Across Europe, the steel industry is suffering from increasing pressures and needs restructuring, but by putting the blame on the EU’s energy and climate policies the industry is in fact biting the hand that feeds it, writes Reinhard Bütikofer.
Reinhard Bütikofer is co-chair of the European Green Party (EGP) and a member of the European Parliament, where he sits on the Industry, Research and Energy Committee. He is the European Parliament's rapporteur on raw materials as well as industrial policy.
Europe's steel industry is caught in the grips of the economic crisis. With reduced industrial activity, the demand for steel has plummeted. Since the beginning of the Great Recession, steel demand in the EU-27 has dropped by around 25 per cent. Simultaneously, new industrial powerhouses such as China and India have increased their share in the global steel market, putting pressure on European steel companies. This has hit the European industry hard. It seems to have mistakenly believed that it would enjoy its preeminent position with a constantly growing world hunger for steel ad infinitum.
Now, it is struggling to find a way out of this dilemma. Restructuring efforts such as closing down production sites or reducing output has shed about 40.000 jobs. Yet, the steel sector is not recovering. As a truly European industrial sector with over 500 production sites split between 23 EU member states, the steel industry has appealed to the European Union for help in these difficult times.
Regrettably, instead of addressing the root problem of the situation – depressed demand, over-capacity and a lack of a movement to higher value-added steel production – the industry has made the EU's climate and energy framework responsible for its conundrum. Climate and energy policies – from the steel industries' perspective – "are destructive, are badly constructed and have to be changed". The steel industry in particular calls on the EU to revisit its policies to bring down energy prices for industry, which they say have increased due to the EU's climate and energy framework such as the emissions trading system. (1) Dr Eder, CEO of the Austrian steelmaker voestalpine, has said that EU climate and energy policies are among the main causes for the deindustrialisation in Europe. (2)
This short-sighted approach is faulty in two fundamental ways. First and foremost, it does not take into account the large variety of exemptions and free CO2 allocations that the steel industry enjoys, which cushions the impact on energy prices. According to an analysis by the Oeko-Institute, energy-intensive industry in Germany such as the steel sector, receive a CO2-cost compensation, receive free CO2 emission allowances that can be sold for a profit or banked for the future given that production has decreased, and is exempt from paying fees for energy network use. Combined with the fact that the increase in renewable energies has actually over time led to a decrease in energy prices of about 10 €/MWh, the Oeko-Institute comes to the conclusion that the energy-intensive sector in Germany would with a smart energy procurement strategy almost reach parity with its counterparts in the US when it comes to energy prices. (3)
Secondly, by attacking the energy and climate agenda, the European steel industry is actually undermining the very agenda that provides a vision for addressing the overcapacity crisis which it is facing. It's simple: the European steel sector has a clear demand-side problem. Neither the construction nor the automotive industry can come to its rescue and solve this. But, a clear focus on sustainable infrastructure development could bring hope.
After all, renewable energies need a lot of steel. A single 3MW wind turbine needs the same amount of steel as about 500 cars. Improving the energy performance in existing buildings by setting ambitious standards could lead to a veritable renovation boom that would be a boon for the steel industry. Fuel efficiency standards would also provide an opportunity for developing and selling new light-weight steel products as would hybrid and electric cars, all of which would help the European steel industry move into an increased value added speciality segment allowing it to open up and conquer new markets.
By advocating a roll-back on climate and energy policies, the European steel industry is actually biting the helping hand that could feed it. Instead, it should recognize the opportunity that an ambitious energy and climate strategy provides and move their business into higher value added segments. After all, as put by B. C. Forbes, founder of the financial magazine Forbes in 1917, "if you don't drive your business, you will be driven out of business". Particularly relevant in that context is the discussion surrounding the EU's energy and climate framework for 2030, which needs to provide an ambitious vision that could help the overcapacity problem that the steel industry faces. This should be adequately addressed in the European Steel Action Plan, which at the moment glaringly ignores the opportunities that such a strategy could offer.
In addition, there are a number of ways on how to help the steel industry also increase its competitiveness and do so firmly on the basis of sustainability. For example, a green industrial policy also advances an ambitious recycling policy that helps limit the exports of illegal electronic waste. This is important as it would allow a greater input of scrap metal for the steel industry to be used in electric arc furnaces, which only take one-third of the energy required for primary steel production. High performance, resource and energy efficient standards in public procurement would also support those steel industries transitioning to a higher value-added where international competition is smaller.
There are also important research and development efforts underway that promote low-carbon steelmaking. Most notably is the ULCOS (ultra low CO2 steel making) project that has been running since 2004 bringing together 48 companies from 15 EU Member States with a budget of 75 million EUR. This R&D project has moved into the second stage in 2012 and will now advance pilot and demonstration steel plants with the aim of leading a market breakthrough by 2020-2030 for low-carbon technologies ranging from carbon capture and storage (CCS), top gas recycling, as well as electrolysis using renewable electricity.
The European steel industry is at a crossroads. The low road is a dumping strategy of low social, health and environment standards with low energy prices, unsustainable subsidies, in a low value-added segment that is already way too saturated and in which our global competitors from China to India hold strong cards. The end of that road won't lead to a competitive and sustainable European steel industry, rather it is likely to be its demise. The high road offers a green industrial strategy that pursues a competitiveness policy rooted in sustainability with an ambitious energy and climate framework. This road will offer a great demand for high quality European steel produced at high standards with top-notch technology and innovation. This road, to quote President Obama in his inaugural speech in 2013, "will be long and sometimes difficult. But [we] cannot resist this transition; we must lead it. We cannot cede to other nations the technology that will power new jobs and new industries – we must claim its promise".
3. Matthes, Felix Christian. "Aktuelle Stromkosten für die energieintensiven Industrien in Deutschland", Oeko-Institute, 23 June 2013.