database of SAF refineries sees 810mn USG/yr of announced US SAF production by 2030 from more advanced pathways like gas-to-liquids and power-to-liquids, though the viability of those plants will hinge on policy. The delay in getting guidance is "challenging because it's postponing investment decisions, and that ties up money and ultimately results in people perhaps looking elsewhere," said Jonathan Lewis, director of transportation decarbonization at the climate think-tank Clean Air Task Force. Tough process, ample delays Regulators have a difficult balancing act, needing to write rules that are simultaneously detailed, legally durable, and broadly acceptable to the diverse interests that back clean fuel incentives — an unsteady coalition of refiners, agribusinesses, fuel buyers like airlines, and some environmental groups. But Biden officials also have reason to act quickly, given the threat next year of Republicans repealing the Inflation Reduction Act or presidential nominee Donald Trump using the power of federal agencies to limit the law's reach. US agriculture secretary Tom Vilsack expressed confidence last month that his agency will release a regulation quantifying the climate benefits of certain agricultural practices before Biden leaves office , which would then inform Treasury's efforts. Treasury officials also said this month they are still "actively" working on issuing guidance around 45Z. If Treasury manages to issue guidance, even retroactively, that meets the many different goals, there could be more support for Congress to extend the credit. The fact that 45Z expires after 2027 is otherwise seen as a barrier to meeting US climate goals and scaling up clean fuel production . But rushing forward with half-formed policy guidance can itself create more problems later. "Moving quickly toward a policy that sends the wrong signals is going to ultimately be more damaging for the viability of this industry than getting something out the door that needs to be fixed," said the Clean Air Task Force's Lewis. By Cole Martin Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Japan's Nippon Steel seeks subsidy to build new EAFs

15/10/24

Japan's Nippon Steel seeks subsidy to build new EAFs

Tokyo, 15 October (Argus) — Japanese largest steel producer Nippon Steel has applied for a government subsidy to build new electric-arc furnace (EAF) plants, aiming to accelerate its decarbonisation efforts. Nippon Steel has applied for a government subsidy that provides financial support for hard-to-abate sectors to shift their manufacturing processes to one that emits less greenhouse gases (GHG), according to the company on 11 October. Shifting crude steel production process from its conventional basic oxygen furnace (BOF) to EAF can reduce a significant volume of GHG, but it comes along with a huge amount of capital expenditure, Nippon Steel said. The subsidy amount requested by Nippon Steel is unknown, but the government will allocate a maximum of around ¥500bn ($3.3bn) for the entire funding scheme, according to the ministry of trade and industry (Meti). The subsidy application will close on 28 October. Nippon Steel plans to utilise the public fund to build a new EAF facility at its Yahata plant in the southern Kyushu area. This is to replace the existing BOF facility that is producing 3.6mn t/yr of steel products. The Japanese steel producer also aims to secure the subsidy to build another EAF plant at its Hirohata plant in west Japan area, where Nippon Steel started its first EAF commercial operations in 2022. Crude steel output at the Hirohata is a combined 460,000 t/yr from EAF and BOF facilities, according to the firm, but the breakdown was not disclosed. The Japanese government is likely to approve the Nippon Steel's request to keep the country's decarbonisation strategy on track. Japan aims to hit its net zero emission goal by 2050 and it is critical to reduce GHG emissions from the steel industry, which accounts for 35pc of total emissions in the country's manufacturing industry. Other Japanese BOF firms are also accelerating their shift to the crude steel production with scrap metal, with JFE Steel and Kobelco planning to start commercial EAF operations in 2027 and during the 2030s, respectively. By Yusuke Maekawa Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

China's Hubei releases hydrogen development draft plan

14/10/24

China's Hubei releases hydrogen development draft plan

Mumbai, 14 October (Argus) — China's Hubei province has released a draft plan to accelerate development of its hydrogen industry by 2027, and is seeking industry feedback. The province seeks to double the scale of its hydrogen industry by that time, with a target output value of 100bn yuan ($13.7bn), according to the draft. The plan aims to promote technological breakthroughs, enhance industrial and supply chains and build a hydrogen storage and transportation network. It envisions the city of Wuhan as the core of Hubei's hydrogen industry, and it aims to establish a national hydrogen equipment centre focused on electrolysers and fuel cells. It promotes renewable hydrogen technologies, such as biomass-based hydrogen production. Hubei plans to explore pilot projects for hydrogen-blended pipelines and pure hydrogen pipelines, while prioritising construction of hydrogen refuelling stations. For transportation-related hydrogen projects, the province will provide subsidies covering up to 20pc of equipment costs, with a maximum of Yn10mn per project. The province already has 100 hydrogen refuelling stations and hydrogen production capacity of 1.5mn t/yr, according to the draft, although the vast majority, if not all, of this will be from fossil fuels with unabated emissions. To support innovation, the province offers a one-time subsidy of Yn10mn for hydrogen-related technology centres and Yn5mn for national labs and research centres. Additionally, it plans to establish a provincial hydrogen energy innovation project database, focusing on technologies like solid-state hydrogen storage and solid oxide fuel cells. For major projects, a subsidy of up to 10pc of investment is offered, capped at Yn5mn per project. The plan does not specify what counts as a major project. The province will also support key manufacturers of fuel cell components and promote fuel cell use in vehicles, ships, and power stations, according to the draft. Hubei plans to establish a provincial hydrogen energy industry alliance and encourage stakeholders to participate in setting industry standards. By Akansha Victor Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

