Annual Platt’s Steel Markets Europe Conference · 12th Annual Platt’s Steel Markets Europe Conference ... Tata Steel Europe. 1. ... July-December 2015 12 , from UK Steel analyses.

Paris Climate Change COP21 - Implications for the viability of the EU Steel Industry

12th Annual Platt’s Steel Markets Europe Conference

1 July 2016

Christopher Beauman, EBRD

COP21 Paris: Some Headlines

* Global 195-nation agreement to target of 2oC maximum warming

- with aim to reach 1.5oC

* Nationally Determined Contributions (NDCs) to 2030 submitted

(trajectory to 2.7oC to 3.5oC warming)

* Stocktake of NDCs every five years – process starts 2018

Provision to ratchet up NDCs to achieve target warming

* “Nil net emissions” set as target for second half of 21st Century

* “Mission Innovation” – 20 countries

* “Breakthrough Energy Coalition” - businesses

2

Total CO2 emission in the EU Member Countries

3

Total CO2 emission in the EU Member Countries (EU-27) and Norway in the period 1750-2010, as well as the emission reductions

required in the period 2010-2050 to achieve an 80% reduction by Year 2050, as compared to Year 1990 levels

(European Commission, 2011).

Source: J.ROOTZEN – Pathways to deep decarbonisation of carbon-intensive industry in the European Union (2015)

22 SITES OVER 2.0mt CO2 2015

13.6

12.9

11.2

11.1

9.1

8.6

8.1

7.9

7.4

7.2

6.3

5.9

5.7

5.3

5

4.5

4.3

4.1

4

3.9

3

2.1

TKS Duisberg/HKM Duisenberg (1)

AM Poland-2 sites (inc Coke Plant) (2)

AM Dunkerque (3)

ILVA Taranto (4)

voestalpine Linz (5)

US Steel Kosice (6)

AM Fos (7)

TATA Port Talbot (8)

Salzgitter (9)

Dillingen (10)

Tata Ijmuiden (11)

AM Espana (12)

Scunthorpe (13)

AM Bremen (14)

AM Ostrava (15)

AM Galati (16)

Trinecke (17)

SSI Teeside (18)

AM Gent (19)

SSAB Rautabruuki (20)

voestalpine Donawitz (21)

SSAB Oxelosund (22)

m t C O 2 (T O T A L: 151.2)

Derived from EU CITL 4

12

2

22

20

19

16

6

15

10

9

14

1

3

11

5

4

7

8

13

18

EU Locations CO2 Steel

17

21

EBITDAs percentages – 2015/2016

6

22

18

17

13

10

8

8

6

6

5

-1

-5 0 5 10 15 20 25

Severstal Russian Steel

NLMK - overall

Erdemir

Voestalpine - steel divisions

ThyssenKrupp Stahl Europe

Outukumpu

ArcelorMittal Europe

US Steel Europe

SSAB - Overall

Salzgitter

Tata Steel Europe

1.

Industrial activities with the highest

cost increase from carbon pricing

Production of cement and steel alone accounts for 38% of European industry emissions:

Important to realize mitigation opportunities of selected carbon intensive materials

Production and use of these materials justifies focussed attention

Ele

ctr

icity c

ost in

cre

ase

(b

lue

) co

st fo

r b

uyin

g a

ll

allo

wa

nce

s (g

rey)

rela

tive

to

gro

ss v

alu

e a

dd

ed

.

Source: Sato, Neuhoff, Graichen, Schumacher, Matthes, Environmental & Resource Economics. (2015)

(Example UK, carbon price 20 €/t CO2 and electricity price increase 10 €/MWh)

dominated by production of carbon intensive materials )

Source: Climate Strategies

7

EU Steel: projected total direct emissions

v free allocation (2021-2030) (ECOFYS)

Project total direct emissions (blue) and

free allocation (green) for the steel sector Source: ECOFYS: Carbon costs for the Steel Sector in Europe post-2020

8

Contradictions of the EU ETS

To achieve 43% reduction by 2030……..

Effect on EU Steel EBITDA:

• From <1% today – mostly free allocation and EUA price of EUR 6pt to:

• Up to 6% in 2030 - assuming 49% free allocation

(based on evolving benchmarks)

- EUA price of (say) EUR 30pt

(TRPoint Carbon scenario)

- (subject to Pass-Through)

• Mitigated by imposing ETS on Importers?

• But subject to “Cross Sectoral Correction Factor”

9

European Parliament and Carbon Leakage

European Parliament Environment Committee:

Proposals under discussion 21 June 2016

• More focussed distribution of free allowances

• Qualitative assessment of key sectors

• New benchmark reduction rate of 0.3% for sectors for whom

0.5% unachievable

• Up to 2% of auction share to be transferred to free allowance

pot if “Cross Sectoral Correction Factor” is triggered

10

Meeting EU decarbonisation goals for Steel

• ULCOS-related routes: - Top Gas Recycling, with CCS

- HISarna smelting (Tata

demonstration), with CCS

• Hydrogen-based Steelmaking:

proposed SSAB, LKAB, Vattenfall vision (April 2016)

• Need for massive Innovation Funding

OR

• Steel emissions matched by 2050 by BECCS

(negative emissions) in other sectors

11

EU industrial electricity prices for “Extra Large”

energy users (including taxes prior to compensation/

exemption measures) – July-December 2015

12

, from UK Steel analyses.

EU industrial electricity prices for “extremely” large energy

consumers in selected EU Countries after all Government

price-reduction interventions – October 2014

13

EU27 – Steel’s role in Savings on

CO2 Emissions (VDEh/BCG)

Source: Steel’s Contribution to a low-carbon Europe 2050 (BCG)

14

EBRD loan supports Severstal’s

energy efficiency drive

Client: JSC Severstal

Previous transaction: i) financing construction and operation

of a hot dip galvanising line (Severgal signed in 2003);

ii) financing construction and operation an on-site air

separation plant to upgrade quality and reliability of oxygen

(Air Liquide – Severstal JV signed in 2005)

Current EBRD Finance: unsecured loan for up to €600

million, of which €450 million syndicated

Tenor: 10 years

Use of Proceeds: the loan will finance a number of important

energy efficiency projects including reduction of Severstal’s

primary energy consumption

EBRD added Value: the investment programme will be a

major transformation of energy efficiency in the Russian steel

industry

15

Project

Summary

Erdemir, Turkey

Client

Erdemir Group, founded in 1960, is Turkey’s largest

steelmaker, accounting for approximately a quarter of

Turkey's crude steel production (9.1m liquid steel

capacity).

EBRD Finance

€75 million long-term loan to the steelmakers Erdemir

and Isdemir, both part of Erdemir Group.

Use of Proceeds

The EBRD loan will finance a comprehensive investment

programme that to support Erdemir make the most

effective use of resources in manufacturing processes.

The investment programme include top-pressure

recovery turbines, which utilises high-pressure gases

collected at blast furnaces to generate electricity.

EBRD value added

Supporting companies such as Erdemir to adopt the

best resource efficient technologies is part of the

EBRD’s Green Economy Transition approach, which aims

to increase the level of EBRD financing for sustainable

resources.

2016 Signed in

16