Political framework
A number of key issues were adopted at the EU level in 2023, such as the directives on energy efficiency, and industrial and raw materials policy decisions will be taken in the Northern spring 2024 shortly before the final trilogue agreement between the Commission, Council, and Parliament. These include the Net-Zero Industry Act (NZIA), which is intended to support important industrial activities for the transformation, and the Critical Raw Materials Act (CRMA) to secure the (internal) supply of raw materials.
October 2023 also saw the start of the three-year trial phase of the Carbon Border Adjustment Mechanism (CBAM). The policy aim here is to ensure that imports of certain products into the EU receive comparable treatment in relation to the level of the CO2 pricing system that applies here. Anyone importing goods into the EU must therefore either provide evidence of a CO2 pricing system in line with the EU Emissions Trading Scheme (ETS) or must otherwise pay import duties.
The CBAM initially comprises the iron, steel, aluminum, cement, electricity, fertilizer, and hydrogen sectors, as well as selected upstream and downstream products. With the world’s first such border adjustment scheduled to go live as of 2026, a gradual phase-out of the free allocation of emissions trading allowances is planned in these sectors by 2034. However, solutions are still outstanding for exports from the EU to compensate for additional costs due to higher climate protection standards compared to other regions, and therefore to create reasonably comparable competitive conditions on the global market.
Despite their intentions which are basically understandable, these European and national regulations share one common drawback in that they often lead to excessive administrative work. Whether they will truly result in positive outcomes in terms of both climate and industrial policy therefore remains to be seen. One thing that is certain is that the reduction in bureaucracy originally promised by the European Commission has not yet materialized.
While important components of the Green Deal have not yet been finally adopted or implemented, the new 2040 climate targets are being discussed at EU level. The European Commission published its ideas on this at the beginning of February. The proposals specifically include a net target of a 90% reduction compared to 1990 in conjunction with an Industrial Carbon Management Strategy for unavoidable residual emissions. This primarily concerns Carbon Capture and Utilization or Storage (CCUS).
Although no more decisions will be taken in the legislative period of the European Parliament or by the current Commission, which ends in the first half of 2024, the implications of a renewed tightening of targets would be considerable, as all issues in the “Fit for 55” package would need to be adapted, including the process for legal implementation at the national level.
Similar discussions are currently taking place in the individual EU member states. Both Austria and Germany are working on a carbon management strategy which voestalpine believes should logically be an integral part of the corresponding EU plans.
The key question for all energy-intensive sectors will be how the industrial transformation can be made commercially viable in the long term. The key aspects remain the future European and national subsidy regime, the development of “green” lead markets for CO2-reduced products, as well as availability, secure supply, infrastructure, and competitive price levels for renewable energies. These challenges can only be mastered to a limited extent by individual companies themselves and require agreement on a coordinated industrial policy designed to tackle them.
The discussion regarding a new Industrial Deal for the European Union in the coming legislative period, which has been gaining momentum since the beginning of 2024, should not only create greater awareness of the fact that all relevant issues such as climate, energy, competition, trade, finance, and research/innovation need to be considered in an integrated and coordinated manner, but should ultimately also lead to a long-term, sustainable industrial policy agenda for the EU and its member states.
greentec steel: voestalpine’s forward-looking climate action program
With greentec steel, the voestalpine Group is gradually implementing an ambitious phased plan. greentec steel involves all of voestalpine’s activities and innovations on the path to steel production with net zero emissions. As part of the Science Based Targets initiative (SBTi), the voestalpine Group is committed to reducing the sum of Scope 1 and Scope 2 emissions by 30% and Scope 3 emissions by 25% by 2029 compared to the reference year 2019. Achievement of the 2029 target is also subject to external factors and influencing variables such as raw materials, energy, and the economic situation. greentec steel provides for various technological options with high potential for reducing CO2. The phased plan thereby provides a certain degree of flexibility to voestalpine, enabling it to react to changing conditions and at the same time limit the economic risk to a manageable level.
greentec steel comprises an investment volume of around EUR 1.5 billion in the first stage. This will initially involve installing two green electricity-based electric arc furnaces at the Linz and Donawitz sites and decommissioning two coal-based blast furnace units. The materials used involve a mix of scrap, liquid pig iron, and hot briquetted iron (HBI), with the mix adjusted according to the specific quality requirements. voestalpine sources the required HBI primarily from the direct reduction plant in Texas, USA. This plant has been majority-owned by a global steel manufacturer since 2022, with voestalpine holding a 20% stake as well as securing long-term procurement contracts.
The decisions on the systems and suppliers have now been taken and construction of the electric arc furnaces has begun. The Austrian federal government had granted funding of around EUR 90 million for this as part of the “Transformation of Industry” program. The environmental impact assessment procedure for the upgrades required to the electricity grid has been completed at the Donawitz site and has almost been completed at the Linz site at the time of writing.
voestalpine’s long-term concept for achieving net zero emissions by 2050 at the latest in line with the EU emissions trading target path consists of several modular technology steps and options. These are equally based on the greatest possible CO2 reduction effect, taking into account actual feasibility (e.g., with regard to the availability of raw and input materials and renewable energies, including the corresponding infrastructure).
An overview of the key elements and milestones of the greentec steel climate action program is provided below (reference year 2019 for Scopes 1 and 2):
- By 2029: Phase 1 with target of 30% reduction in CO2 emissions
- Investment in two electric arc furnaces powered by renewable electricity in Linz and Donawitz and decommissioning of two coal-based blast furnaces.
- From 2030 to 2035: Phase 2 with target of 50% reduction in CO2 emissions
- Focus on direct CO2 avoidance through further replacement of fossil pig iron production and anticipated supplementary use of carbon capture and utilization technologies.
- By 2050 at the latest: Phase 3 with target of net zero CO2 emissions
- Focus on replacing the remaining fossil pig iron capacities using fossil-free energy sources, such as “green” hydrogen and bioenergy, as well as capturing CO2 (CCUS) with the aim of achieving the greatest possible flexibility while at the same time making the net zero strategy economically viable.
- The final decisions will only be taken at a later date in accordance with investment cycles and in line with foreseeable conditions.