Climate protection

The political framework

The United Nations global climate accord (Paris Agreement), which took effect on November 4, 2016, is to replace the Kyoto Protocol as the global climate protection framework from 2020. The process established at the 2015 World Climate Conference in Paris with respect to the evaluation and monitoring of climate protection measures as well as the development and design of incentive and funding mechanisms is now being fleshed out and implemented step by step. The Paris Agreement aims to limit the rise in the global temperature to 2 degrees Celsius, if possible even 1.5 degrees Celsius, above preindustrial levels and provides for the virtually complete abandonment of fossil fuels by approx. the year 2050 to this end (“decarbonization”).

However, the voluntary commitments (“nationally determined contributions”) so far of the roughly 180 states and regions that are party to the global climate accord will not be sufficient to this end.

Both the European Union and its member states contributed the “2030 Goals” they adopted in 2014 to the global climate accord. These goals have constituted the parameters of the European strategy for energy, climate, competition, and innovation policies since then. Accordingly, by 2030 CO₂ emissions must be lowered at minimum by 40% compared with 1990. This results in a mandatory reduction by 43% relative to 2005 (the date on which the emissions trading system, ETS, was established) for sectors such as the steel industry that are subject to the ETS. At this time, however, a tightening of the already very ambitious targets for 2030 and the subsequent requirements for 2050 are being discussed at the level of the EU. Any failure to do so within a framework that is not as global as possible will trigger an even greater risk of competitive distortions for energy-intensive industries than is already the case to date.

In the company’s view, this puts the spotlight particularly on two areas in connection with the European Energy Union. For one, the Clean Energy Package known as “Clean Energy for all Europeans” was adopted by the trilogue (i.e. the final deliberations between the Commission, the Council, and the Parliament of the European Union) at the time this report was published. This package regulates key elements such as the expansion of renewable energies, the design of the energy market, energy efficiency, and the overarching governance required for preparing periodic national energy and climate plans. For another, negotiations on the EU’s 9th Framework Program (FP9), including the future funding and focus of the research and technology initiatives once the current Horizon 2020 Program ends, are taking place at this time. The development and implementation of new, large-scale production technologies is key to the steel industry. Cross-sector collaboration also requires promoting decarbonization in the long term through innovative approaches to energy management based on renewable sources of energy that encompasses generation, provision, infrastructure, and consumption. The European steel industry is currently preparing an updated road map of the challenges, potential solutions, and requirements for the period up to 2050.

At the national level, the Austrian Energy and Climate Strategy was adopted in May 2018. It sketches out the framework for decarbonization up to 2030 and the transformation pathway up to 2050. The specifics of implementing projects, measures, and showcase projects (regarding hydrogen, for example) are set forth in special administrative laws as, for example, the new Austrian Energy Act, which is designed to combine individual statutory requirements into an integrated framework.

EU emissions trading

The amendment of the EU Emissions Trading System (EU ETS) was adopted for the 2021 to 2030 trading period at the end of 2017. This system obliges companies to buy rights for every ton of carbon dioxide emitted, and certain industries are allocated a specific number of certificates at no cost.

While a formal, so-called “Carbon Leakage Protection” program has already been in place, the focus on benchmarks (i.e. the state-of-the-art in each case) is designed to offer incentives for achieving them as well as for preventing industries currently still saddled with “inevitable” CO₂ emissions from being relocated to regions outside of Europe. In actual fact, however, the target of allocating no-cost emissions trading certificates to the top 10% of the best performers in each case is clearly being missed due, in particular, to deductions required for methodological reasons which, in turn, leads to significant under-allocations (shortfalls in emissions rights). The voestalpine Group’s resulting need for additional allowances in the ETS trading period that runs until 2020 will correspond to about one third of its total CO₂ emissions. It is estimated from today’s vantage point that the need for additional allowances will be more or less the same during the 2021-2030 period. The EU Commission will establish the benchmark for no-cost allowances only after the respective legal framework has been put in place.

However, the most recent price developments with respect to emissions trading certificates lead us to believe that the voestalpine Group will face a significantly higher financial burden after 2021 due to the significant tightening of emissions rights under the revision of the ETS. The “CO₂ price” soared by around 180% in the business year 2017/18; most of this increase occurred after the adoption of the ETS revision.

Based on current estimates, during the 2021-2030 trading period the voestalpine Group will need to buy additional allowances annually for up to approx. 4.5 million tons. Assuming a per-ton price range of EUR 20 to EUR 30, this would translate into costs per annum of between EUR 90 million and EUR 135 million, and costs for the entire trading period of between EUR 900 million and more than EUR 1.3 billion.

Aside from the no-cost allocation (which is sufficient only in theory) and the practically unattainable benchmarks, voestalpine’s main criticism is that the ETS siphons funds from companies that they need for their own energy and climate protection investments. voestalpine thus proposes that ETS expenditures be redirected back to the companies for specific purposes in order to push the development of low-carbon technologies and the restructuring of the energy system this requires.

