EU steel sector’s '80pc GHG cut by 2050 feasible'

OREANDA-NEWS. September 05, 2016.  Europe's steel industry can cut its greenhouse gas (GHG) emissions by 80pc below 1990 levels by 2050, which would be in line with the EU's own mid-century goal and the Intergovernmental Panel for Climate Change (IPCC)'s recommendation, a climate change policy expert told Argus.

The IPCC recommended in 2007 that industrialised nations cut their GHG emissions by 80-95pc below 1990 levels by 2050 to keep a maximum global warming target of 2°C within reach. Partly in view of this recommendation, the EU adopted a non-binding goal to cut its GHG emissions by at least 80pc by mid-century under a long-term plan to decarbonise its economy.

There is "no doubt" that the EU steel sector can achieve minus 80pc by 2050 — with the help of carbon capture and storage (CCS), but not even as the main technology, said Tomas Wyns, a researcher at the Institute of European Studies at the Brussels Free University.

The sector's necessary transformation will be quite challenging, but not impossible at all, said Wyns, who co-authored a report, The Final Frontier — Decarbonising Europe's Energy Intensive Industries, released in May.

The EU steel industry's GHG emissions have already fallen by almost 40pc below 1990 levels, although around 75pc of this is because of lower output and an economic slowdown rather than low-carbon technology advances, he pointed out.

Wyns said that even without CCS, the industry can cut its GHG emissions by 60-70pc by 2050, by replacing more blast furnaces with electric arc furnaces (EAFs), commercialising breakthrough technologies and, most importantly, modifying its business model.

In 2013, blast furnace and basic oxygen furnace (BF-BOF) production accounted for 61pc of EU crude steel production and EAFs for the remaining 39pc, according to the Final Frontier report. EU blast furnace iron production decreased to 95mn t in 2014, from 137mn t in 1980.

The EAF route, which commonly uses gas instead of coking coal, emits only 25pc of the CO2 generated by blast furnaces. But EAF mills are used to melt steel scrap into new products and, as blast furnaces are very expensive, member states are very protective of these installations, Wyns said. So there is a general inertia and widespread opposition to shifting the industry's focus, even though Europe exports large quantities of scrap steel that it could recycle itself.

A growing economy needs virgin steel, but in Europe's slower economic environment, recycling makes more economic and environmental sense, Wyns said. In 2013, European steel production accounted for 14pc of the world's overcapacity, making Europe the second largest contributor to overcapacity after China on 50pc, his report says.

"Industrial policy in Europe has not always been that forward-looking," Wyns said. It has sought rationalisation by closing some blast furnaces, but it has not really pursued a transition of the sector's business model.

The smaller size of an EAF mill allows for ad hoc adjustments in production in response to cyclical steel demand. Its output flexibility also makes it well suited for integration with an increasing share of renewables as it can be ramped up or slowed down in response to variable supply, overall demand and costs during the day.

The HIsarna process is currently one of the more advanced low-emissions technologies in the steel sector. By using raw materials directly and avoiding coking and sintering, the process uses less coal and can cut CO2 emissions by 20pc — or by as much as 80pc with the use of CCS.

A HIsarna steel mill can produce 0.5mn-1mn t/yr of hot metal, which is comparable to a medium-scale steel plant. Capital expenditure (capex) for a new HIsarna plant is also lower than for a conventional EU blast furnace, with greenfield capex of around 75pc and brownfield capex around 65pc. In addition, the operational and maintenance costs of a HIsarna plant are also around 10pc lower.

Another huge advantage is that a smaller deployment area is needed than for blast furnaces, which makes it easy to install them next to existing steel plants. The first pilot plant in the Netherlands has performed well and the next stage is full-scale demonstration, so it is feasible that the technology will be market-ready by 2025-30.

Other breakthrough technologies will take longer to reach commercial scale, for example electrolysis-based steelmaking is not expected to reach this stage before 2040. One of the greatest challenges is to commercialise promising low-carbon process technologies by 2030 to allow for deployment across the EU by 2050. The timeframe is critical to keep the 80pc reduction by 2050 within reach — and "we are running out of time", said Wyns.

The proposed innovation fund for phase four (2020-30) of the EU emissions trading scheme (ETS) could help facilitate a timely commercialisation of these technologies by allowing the public sector to leverage private-sector investment in capital intensive, high risk ventures.

The fund of 400mn EU ETS allowances will make up to €10bn available for technological innovation over the next decade based on an average allowance price of around €25/t CO2 equivalent. It represents a very good starting point, especially given that Europe is still experiencing a period of austerity, Wyns said.

Early successes under the fund will no doubt incentivise more public sector investment and other national funds are likely to materialise. But the fund's governance structure is critical to ensure that it incentivises the best possible projects, regardless of where they happen. A small group of highly skilled experts need to do the technological assessment of projects. "If we hand it over to EU member states, the fund will perform suboptimal," Wyns warned.

"While it is only natural that some technologies will fail during this process, the system of innovation through the fund cannot fail. If that fails, we have significant problems," he said.

But much still depends on the eventual implementing decision as the current proposal still lacks detail, not only on the fund's governance structure but also other design elements such as technological benchmarks, Wyns pointed out.

The overall transition required is nothing less than an industrial revolution — and it rests on support for breakthrough technologies. But any technological advances in steel manufacturing will be pointless if there is no steel demand and the sector remains uncompetitive.

So the EU needs a holistic industrial policy to determine a new business model for the steel sector and the types of steel that will be required for the region's future transport and energy systems, Wyns said.

The steel industry will have to address its current overcapacity through rationalisation and increased overall value added at lower sales volumes. Material science advances leading to high performance and lightweight steel can open new markets that target downstream consumers who need these steel types for low-carbon products. The anticipated electric vehicle revolution, for example, will open a market for advanced lightweight steel in the automotive sector.

But this industrial transition cannot happen in isolation — it must be aligned with other major shifts in the EU economy towards greater resource efficiency and a circular economy. The EU currently exports large quantities of scrap steel, so the industry has ample potential to increase product re-usage and recycling, which would complement the move towards more EAF production away from blast furnaces.