Berlin The pressure on the European steel industry is growing. Despite difficult framework conditions, companies have to radically change their production processes in order to manage the path to climate neutrality.
A good third of primary steel production, i.e. steel production in blast furnaces, must be converted to hydrogen-based processes before 2030 so that the industry can remain sustainable. That is the central message of an as yet unpublished analysis by the think tank Agora Energiewende on the transformation of the steel industry, which is available to the Handelsblatt.
In combination with the expansion of the secondary steel route, which is based on the melting of steel scrap in electric steelworks, “a path is opening up for the development of resource-efficient, climate-neutral and independent steel production in Germany,” according to the analysis.
But the way there is challenging, especially in this country: “The current crisis situation increases the pressure on European steel companies to act. This applies in particular to Germany,” says Frank Peter, Industry Director at Agora. A large part of the blast furnaces in Germany were operated with coal and iron ore from Russia. “This requires complex adjustment measures,” explains Peter.
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But that’s not all: “In addition, the competitive conditions are intensifying due to rising CO2 prices and the reduction in the free allocation of emission certificates in the course of the introduction of a CO border adjustment,” said Peter.
The EU is working flat out on a CO2 border adjustment, known in technical jargon as the Carbon Border Adjustment Mechanism (CBAM): Products that are imported into the EU are subject to a surcharge, the amount of which corresponds to the European CO2 costs.
Countries like the USA and China take a critical view of this.
High gas prices act as a transformation accelerator
They argue that a CO2 border adjustment is nothing more than protectionism and contradicts WTO rules. The EU does not want to be deterred by this and will introduce CBAM in test operations as early as 2023. This is initially to be limited to cement, aluminium, fertilisers, electricity and steel. The Council, Commission and Parliament are still struggling to come up with details.
For example, it is unclear how exports by European companies to non-EU countries should be supported. In the course of CBAM, the EU wants to allocate significantly fewer free emission certificates to industrial companies that are in international competition. Companies have to buy more certificates and therefore sell their products more expensively.
>> Read here: “The same steel, but CO2-neutral”: Saar steel works say goodbye to the blast furnace
Steel manufacturers in Germany, such as Thyssen-Krupp, Salzgitter or Arcelor-Mittal, are already investing in processes to become climate-neutral. Only a few days ago, Thyssen-Krupp announced a corresponding investment.
In July, the Salzgitter Supervisory Board cleared the way for the first phase of the company’s largest investment in more than two decades. The plan is to set up low-CO2 steel production. The project aims to raise the process, the so-called direct reduction, from the pilot scale to the industrial level. The company thus needs one less blast furnace.
If climate-neutral hydrogen is used for the direct reduction process, CO2-free steel is produced. Since climate-neutral hydrogen will only be available in sufficient quantities in the medium term, manufacturers could initially also use natural gas.
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Peter thinks it makes sense to initially operate the direct reduction with natural gas because the infrastructure for renewable hydrogen has yet to be created. “The high natural gas prices make the quick switch to green hydrogen particularly attractive,” says Peter. Gas prices acted “like a transformation accelerator”.
But the change will not be manageable without the help of the state. The old federal government had already recognized the problem and, together with the industry, developed a “steel action concept”, which was presented in July 2020. Not much has happened since then, public funding is essentially limited to pilot projects.
Awaiting large-scale promotion
Despite high energy prices, the additional costs of steel transformation can be “reduced to well under nine billion euros” according to the Agora analysis. Green steel could be competitive as early as 2035 through an intelligent combination of policy instruments at national and European level.
The companies are waiting for the go-ahead for large-scale funding. “We can set up the entire process chain. We want to have completely replaced steel production via the blast furnace route by 2033, not 2045,” said Salzgitter boss Gunnar Groebler a few months ago.
The group demands quick political decisions.
(Photo: dpa)
This significantly tightened the schedule. “What we need now are quick political decisions for the right framework conditions,” said the head of Germany’s second largest steel manufacturer.
>> Read here: High energy costs: These industries want to keep increasing their prices
Frank Peter shares the demands of the industry. The means of choice for political support are climate protection contracts, known in technical jargon as Carbon Contracts for Difference (CCfD). With such contracts, the public sector commits to companies investing in new, climate-neutral processes to cover the additional costs compared to investments in conventional technology as well as the additional expenses for ongoing operations.
“In this challenging transformation phase, climate protection agreements are of central importance for companies,” says Peter. It is therefore important that the Federal Ministry of Economics organizes the first tenders in a timely manner in order to push for concrete investments.
“The EU Commission must also act quickly. Ideally, the national and European policy and funding instruments for the construction and operation of climate-friendly steel production plants can be combined,” says Peter. On request, the Federal Ministry of Economics stated that the funding guideline for a program for climate protection agreements was currently being written and that it was expected “that the first CCfDs could be concluded with the steel industry at the beginning of 2023”.
With the analysis now available, Agora Energiewende has updated the study on the transformation of the steel industry presented in September last year. It was created in cooperation with participants from business, science and ministries and is intended to serve as a kind of roadmap for the transformation process in the industry.
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