Challenges & Mismatches Abound as EU Embarks on Decarbonisation

The European steel sector faces a myriad of challenges and mismatches as it embarks on a decade of decarbonisation, according to delegates at a recent
Green Steel Europe
Green Steel EuropeImage Source – EASAC

The European steel sector faces a myriad of challenges and mismatches as it embarks on a decade of decarbonisation, according to delegates at a recent conference hosted by European steel association Eurofer in Brussels. Key concerns include the limited scale of renewable energy supply and the timing of the phase-out of the EU Emissions Trading System (ETS) and the introduction of the Carbon Border Adjustment Mechanism (CBAM), reports Argus

While several steel producers have made strides in developing low-emissions steelmaking technologies, the availability of renewable energy falls short of the scale necessary to support the industry's plans for decarbonisation by the early 2030s. The EU requires a capacity of approximately 80-90GW of renewable energy to meet its net-zero goals, yet only 6GW were generated last year, highlighting the significant gap.

Giles Dickson, CEO of European wind energy providers' association Wind Europe, suggests that directing more funding towards expanding renewable energy infrastructure, rather than focusing solely on technological breakthroughs, is crucial. Additionally, streamlining permitting and approval processes can accelerate the growth of the green energy sector. Dickson highlights the example of Germany's autobahn, which currently has 15,000 pending applications for the transportation of wind turbine parts, underscoring the need for expedited processes.

German steelmaker Salzgitter has made commendable progress by investing in the construction of direct reduced iron units and electric arc furnaces to facilitate lower-emissions steel production. However, challenges persist. Despite having the equipment in place, the mill lacks the necessary energy supply to sustain these operations. The current seven turbines on the site provide only a fraction of the required energy, raising concerns about meeting future demands.

Eurofer and its members express apprehensions regarding the timing of the ETS phase-out and the implementation of CBAM. With the phase-out of free emissions allowances, carbon prices in the EU are projected to reach €100 per metric ton of CO2 equivalent or higher by 2030. Geert Van Poelvoorde, CEO of ArcelorMittal Europe, warns that this leaves the steel sector with a critical choice: achieve decarbonisation by 2030 or face potential elimination. The construction timeline for direct reduction iron-electric arc furnace plants, which takes around four years, poses a significant barrier to decarbonising the EU's steel industry, risking carbon leakage and further contraction.

While carbon taxes will impose financial burdens on mills, Jorgos Chatzimarkakis, CEO of Hydrogen Europe, argues against extending the allocation of free emissions allowances under the ETS. Previous allocation methods have disincentivised decarbonisation efforts, necessitating a shift towards greener steel production. A study by consultancy CE Delft, commissioned by Carbon Market Watch, reveals that the European iron and steel sectors amassed an estimated €16.1 billion in additional profits from the EU ETS between 2008 and 2019. The ongoing transition poses disruptive and challenging dynamics for sustainability-minded European mills.

As the EU steel sector embarks on its decarbonisation journey, overcoming the hurdles of renewable energy supply, ETS phase-out, and CBAM implementation is crucial. Balancing the need for green investments with the costs of carbon taxation and ensuring a fair and effective transition will be pivotal in reshaping the industry for a sustainable future.

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