Industrial challenges and

global climate policy

Sakari Tamminen

13.11.2014

2

Steel is the basis for sustainable developmentSteel demand is expected to grow significantly in developing countries by

2050

Steel is one of society's basic materials.

Steel is heavily involved in

cleantech, including:

• Production of renewable energy

technologies

• Resource and energy efficient

construction

• Low carbon transportat

• Recycling technologies

Source: World Steel Association 2012: Steel at The Core of Green Economy

Steel consumption estimate for 2050

20.11.2014

October 2013 3

Two main routes for the manufacture of steelfrom recycling steel based electric arc furnace production carbon dioxide

emissions differ from ore based blast furnace production to scrap steel

based electric arc furnace production

Metallurgic carbon is an invaluable raw material for the reductionreaction. Metallurgical carbon generated by the carbon monoxide gas from the ore is reduced to iron in a blast furnace. Once produced, steel can be used over and over again without loss quality.

The availability of the recycled steel will limit significantly the emission reduction potential even 2050.

It is not possible to increase the blast furnace/scrap steel more thanfrom ratio 60/40 to ratio 56/44.

Recycling steel requires blast furnace steel

Yearly about 580 million tons of steel is recycled. Steel can be recycled completely , without losing its properties. By recycling steel less carbon is required for the reduction of iron.

Steel is the

most

recycled

material in

the world.

0

50

100

150

200

250

300

350

400

450

500

550

600

650

Ter

äs

Pap

eri

Lasi

Puu

Muo

vi

Alumiin

i

Million tons

Different materials in the global recycling rates

Lähde: worldsteel 2012, Recycling of industrial materials in 2010

Steel is recycled more than all other materials combined.

4

Weak growth in

demand view

The steel industry in international

competition

Tremendous

pressure on the

European steel

industry

The increased

significance of

raw material

Increasingly

stringent

legislation

Over-capacity

of production

The increasing

threat of

imports

5

China and other emerging economies

maintain the steel market - Europe is

stagnating

Steel consumption

6

Source: World Steel Association Short Range Outlook 10/2013

Weak growth

in demand

view

0

200

400

600

800

1000

1200

1400

1600

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014f

China

EU 27

World

Million tons

~45%

China's share of global

steel market

-4%

The European steel

market growth this year

7

Steel industry production sites in the EU-27Iron and steel industry directly employs 350 000 people in Europe. 65 000

jobs have disappeared in 2008-2012

Source:: Eurofer (2013) A Steel Roadmap for a Low Carbon Europe 205020.11.2014

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Increasingly

stringent

legislation

Source: World Steel Association 10/2013

European emission legislation is more stringent than in other countries

EU emission trading system and global systems

Current mandatory

emission trading and

similar systems cover

only 21% of the global

production.

The EU accounts for

more than half of the

targets and much

tougher than the rest.

There is no obvious

solution which would

bring the same rules

for everyone.

EU legislation from the industry perspective

3

Climate Act?

MCP

Biodiversity

Resource efficiency

Renewable energy

Reduction of GHG emissions

RES policy 2030?

Security of supply

Energy market integrationTrans-European

energy infrastructure?

Third energy package

Regulation of wholesale

electricity trading

Energy efficiency

Clean air

Good water quality

Industrial emissions directive

RES directive

Water framework directive

Biocides regulation

Bio-economy strategy

Energy strategy 2020

Water management

plans

Federal Water Act (WHG)

Energy and climate strategy

“Energie-wende”

Biodiversity strategy

Federal Act on Air Pollution Control

(BlmSchG)Bio-economy

strategyEnvironmental

Protection Act

Energy roadmap 2050

EU ETS directive

Energy taxation directive

Electricity and Fuel Taxes ActEnergy efficiency

directive

Electricity market Act

Energy Industry Act (EnWG)

EED to be implemented

CHP Act (KWKG)

Reg. on access to electricity network

(StromNEV)

EED to be implemented

Biomass sustainability?

Electricity Guarantee of

Origin Act

Act on subsidies for RES based

electricity

Electricity and Fuel tax Acts

(StromStGEnergieStG)

Emission Trading Act

GHG emission trading Act

(TEHG)

Renewable Energy Sources

Act (EEG)

Transitional National Plans

RoHS directive

WasteREACH

regulation

CLP regulationEco-design

Energy labelling directive

Sevesoregulation

Directive on batteries and accumulators

Regulation on the EU Ecolabel

Circular economy

WEEE directive

Conclusion: Sector-specific emission-

reduction potential has to be taken into

accountEU steel industry is able to reduce the CO2-emissions by 15% by 2050.

