Paris Climate Change COP21 - Implications for the viability of the EU Steel Industry
12th Annual Platt’s Steel Markets Europe Conference
1 July 2016
Christopher Beauman, EBRD
COP21 Paris: Some Headlines
* Global 195-nation agreement to target of 2oC maximum warming
- with aim to reach 1.5oC
* Nationally Determined Contributions (NDCs) to 2030 submitted
(trajectory to 2.7oC to 3.5oC warming)
* Stocktake of NDCs every five years – process starts 2018
Provision to ratchet up NDCs to achieve target warming
* “Nil net emissions” set as target for second half of 21st Century
* “Mission Innovation” – 20 countries
* “Breakthrough Energy Coalition” - businesses
2
Total CO2 emission in the EU Member Countries
3
Total CO2 emission in the EU Member Countries (EU-27) and Norway in the period 1750-2010, as well as the emission reductions
required in the period 2010-2050 to achieve an 80% reduction by Year 2050, as compared to Year 1990 levels
(European Commission, 2011).
Source: J.ROOTZEN – Pathways to deep decarbonisation of carbon-intensive industry in the European Union (2015)
22 SITES OVER 2.0mt CO2 2015
13.6
12.9
11.2
11.1
9.1
8.6
8.1
7.9
7.4
7.2
6.3
5.9
5.7
5.3
5
4.5
4.3
4.1
4
3.9
3
2.1
TKS Duisberg/HKM Duisenberg (1)
AM Poland-2 sites (inc Coke Plant) (2)
AM Dunkerque (3)
ILVA Taranto (4)
voestalpine Linz (5)
US Steel Kosice (6)
AM Fos (7)
TATA Port Talbot (8)
Salzgitter (9)
Dillingen (10)
Tata Ijmuiden (11)
AM Espana (12)
Scunthorpe (13)
AM Bremen (14)
AM Ostrava (15)
AM Galati (16)
Trinecke (17)
SSI Teeside (18)
AM Gent (19)
SSAB Rautabruuki (20)
voestalpine Donawitz (21)
SSAB Oxelosund (22)
m t C O 2 (T O T A L: 151.2)
Derived from EU CITL 4
12
2
22
20
19
16
6
15
10
9
14
1
3
11
5
4
7
8
13
18
EU Locations CO2 Steel
17
21
EBITDAs percentages – 2015/2016
6
22
18
17
13
10
8
8
6
6
5
-1
-5 0 5 10 15 20 25
Severstal Russian Steel
NLMK - overall
Erdemir
Voestalpine - steel divisions
ThyssenKrupp Stahl Europe
Outukumpu
ArcelorMittal Europe
US Steel Europe
SSAB - Overall
Salzgitter
Tata Steel Europe
1.
Industrial activities with the highest
cost increase from carbon pricing
Production of cement and steel alone accounts for 38% of European industry emissions:
Important to realize mitigation opportunities of selected carbon intensive materials
Production and use of these materials justifies focussed attention
Ele
ctr
icity c
ost in
cre
ase
(b
lue
) co
st fo
r b
uyin
g a
ll
allo
wa
nce
s (g
rey)
rela
tive
to
gro
ss v
alu
e a
dd
ed
.
Source: Sato, Neuhoff, Graichen, Schumacher, Matthes, Environmental & Resource Economics. (2015)
(Example UK, carbon price 20 €/t CO2 and electricity price increase 10 €/MWh)
dominated by production of carbon intensive materials )
Source: Climate Strategies
7
EU Steel: projected total direct emissions
v free allocation (2021-2030) (ECOFYS)
Project total direct emissions (blue) and
free allocation (green) for the steel sector Source: ECOFYS: Carbon costs for the Steel Sector in Europe post-2020
8
Contradictions of the EU ETS
To achieve 43% reduction by 2030……..
Effect on EU Steel EBITDA:
• From <1% today – mostly free allocation and EUA price of EUR 6pt to:
• Up to 6% in 2030 - assuming 49% free allocation
(based on evolving benchmarks)
- EUA price of (say) EUR 30pt
(TRPoint Carbon scenario)
- (subject to Pass-Through)
• Mitigated by imposing ETS on Importers?
• But subject to “Cross Sectoral Correction Factor”
9
European Parliament and Carbon Leakage
European Parliament Environment Committee:
Proposals under discussion 21 June 2016
• More focussed distribution of free allowances
• Qualitative assessment of key sectors
• New benchmark reduction rate of 0.3% for sectors for whom
0.5% unachievable
• Up to 2% of auction share to be transferred to free allowance
pot if “Cross Sectoral Correction Factor” is triggered
10
Meeting EU decarbonisation goals for Steel
• ULCOS-related routes: - Top Gas Recycling, with CCS
- HISarna smelting (Tata
demonstration), with CCS
• Hydrogen-based Steelmaking:
proposed SSAB, LKAB, Vattenfall vision (April 2016)
• Need for massive Innovation Funding
OR
• Steel emissions matched by 2050 by BECCS
(negative emissions) in other sectors
11
EU industrial electricity prices for “Extra Large”
energy users (including taxes prior to compensation/
exemption measures) – July-December 2015
12
, from UK Steel analyses.
EU industrial electricity prices for “extremely” large energy
consumers in selected EU Countries after all Government
price-reduction interventions – October 2014
13
EU27 – Steel’s role in Savings on
CO2 Emissions (VDEh/BCG)
Source: Steel’s Contribution to a low-carbon Europe 2050 (BCG)
14
EBRD loan supports Severstal’s
energy efficiency drive
Client: JSC Severstal
Previous transaction: i) financing construction and operation
of a hot dip galvanising line (Severgal signed in 2003);
ii) financing construction and operation an on-site air
separation plant to upgrade quality and reliability of oxygen
(Air Liquide – Severstal JV signed in 2005)
Current EBRD Finance: unsecured loan for up to €600
million, of which €450 million syndicated
Tenor: 10 years
Use of Proceeds: the loan will finance a number of important
energy efficiency projects including reduction of Severstal’s
primary energy consumption
EBRD added Value: the investment programme will be a
major transformation of energy efficiency in the Russian steel
industry
15
Project
Summary
Erdemir, Turkey
Client
Erdemir Group, founded in 1960, is Turkey’s largest
steelmaker, accounting for approximately a quarter of
Turkey's crude steel production (9.1m liquid steel
capacity).
EBRD Finance
€75 million long-term loan to the steelmakers Erdemir
and Isdemir, both part of Erdemir Group.
Use of Proceeds
The EBRD loan will finance a comprehensive investment
programme that to support Erdemir make the most
effective use of resources in manufacturing processes.
The investment programme include top-pressure
recovery turbines, which utilises high-pressure gases
collected at blast furnaces to generate electricity.
EBRD value added
Supporting companies such as Erdemir to adopt the
best resource efficient technologies is part of the
EBRD’s Green Economy Transition approach, which aims
to increase the level of EBRD financing for sustainable
resources.
2016 Signed in
16