New Industrial Policy for Europe: Safeguard for a competitive low-carbon transition of the steel industry
October 26, 2016
Guest blog post by Tomas Wyns and Matilda Axelson, Institute for European Studies, Vrije Universiteit Brussel
In 2015, the Paris Agreement adopted at the United Nations Framework Convention on Climate Change (UNFCCC) committed 195 countries to limit global average temperature increase to well below 2 degrees Celsius above pre-industrial levels, to aim to keep it below 1.5 degrees if possible and reach net zero greenhouse gas emissions by 2050. The global steel industry which alone contributes 6-7 per cent of global greenhouse gas emissions will face increasing pressure to dramatically reduce its emissions over the next decades. In the European Union (EU) this would entail a reduction target in all likelihood in excess of the current target of 80-95 per cent of emissions by 2050. This mean essentially full decarbonisation, beckoning the question whether the EU steel sector is ready to face this challenge.
The global steel industry is woefully underprepared for the onset of a tougher climate regime according to a report published by environmental reporting organisation Carbon Disclosure Project (CDP) titled ‘Nerves of Steel’. The report which analyses fourteen of the largest global steel companies concludes that more companies have increased their emission intensities than reduced them in recent years, without any industry-wide progress to improve energy efficiency. Only eight companies have outlined emissions reduction targets, all of which (targets) will expire by 2020. Over 40 per cent of these companies have not published any progressive targets, or have targets that expire in 2016. Overall, the current investment, R&D, governance and carbon pricing regimes are completely inadequate in comparison to the mitigation challenge ahead.
The silver lining however is that some of the top-performing steel companies in the CDP ranking are leading the way on sectorial low-carbon transition. This includes investment in research and development (R&D), development of low-carbon breakthrough technologies, as well as increased use of electric arc furnaces which are linked to better recycling of steel products.
For the EU, the second largest global steel producer after China, the speed of achieving near total decarbonisation in 35 years (by 2050) is equivalent to only one investment cycle of the steel industry. During this transition, the steel industry which still forms an essential cog of the EU’s industrial and infrastructure value chain must remain competitive while maintaining a high rate of employment. Any decarbonisation transition should therefore ideally go hand in hand with enhanced competitiveness. This will require a holistic approach which combines radical innovations in process, product and business model and a partnership between public and private sectors, and other relevant stakeholders. But the good news is that, although clearly challenging, it also looks possible to achieve with the right approach to enabling innovation across the economy and all value chains in which steel is found.
Process innovations that reduce emissions from primary steel production often require substantial investments. New breakthrough steel production technologies would not only reduce the process and/or energy emissions, but would also create a symbiosis between several industries. For example, primary steel production generates granulated blast furnace slag that can to some extent replace cement, and blast furnace waste gases can be used to produce chemicals. More such efficient techniques would allow for a significant overall reduction of emissions from the production process (compared to primary production of cement and chemicals). However, most breakthrough technologies are only at the feasibility or piloting stages and hence not technically or commercially available. Moreover, current low industry profitability has had a drastic impact on R&D spending – companies studied by the CDP’s report have spent around 14 per cent less over the past five years.
Product innovation can create higher value added products, enabling a reduction of emissions while providing a business opportunity for the industry. Improvements in the material properties of steel products for instance lightweight steel or stronger steel could open up new market opportunities.
Transformations in business models too could optimize the current usage of steel and combine sustainability with profitability. The demand for crude steel is expected to continue to fall which means producing more virgin steel in blast furnaces is not a viable business plan. Recycling more steel could not only meet short-term demand for steel but also engender innovation and reductions in emissions in the industry at large. Using advanced electric arc furnaces would facilitate this transition. The fact that lesser raw materials like coal and iron ore are needed and that greenhouse gas emissions will be dramatically lower, make this type of production of recycled steel highly competitive.
It is however clear that the EU steel industry cannot manage this deep and relatively short term transition on its own. Urgent government action is required. A dedicated industrial vision, strategy and financial support are imperative. Providing adequate levels of funding for a technological transformation of the steel industry needs to be a priority for governments and companies in order to ensure that long-term decarbonisation targets are not missed. From a broader policy perspective, the EU is currently facing an important moment of industrial development where deep emission reductions could be achieved as a result of technologically advanced processes, product innovations and business model changes. Much potential lies in the envisaged EU Emissions Trading System (ETS) Innovation Fund, which would foster breakthrough technologies in steel production at a commercial scale. It offers an important catalytic opportunity to progress on this and ensure that it becomes truly industrial in scale.
A full transition of the EU’s steel industry to a competitive low-carbon model can only be guaranteed if there is a sustained effort by the public and private sector in tandem. Fully integrating the decarbonisation challenges within industrial policy, can make this both an economic and low-carbon success.
This post is based on the findings and recommendations in:
Carbon Disclosure Project, Nerves of steel, 2016
Allwood J., Cambridge University, A bright future for UK steel, 2016
Wyns T. & AxelsonM., Vrije Universiteit Brussel, The Final Frontier: decarbonising Europe’s energy intensive industries, 2016Blogactiv Team