EU steel sector set to struggle with green targets

The decade of decarbonisation that lies ahead for the EU's steel sector is plagued by mismatches in timing and scale, delegates said at a conference hosted by European steel association Eurofer this week in Brussels.

Renewable energy suppply — a problem of scale

The EU's renewable energy sector faces a steep hill to climb in terms of supplying the bloc's drive to decarbonise, including plans for greener steelmaking. Several steel producers have developed and constructed technology that facilitates low-emissions steelmaking, but renewable energy supply is not yet at the scale necessary to support mills' plans to decarbonise by the early 2030s. The EU requires a capacity of around 80-90GW of renewable energy in order to meet net-zero goals; 6GW were generated last year, said a delegate.

"More funding should go towards building more of the same stuff, rather than on new technological breakthroughs," said Giles Dickson, chief executive of European wind energy providers' association Wind Europe. Swifter permitting and approval processes could help the green energy sector to speed up its growth. "As an example, the German autobahn currently has 15,000 outstanding applications for the transport of wind turbine parts," added Dickson. Support for renewable energy companies' operational expenditure as provided under the Inflation Reduction Act in the US, rather than solely for capital expenditure as in the EU's net zero deal, could also provide welcome support for the sector's planned expansion.

German steelmaker Salzgitter is ahead of several other mills in Europe in terms of investing in the construction of direct reduced iron units and electric arc furnaces to facilitate lower-emissions steel production. But the road ahead is far from clear. "We have built the equipment but don't have the energy to feed it," a source at the mill said. The seven turbines that are now operational on the steelmaker's site currently account for only a minimal proportion of the mill's current energy requirements, let alone its future requirements.

Steel sector not confident of weathering ETS-CBAM transition

Eurofer and some of its members reiterated their concerns over the timing of the phase-out of the EU Emissions Trading System (ETS) and the introduction of the Carbon Border Adjustment Mechanism.

With the phase-out of free emissions allowances under the ETS, carbon prices in the EU are forecasted at €100/t of CO2 equivalent or higher by 2030. "This means we will either be decarbonised by 2030 or gone," said Geert Van Poelvoorde, chief executive of ArcelorMittal Europe, also pointing out that the European steel sector has contracted by 20pc over the past 10 years. The approximately four years it takes to construct a direct reduction iron-electric arc furnace plant means it is not possible to decarbonise the EU's 80mn t/yr steel industry by 2030, said Poelvoorde. This puts the sector at significant risk of carbon leakage and further contraction, he added.

The carbon tax cost that mills will incur over the next few years will be greater than the funding needed for green investments, said Poelvoorde. But the allocation of free emissions allowances under the ETS has deincentivised decarbonisation efforts in the past and therefore can not be extended, said Jorgos Chatzimarkakis, chief executive of Hydrogen Europe, a European association representing the interest of the hydrogen industry. The European iron and steel sectors made an estimated €16.1bn in additional profits from the EU ETS in 2008-19, according to a study by consultancy CE Delft commissioned by Carbon Market Watch. "This is a very disruptive and challenging process for us," said a sustainability source at another European mill.

By Brendan Kjellberg-Motton