Decarbonization: challenge and possible solutions

The emission intensity of steel production stems, chemically speaking, from the coal-/coke-based production technology pursuant to the “Linz-Donawitz” (LD) process (production of pig iron in the blast furnace, production of crude steel in the oxygen converter), which still is the state-of-the-art for steel production worldwide. The production of pig iron in a blast furnace relies on coke as a reducing agent: it delivers the carbon necessary for removing oxygen from the iron ore. The carbon still contained in the iron ore is oxidized in the LD converter by blowing oxygen into it. The CO₂ emissions resulting from this process can only be reduced by partially replacing the carbon (fully, in the long run), i.e., by means of entirely new metallurgical processes.

“Less CO₂” means “more energy”

The fossil raw materials are at one and the same time the most important conveyors of energy in the process. As far as their power needs are concerned, voestalpine’s steel facilities in Linz and Donawitz, Austria, are largely autonomous, because they get most of their electricity from the integrated, coal-/coke-based energy cycle. Process gases arising from the production of steel (e.g., at the blast furnace) are converted into electricity in our own power plants which, in turn, is used in downstream facilities (e.g., rolling mills).

voestalpine would need the equivalent of about 33 TWh of additional renewable electricity from the external grid just at these two facilities in order to replace this fossil fuel-based cycle. This corresponds roughly to 30 hydroelectric plants.

Hence, the production of steel is faced with two major challenges:

• The industry is pursuing different approaches to develop and bring to industrial maturity novel, breakthrough technologies. voestalpine is focusing on the direct avoidance of emissions (carbon direct avoidance) by way of hydrogen. The development and use on a major industrial scale of hydrogen metallurgy is a long-term project which, from today’s standpoint, will take until about 2035 to mature.
• However, switching to processes available at that time will have to be not only technologically feasible but also financially viable. Renewable energy will have to be available in sufficient quantities that provide the highest possible energy security and stability and, not least, at internationally competitive prices.

Incremental decarbonization: the voestalpine way

voestalpine’s scenario for achieving the climate targets provides for step-by-step decarbonization by way of the long-term vision of using hydrogen. Here is an overview of the three pillars of this approach:

• Direct reduction, a transitional technology: The direct reduction plant in Texas, USA, which was put into operation in the fall of 2016, produces hot briquetted iron (HBI) and/or direct reduced iron (DRI) using natural gas instead of coal/coke. Using HBI in the existing blast furnaces in Linz and Donawitz will make it possible to lower CO₂ in the Group by up to 5%. Subsequently, natural gas as a reducing agent can be replaced incrementally by “green” hydrogen.
• Hydrogen, the cutting-edge technology: The Sustainable Steelmaking (SuSteel) pilot plant in Donawitz is conducting research on using hydrogen plasma smelting instead of the current blast furnace/LD steel plant technology to reduce iron ore.
• “Green hydrogen,” the renewable generation of energy: A pilot plant is being built as part of the EU’s H2FUTURE project at the Linz facility in cooperation with partners for large-scale testing of the proton exchange membrane (PEM) electrolyte technology.

H2FUTURE: The vision of “green” hydrogen in the steel industry

The H2FUTURE project consortium—which includes voestalpine, VERBUND, Siemens, the Austrian Power Grid (APG), as well as the scientific partners K1-MET and the Energy Research Centre of the Netherlands (ECN-TNO)—is building the currently largest electrolyzer facility for generating green hydrogen at voestalpine’s Linz facility, for the management of energy in the future using hydrogen. This showcase project is supported by the EU Commission as part of the Horizon 2020 Program (Fuel Cells and Hydrogen Joint Undertaking).

The project’s goals and milestones

Electricity is required to generate hydrogen. At this time, hydrogen is produced almost exclusively by fossil means, specifically, by the formation of natural gas. H2FUTURE aims to produce “green” hydrogen, i.e., hydrogen that has been generated by renewable means from water using the so-called proton exchange membrane (PEM) electrolyte technology. The hydrogen generated is to be tested for use as an industrial gas, and the facility on the whole within the electricity balancing market.

H2FUTURE examines key issues of linking sectors such as energy and industry, as well as the applicability of the technology to other industrial sectors that can utilize hydrogen in their production processes. Another key issue concerns the integration of the rapid-response PEM electrolyzer facility into the electricity balancing markets by developing demand-side management solutions. Such solutions use load management at major consumers to offset fluctuations in the increasingly volatile electricity grid.

The project was launched in 2017 and the construction work started in early 2018. Now already nearing completion, the installation of the electrical core components will begin in the summer of 2018; the initial commissioning is slated for the end of 2018. The start-up of the extensive pilot program, which will run until about the middle of 2021, is planned for the spring of 2019.

Sustainable steelmaking: Steel production without intermediate steps

The most visionary approach to research in this field concerns the ability to produce steel directly from iron oxides without any intermediate steps. The Sustainable Steelmaking (SuSteel) project aims to develop novel hydrogen plasma technology for the CO₂-free and thus more sustainable production of steel. It entails using hydrogen plasma to both reduce oxides and serve as a source of energy for smelting.

The use of hydrogen as a reducing agent merely produces climate-neutral water. In order to push the development of this approach all the way to its actual technological implementation, a pilot plant for the incremental adoption of components and component groups is being operated in collaboration with our consortium partners (Montanuniversität Leoben and K1-MET) at voestalpine’s Donawitz facility in cooperation with voestalpine Stahl GmbH, Linz. This facility is designed to demonstrate on a small scale by 2019 that the smelting reduction of iron oxides in the hydrogen plasma, and thus the ability to produce CO₂-free steel, are fundamentally feasible.