Continued prohibitive energy prices, coupled with skyrocketing carbon taxes, at above euro80, risk derailing the ambitious decarbonisation plans of the steel industry, the European Steel Association (Eurofer) warned recently. European leaders must act swiftly to ensure climate goals are met cost effectively, while preserving the viability of strategic industrial sectors, Eurofer further said, ahead of the European Union Environment Council meeting held recently.
“Key European industries such as steel cannot bear all the energy and climate costs that we experience today and are likely to also face in the coming years if policymakers do not take the right decisions now,” stressed Axel Eggert, Director General of the European Steel Association (EUROFER).
“If the transition is not sustainable, we risk that the European market will be flooded by ‘dirty’ cheap steel from third countries such as China, Russia or Indonesia,” Eggert insisted.
Energy costs spike
In the last months, energy-intensive companies that are most exposed to price spikes have already been forced to curtail/or temporarily close plants. Gas and electricity prices have risen around 5-fold in comparison to last year’s levels as economies recovered post-lockdowns. In parallel, carbon (coal) prices have spiked by up to euro80-90, having a cascading impact on electricity prices.
Carbon costs
According to Eurofer’s impact assessment, the additional direct carbon costs for the steel industry – with the combined effect of CBAM/ETS on the free allocation phase out – will be nearly euro14 billion in CY30 with business-as-usual emissions, or euro8,4 billion, if the sector is able to reduce its emissions by 30% by CY30 through the proposed euro25 billion investments in clean technologies.
This means, in CY30 an average EU steel company retrofitting its plant with clean technology will face euro400 million carbon costs, while a company exporting its “dirty” steel to EU will bear only euro30 million of costs, despite the CBAM levy at the border, Eurofer inferred.
“This situation would be unsustainable and seriously threaten our low-carbon projects. We ask both the Member States and European Parliament to reconsider the currently proposed emissions trading system (ETS)-free allocation phasing out in close conjunction with CBAM on the basis of a more realistic impact assessment,” Eurofer said.
Global green campaign
The world is at a juncture where carbon emission norms are gaining ground. Geographies like Europe and China are introducing policies to reduce emissions. In Jun’21, EU adopted a European Climate Law, setting targets of reaching net zero greenhouse gas (GHG) emissions by 2050 with an immediate target of reducing GHG by at least 50% by 2030 compared to 1990 levels.
China has attracted attention worldwide with its strict production cut norms for steel mills (highest industrial polluter) and plans to achieve carbon peaking by CY30 and net zero by CY50.
Mills in Japan and Korea are eying expansion via the green electric arc furnace route.
Globally, as mills invest in green-compliant technologies, the cost of production will rise and necessitate a cost push for finished products. Despite reducing emissions, they would still need to buy carbon credits which would increase steel prices. For instance, the world’s largest steel-maker, China’s Baowu Group recently said if carbon prices in China increase to $71/t (Euro60/t), production costs of hot rolled coils would shoot up 40%.
India impact
Meanwhile, it is estimated that Indian steel exports will become costlier by euro35-60 per tonne. “The impact would be minimal for steel plants adopting the gas-based DRI route, while the same would be higher for those steel plants producing steel through the BF/BOF route,” a source informed. The increase in cost will be mainly on account of upgrading to greener steel-making standards.
Underpinning the importance of ‘eco’-nomics in steel making, a source at a leading primary steel mill in India said: “As such, no direct impact as yet, but it is a space to watch out for drive for carbon neutrality is here and now.”
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