India industries confident of 2030 renewable energy aim

14/10/24

India industries confident of 2030 renewable energy aim

Mumbai, 14 October (Argus) — Indian industries are confident about reaching the country's renewable energy target of 500GW by 2030, senior executives said at the Financial Times' Energy Transition Summit in New Delhi last week. This is especially given strong capacity installation of solar and wind projects in the coming years, delegates heard. India's renewable energy capacity stands at 199.5GW as of August, a rise of 12pc on the year, data from the Central Electricity Authority show. "India's [renewable] power sector has already grown at a [compound annual growth rate] of nearly 20pc in the last 10 years … The pace at which some of the bids are coming, we should reach 500GW by 2030," said domestic utility Tata Power's chief executive officer Praveer Sinha. A record 69GW of renewable energy tenders were issued during the April 2023-March 2024 fiscal year, surpassing the government-mandated target of 50GW. Tata Power is operating 4.5GW installed capacity of renewable energy that produced 64.6Th of electricity in the April 2023-March 2024 fiscal year. It aims to add another 5GW of installed capacity in the coming years, underscoring its commitment to providing round-the-clock renewable energy through solar, wind, and pumped hydro storage projects, Sinha added. Indian steel manufacturer ArcelorMittal Nippon Steel (AMNS) also plans to add 1GW/yr of renewable energy capacity for its captive power consumption, managing director Dilip Oommen said. AMNS has developed a 975MW hybrid renewable energy project at Alamuru village in India's southern state of Andhra Pradesh. The project will generate 661MW of solar and 314MW of wind power capacity, which will be integrated with a pumped hydro storage facility owned by renewables developer Greenko to overcome the intermittent nature of wind and solar power generation, ensuring round-the-clock power. Power generated from the solar and wind sites will be connected from Andhra Pradesh's Kurnool district via a 400kV interstate transmission system up to AMNS' Hazria facility. The firm is also considering using hydrogen in its electric arc furnace, but remains skeptical about the cost economics. "At present, the cost of hydrogen is $3.50/kg," Oommen said, adding that if this falls below $2/kg, it would be feasible for commercial use at its facilities. The reduction in the cost of renewable power generation over the last few years has also raised interest in the sector, incentivising the coal-dominated eastern regions of India to adopt renewables, said Indian independent power provider Ampin Energy's chief executive officer Pinaki Bhattacharya. The domestic steel sector, one of the country's largest carbon emitters, is looking at ways to reduce emissions in light of the policies under the EU's carbon border adjustment mechanism (CBAM), which will take effect on 1 January 2026. This was echoed during a session on 9 October when India's finance minister Nirmala Sitharaman noted that India has been consistent in promoting domestic investment in renewables and establishing transmission lines. But she described CBAM as "a trade barrier" that could hurt investment in India's heavy industries and hinderthe country's transition away from fossil fuels. CBAM is a "unilateral" and "arbitrary" measure, which would "not be helpful" for India, she said, adding that India's concerns "would definitely be voiced" with the EU. Her sentiments were in line with that of commerce minister Piyush Goyal, who said last year that India will not accept any unfair taxes on steel that the EU imposes under the CBAM. Coal to renewables switch "We are not on track yet to displace coal," said Indian not-for-profit thinktank Centre for Science and Environment's director general Sunita Narain, when asked about India's transition from coal to renewables, considering that coal still dominates the country's electricity mix. Renewable energy generation capacity has currently increased to 13pc of the total electricity mix, but the country needs to hit the 35pc target by 2030, she added. India's power generation continues to rely on coal because of an abundant supply of the fuel as well as its cheaper price over other alternatives. Out of India's total installed capacity of 451GW, coal comprises 48.27pc, followed by solar at 19.84pc and wind at 10.47pc, as of August, data from government think tank Niti Aayog show. By Ankit Rathore Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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