Day: 14 July 2021

Russian vertically integrated steelmaker Severstal has set a medium-term goal to reduce the carbon intensity of its CO2 emissions by 10% by December 2030, as compared to 2020, Kallanish notes.

The goal is calculated in accordance with worldsteel methodology and ISO 14404 standards, and is a part of Severstal’s longer-term greenhouse gas emissions reduction strategy, the company says.

The target will be achieved by accomplishing technical re-equipment of the production facilities with the introduction of the best available technologies at all assets. The steps will include construction of a boiler house within the No.10 boiler unit, installation of a gas recovery compressor-free turbine no.16, a system for the recirculation of sinter gases from sinter machines nos. 10 and 11, and the replacement of coke with a hydrocarbon fuel, among a number of other measures. 

These measures combined are set to reduce the intensity of Severstal’s greenhouse emissions from 2,063 tonnes of CO2 per tonne of steel in 2020 to 1,857t of CO2/t of steel in 2030.

In July 2020, the board of directors approved a short-term goal to reduce the intensity of greenhouse gas emissions by 3% by 2023, compared to 2020. Severstal is on track for reducing emissions from 2,063t per tonne of steel to the planned 2,001t, it says.

Achieving the objective set for 2030, Severstal is on course to become one of the world’s top 15 steel producers with lowest intensity of CO2 emissions. Severstal is in the first quartile, with one of the lowest carbon intensity indicators in the industry today, according to wordsteel.

Katya Ourakova UK

The European Commission (EC) has presented its proposal for a new Carbon Border Adjustment Mechanism (CBAM), to become fully operational from 2026, Kallanish learns from official documents.

The CBAM has been designed to “prevent the risk of carbon leakage and support the EU’s increased ambition on climate mitigation, while ensuring WTO compatibility”, the EC explains.

As a result, importers will need to offset the CO2 emissions linked with the production of the purchased good by buying emissions certificates as if the goods were produced in Europe. If the non-EU supplier can demonstrate that emissions certificates equivalent to the European ones have already been paid for, these will be deducted by importers.

“Under the Commission’s proposal, importers will have to report emissions embedded in their goods without paying a financial adjustment in a transitional phase starting in 2023 and finishing at the end of 2025, giving time for the final system to be put in place,” a Commission statement explains. “Once the definitive system becomes fully operational in 2026, EU importers will have to declare annually the quantity of goods and the amount of embedded emissions in the total goods they imported into the EU in the preceding year, and surrender the corresponding amount of CBAM certificates.”

Carbon steel products will be included in the CBAM, but stainless steel grades, special steels and tubes have not been included as of now. Members of the EU Parliament already voiced their request to include some of the excluded products. Italian members of parliament, for example, sent a letter to ask the EC to include stainless steel in order to support the future of the Acciai Speciali Terni plant.

Emanuele Norsa Italy

European steel and aluminum producers’ associations expressed concern July 14 at the spectre of rising costs as a result of the European Commission’s proposed Carbon Border Adjustment Mechanism which would involve phasing out free allowances for producers under the EU’s Emissions Trading System.

European steelmakers association Eurofer and European Aluminium indicated they considered the CBAM proposals incomplete — the package limits itself to covering products’ direct or embedded emissions, not including indirect emissions, and does not give clarity on which emission scopes will finally be included.

The EU is proposing to introduce a CBAM, or carbon tax, on imports of iron and steel, aluminum, cement, organic basic chemicals, fertilizers and electricity, to avoid the risk of carbon leakage, the EC announced as part of its ‘Fit for 55’ climate package July 14. It proposes to introduce CBAM progressively until 2026 against a corresponding reduction of free ETS allowances.

Costs eroding decarbonization funds

“What is immediately clear is that the phase out of free allocation will add to industry costs and actually reduce the financial resources available to invest in decarbonization technologies in the medium term,” a Eurofer spokesperson said.

Earlier this year Eurofer calculated that to be ‘Fit for 55’ by 2030, and achieve net-zero carbon production by 2050, the bloc’s steelmakers may need to invest as much as Eur144 billion ($170 billion), including in breakthrough technologies which could increase steel production costs and prices by between 35% and 100% above current levels. They would also need to have access to supplies of up to 400 TWh of climate-neutral electricity, seven times more than what the sector purchases from the grid today.

“The CBAM as yet has no anti-circumvention mechanism to prevent cost absorption and resource shifting, nor any mention of EU export rebalancing — this needs to be resolved if the system is going to work. This may be something to see during the reporting phase till 2026, as well as which scopes are covered,” the Eurofer spokesperson said. While recognizing the importance of the “landmark package of proposed climate legislation,” the steelmakers association considers that greater carbon leakage protection must be given if the green transition is to succeed.

In 2020, the EU imported 22.39 million mt of steel products, compared to regional production of 138.8 million mt of crude steel that year, according Eurofer and World Steel Association data.

European Aluminium, while supporting the principles of the EU’s “ambitious decarbonization roadmap,” is concerned about the negative economic and climate impact of including aluminum in the pilot phase, citing cost factors. It called July 14 for the new EU ETS state aid guidelines to be extended until 2030.

“Both the lack of strengthened carbon leakage protection measures and current CBAM design are not set to tackle the indirect carbon costs that Europe’s aluminium sector faces with regard to the EU’s electricity market design rules,” said Gerd Gotz, European Aluminium’s director general, in a statement.

