Presentation on theme: "Current and pending measures, and insights from the steel and cement sectors Peter Wooders, Senior Economist, Climate Change, Energy & Trade, IISD (International."— Presentation transcript:
Current and pending measures, and insights from the steel and cement sectors Peter Wooders, Senior Economist, Climate Change, Energy & Trade, IISD (International Institute for Sustainable Development) December 17 2009
A focus on the practical Governments are already responding to competitiveness and leakage concerns Primarily through free allowances, not Border Carbon Adjustment (BCA) Only a few sectors being actively considered for BCA Steel Cement Any others? BCA debate to date has been high-level What does detailed analysis of sector realities tell us? 1.What impact would a BCA have on a developing country? 2.How do we account for embedded carbon variations?
Pending Measures Free allowances are here… …to stay? BCA under EU ETS appears to be at least a decade away US debate sees possibility of BCA progressively nearer Current levels of free allowances appear sufficient to cover all lost profit E.g. EU ETS uses BAT A physical concept applied as an economic approximation So level of border taxation should be zero or low Practical problems with measuring embedded carbon may further blunt the teeth of BCA BCA levels would only be significant when countries move away from free allowances to auctioning
Steel and Cement fundamentals Both industries highly cyclical Need to recover capital costs across the economic cycle Economic plant size is large >1 million tonne/year capacity $1+ billion capital cost (steel); $250+ million capex (cement) Industries continue to consolidate Moving progressively towards globalisation Technology is essentially locked in Only minor efficiency gains possible Increase on price higher for cement: at $25/tCO 2 Steel: +8% [$45/tonne re: price of $600/tonne] Cement: +25% [+$20/tonne re: price of $80/tonne] Steel international trade much higher (40% v 6%)
Emission Reduction Options Key categories Recycling (steel), blending (cement) Phasing out of obsolete plant (mainly developing countries) CCS (carbon capture and storage) Breakthrough technologies Nothing obvious – more like Aviation than Automobiles or Powergen Demand reduction Carbon market alone likely to be insufficient to drive significant emission reductions Unclear that sectoral crediting mechanism (SCM), carbon tax, BCA or any other measure which created a price could work on its own e.g. closing down obsolete plant may need welfare payments; increasing scrap recycling or blending need new policy
Effective Carbon Price caused by a BCA in a Developing Country Have seen that carbon pricing on its own may not drive much abatement BCA likely to deliver only a small effective carbon price Example below shows an effective carbon price of only 25% of the value of the BCA imposed by one trading partner
How do we account for embedded carbon variations? Most steel and cement traded are bulk products Homogenous, rather than speciality Thus there is effectively one market Within this, ascribing exports to a single producer is not always that meaningful (analogous to renewable electricity in the grid) Clear incentive for exporters to claim that their exports are from the lowest carbon-intensity plants Complexities of setting boundaries (notably accounting for electricity and low carbon alternative inputs) will also tend to incentivise reporting at the lower end of the range Best Available Technology - likely to be far below average Steel: Electric Arc Furnace approximately 0.4 tCO 2 /t (recycled) steel Blast furnace, using iron ore, approx. 2 tCO 2 /t steel Cement: Dry kiln now used everywhere (for new plant) Blending rates of 30%+ possible
Can we define embedded carbon content by country? Current averages for countries driven by Shares of new and existing plant Capacity of (small) obsolete plant (emissions often >50% higher) Availability (physical and political) of recycling and blending materials New plant is generally built to global best available standard, in all countries In order to be competitive internationally Independent of climate policy Gaming possibilities, e.g. semi-finished products, intra- company transfer (e.g. of clinker) Maybe best starting point is to ascribe on the basis of technology, on a national basis But we can expect a number of challenges Which will tend to lower accounted carbon
Conclusions for responses to Competitiveness and Leakage 1. BCA levels wont be significant until we have auctioning 2. BCA gives little incentive to abate in developing countries Effective carbon price low; carbon price alone a weak incentive 3. A national sector average for embedded carbon would be challenged by individual producers Who have new plant Who are using recycled and blending materials 4. Best Available Technology (BAT) embedded carbon levels are too far below the sector average to be useful Applying BAT level would give a weak, ineffective signal 5. These practical issues are another reason why we may not see BCA implemented in practice 6. Free allowances are here (to stay?) – cost-effective? 7. Need more detailed analysis – Forum?