Steel industry calls for reliable political framework conditions

Dusseldorf The President of the Steel Industry Association found clear words in his speech: “The time of coal is irretrievably over in Germany,” Bernhard Osburg told his audience. No other topic occupied the speakers at the Handelsblatt annual conference “Future Steel” as much as the framework conditions for the production of climate-friendly green steel.

“The transformation to climate neutrality is a very big technological turning point for the steel industry,” says Osburg. “The economic environment in which our industry currently finds itself is more than challenging.”

The situation in industry is now more stable than it was half a year ago. “But it is precisely in the energy-intensive area, to which the steel industry belongs, that the sharp rise in energy costs is having an impact.”

And the crisis is having an effect: Almost all major steel manufacturers in Germany, such as Thyssen-Krupp, Arcelor-Mittal and Salzgitter, have already launched production processes to decarbonize their steel production by 30 percent by 2030. So-called direct reduction plants replace existing blast furnaces that use coal as a heat source.

The plants are still gas-fired, but in the long term they should run on hydrogen. Because the political requirements are clear: industry must have reduced its CO2 emissions by 30 percent by 2030 – and by 100 percent by 2045.

Bernhard Osburg, President of the Steel Industry Association

“There will have to be both climate protection agreements and green lead markets,” says Osburg.

The problems facing the steel industry are manifold: The energy crisis and supply chain problems that have come with the corona pandemic and the Ukraine war have made the decarbonization of the industry even more difficult. Now more than ever, the transformation of the steel industry requires high investments, because the production of low-emission steel will be significantly more expensive than conventional manufacturing processes.

In the middle of this energy policy crisis, the steel industry is making the largest investments of the past 50 years, says Osburg. The most important basis for the Green Deal is, on the one hand, the replacement of coal by hydrogen – but there is also the recycling of steel scrap, the production of which is already low in CO2.

“Preserving site security”

Close cooperation between politics and industry is therefore required. Osburg demands: The EU Commission must lift the state aid restrictions that are currently making it difficult for energy-intensive companies to take advantage of the electricity and gas price brakes. At the beginning of the year, entrepreneurs and associations criticized that the hoped-for relief did not reach many companies because the application entitlements were formulated too vaguely. In addition, a European strategy with an industrial electricity price is needed.

Economics Minister Robert Habeck recently sharpened the strategy for climate-neutral domestic industry. According to a funding guideline from the Federal Ministry of Economics and Climate Protection (BMWi), entrepreneurs should be able to register an interest in climate protection contracts, i.e. financial support from the state, as early as April.

There had been criticism of a previous orientation of the transformation plan for industry: the scientific advisory board of the Federal Ministry of Economics had called for green lead markets to be given more focus instead of giving priority to climate protection agreements.

“There will have to be both climate protection agreements and green lead markets,” says Osburg. Climate protection agreements are essential for the scaling of companies – but then the lead markets are also needed to absorb the burdens.

While green lead markets attract climate-neutral products to the market by creating artificial demand, climate-friendly goods are created with the help of climate protection contracts via subsidies and pushed into the market. However, in order for there to be green lead markets, there must first be a uniform definition of what green steel actually is – this is also still pending from the political side.

Inflation Reduction Act: “Uncomplicated and understandable”

The advantage of the Inflation Reduction Act (IRA) anti-inflation program from the USA: It is uncomplicated and understandable, according to Osburg. “In the current situation, I can understand why companies are migrating to the USA.”

Burkhard Dahmen, CEO of the plant manufacturer SMS Group, also warned that the first process steps in steel production could be relocated abroad – because transport is no longer guaranteed in times of crisis: “The past two or three years have shown impressively what happens when supply chains don’t work,” says Dahmen.

“In the past year, the federal government acted quickly – and created rescue packages, aid packages and price brakes,” replies Bernhard Kluttig, head of the Industrial Policy department at the BMWi. The rapid momentum in the crisis must now be maintained in order to accomplish the transformation. “It’s about maintaining location security in Germany and Europe, pushing investments in climate-friendly processes – and enabling a quick ramp-up.”

However, they do not want a trade war or subsidy race with the United States. “So we need a coherent overall European framework that promotes climate-neutral production in Europe and prevents carbon leakage,” says Kluttig.

More: Habeck is turning subsidy rules for the climate-friendly transformation of industry inside out

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