“The fully electrified nature of aluminium’s primary production makes European producers the most exposed to indirect emission carbon costs,” Gotz said. “In Europe, electricity carbon costs evolve at the regional level due to pricing dynamics in interconnected regional power markets, representing up to 40% of total aluminium production costs.”

Electricity included

Electricity is also to be covered by the CBAM. However, the EU currently imports only 20 TWh of power — a tiny fraction of EU’s consumption of 3,400 TWh.

Europe has already lost 30% of its primary aluminum product plants since 2008. According to the aluminum producers association, cost impacts of the CBAM down the metals value chain could generate more carbon leakage in future. The association in recent days estimated CBAM could lead to additional costs for European producers of semi-finished aluminum products, sourcing primary aluminum from outside the EU, of more than 5% of the total value of products ranging from window frames to car parts.

In 2020, the EU imported 9.443 million mt of aluminum, more than three times the regional primary aluminum production of 3.33 million mt in the year, according to data from the association and International Aluminium Institute.

Both Eurofer and European Aluminium, however, said they would continue to work together with the EC on the CBAM’s design.

The steel and aluminum sectors are widely recognized to account for 8% and 2% of global carbon emissions, respectively. In the EU, steel production is estimated to account for as much as 25% of the regional industrial CO2 emissions.

WTO compatible

During the EC’s unveiling of the CBAM measures in Brussels, EC commissioner for economy Paolo Gentiloni said that the aim of the package is to put a price on carbon emissions, with the same price to be used for domestic production as for imports. As indicated by the European Green Deal, the CBAM would ensure that the price of imports reflects more accurately their carbon content. The package’s planned gradual introduction, with full compatibility with WTO rules, therefore aims to balance climate ambition with global cooperation, Gentiloni said.

“It’s a sort of premiere at international level … CBAM is not a tax, it’s an environmental measure but we also need taxes to positively influence our behavior,” the commissioner said.

— Diana Kinch, Annalisa Villa and Henry Edwardes-Evans

The EU is proposing to introduce a Carbon Border Adjustment Mechanism, or CBAM, on imports of iron and steel, aluminum, cement, organic basic chemicals, fertilizers and electricity, to avoid the risk of carbon leakage, the European Commission announced as part of its ‘Fit for 55’ climate package on July 14.

The EC plans to introduce the mechanism in a transitional phase until the end of 2025, to be fully in place in 2026, it said in a statement. The system will be based on trading in certificates based on actual or direct emissions, it said.

The progressive introduction of CBAM will be set against a corresponding reduction of free allowances allocated under the corresponding EU Emissions Trading System, it said.

However, CBAM should not apply to certain products including ferrous scrap, ferroalloys and certain fertilizers whose production does not entail meaningful emissions, the EC said in a regulation proposal document.

Purchase of certificates

From 2026, importers of iron and steel, aluminum and cement products and electricity will be required to purchase certificates corresponding to the volume of goods and the embedded emissions of the goods listed.

EU importers of goods will be covered by a CBAM register with national authorities, where they can also buy CBAM certificates. The price of the certificates will be calculated depending on the weekly average auction price of EU ETS allowances expressed in Eur/mt of CO2 emitted, in the week prior to purchase. The number of CBAM certificates that are required to be purchased will be adjusted to reflect the number of EU ETS allowances that are allocated free of charge to Europe-based producers.

No financial adjustment is foreseen for importers through 2023-2026 CBAM transition period.

“The CBAM should be based on a declarative system where an authorized declarant, who may represent more than one importer, submits annually a declaration of the embedded emissions in the goods imported to the customs territory of the Union and surrenders a number of CBAM certificates corresponding to those declared emissions,” the EC said in its regulation proposal document. “An authorized declarant should be allowed to claim a reduction in the number of CBAM certificates to be surrendered corresponding to the carbon price already paid for those emissions in other jurisdictions.”

The import of electricity should be included in the scope of this regulation, as this sector is responsible for 30% of the total GHG emissions in the Union, the EC said.

The ‘Fit for 55’ package aims to reduce the bloc’s carbon emissions by 55% of 1990 levels by 2030.

Direct emissions only

Embedded emissions are the direct emissions released during the production of the good and relevant input materials. The relevant input materials for each commodity will be set out in an implementing act.

For example, an importer of 10,000 mt of aluminum which has a direct carbon intensity of 1.5tCO2/tAl may have to purchase 15,000 CBAM certificates after the transitionary period has ended, according to S&P Global Platts analysis.

Under the proposals, there will be a transitionary period between 2023 and 2026 where importers will not have to make any financial adjustment. According to the document, the transition period aims to solely collect data and raise awareness of importers.

From Jan. 1, 2023 all importers of the aforementioned goods will be required to submit a CBAM report each quarter. The report will include the total quantity of goods and their country of origin, the total embedded emissions, the total embedded indirect emissions and any carbon price paid in the country of origin.

Importers failing to comply with the correct declaration of the CBAM report will face a penalty, according to the proposal.

Industry reaction

Market sources expressed their surprise at the scope of the CBAM only applying to direct emissions, and not including indirect emissions. “What a joke,” said one aluminum trader, while another described the proposals as an anticlimax.

The bulk of the carbon emissions related to aluminum are indirect emissions released by powering the smelter, typically by using coal power. Under this proposal, smelters that are powered by coal will pay the same CBAM costs as those powered by hydro power.

However, the proposal does include the statement that: “the scope of the CBAM may be extended to include indirect emissions in the future.”

— Diana Kinch and William Healy