CO2 emission reduction potential in the EU steel industry is estimated at 10 % in the period 2010-2030 (specific emission)

Potential increase of 10 per cent subject to a number of breakthrough technologies in the commercialization and large-scale investments in infrastructure

Even so the steel industry is not the Commission's proposed emission reduction path in 2030 nor 2050

The emission reduction paths must be built bottom- up approach based on sector, technical and economic potential

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Bottom-up approach

Competitiveness of the climate policyA global problem requires a global solution

Instruments need to make industry more competitive by ensuring a globally competitive energy prices, rather than increasing the allowance prices

Not even on a long term the EUA price signal will enable the steel manufacturing breakthrough technologies for production use.

The EU's climate targets should be comparable to other economic endeavors. Risk of carbon leakage must be prevented at all costs.

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A comprehensive international climate agreement

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Stainless steel: EU CO2 ETS costs gives

advantage to imports and increases emissions EU 28 flat products: imports

from Asia have increased more than five times from

2004

Data source:

EUROFER

European imports up to ~30% of supply, Asian imports grow increasingly

• Stainless steel is produced in Europe from recycled

steel by electricity – resource efficient business

• The Emission Trading System (ETS) in Europe puts a

price on CO2 • Electricity producers pass on CO2 costs to their

customers but stainless industry cannot due to a world

market and global prizing

• Competitors from outside EU do not have additional

ETS costs and therefore giving them a competitive

advantage

• Carbon leakage is a fact: Due to higher carbon

intensity in raw materials and less efficient production

replacing European production by Chinese imports

increases global CO2 emissions• 20% replacement is increasing the global emission by

some 4 million tonnes *

9%

26%

0%

5%

10%

15%

20%

25%

30%

0

200

400

600

800

1,000

1,200

1,400

2004 2014f

[Kt]

Other

Asia

Imports share of total supply (rhs)

* Estimate: Chinese stainless steel has 2,3 times higher total CO2 footprint than the

European due to different raw materials, energy and transports.

**European stainless steel direct emissions cathered from CITL

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Carbon leakage and decrease of European

jobs are facts in stainless steel

1 Data source: EUROFER, total cold rolled deliveries of European producers (currently Outokumpu, Aperam, Acerinox,

AST). *) CO2 estimations based on international stainless steel Life Cycle data, data on raw materials and energy sources

In stainless steel EU CO2 ETS costs are increasing import, decreasing EU production and jobs

• During EU CO2 ETS main growth of European stainless steel

producers outside the EU, e.g.

• Outokumpu, ThyssenKrupp: USA, Mexico, China

• Aperam: South America

• Acerinox: South Africa, North America, Asia

• Closures / decreasing of production are fact in many EU

countries, GER, UK, FR, IT, S, SWE, FIN, EST etc.

• In Europe Outokumpu & ThyssenKrupp stainless direct

employees decreased from 15 000 in 2004 to some

9000 in 2014 (estimate for 2016:7000).

• Carbon and job leakage is a fact in stainless steel • The growth of the production outside the EU

• Stainless steel production in Europe is increasingly

replaced by Asian import causing dramatically higher

CO2 emissions / tonne of stainless globally *

• These trends are continuing until EU ETS system will be

reviewed and indirect electricity costs compensated

3.2

2.3

0.5

0.4

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2006 2013

[Mt]

Europe Other

EU mills cold rolled deliveries1 2006 & 2013 by destination [Mtonnes]

2030 energy and climate package

• at least 40% emissions reduction from 1990 levels by 2030

– nationally binding

– reduction cap will increase from 1,74 % to 2,2 % from 2021 onwards

• at least 27% energy efficiency increase by 2030

– indicative at EU level

• at least 27% renewable energy share by 2030

– binding only at EU level

• 15% increased energy interconnections between member states by

2030

– binding only at EU level

1420.11.2014

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Why EU Emission Trading Scheme (ETS)

have to be reviewed?

Source: Outokumpu

Summary

• Steel industry in Finland is part of the sustainable solution.

• Metals industry supports the global climate agreement.

• Carbon and jobs leakage is a fact – directly and indirectly.

• Competitive industry will create welfare – let’s keep the

European industry competitive.

Back-up slides

1820.11.2014

Emission reduction potential 2030 and

2050

Commission roadmap to low carbon economy

2050 (table 9, source: PRIMES,GAINS)

Emission reduction potential compared to 2010

Reference year 2010 (specific emission) 2030 2050

Economically feasible scenario -9% -15%

Theoretical maximum reduction, no CCS -19% -40%

Theoretical maximum reduction, CCS in use -9% -57%

Reference year 2005 (absolute emissions) 2030 2050

Total -35% … -40% -77% … -81%

ETS -43% … -48% -88% … -92%

Non-ETS -24% … -36% -66% … -71%

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