CEEP members all feel the same effect: the Paris agreement is bringing a new framework for their business activities in the energy sector and energy-intensive industries. The main challenge is the general and declarative form of the final document. This demands a specified action plan, which needs to be tailor-made for each market.
It goes without saying that the global character of the Paris agreement is a major step towards enhancing the global climate perspective. “We welcome the fact that a large part of the international community has come together to formulate a framework settlement. . Yet, binding and comparable targets were not specified. We are still far away from a fair global level playing field for industry in the sphere of climate policy,” noted Tomasz Ślęzak, Country Manager of ArcelorMittal Poland.
To illustrate his point, he turned to the European steel industry, as a good example, when analysing the effects of the Paris deal, indicating that Europe is already the most efficient steel production region in the world. Yet, the reform of the ETS will be of utmost importance for us within the global CO2 reduction targets that were discussed in Paris. Currently, the ETS reform proposals leads to a large gap of free allowances for EU steel producers towards competitors outside the EU. “Thus, we first need a global level playing field. Binding climate targets should, therefore, take into account the regional situations and CO2 reduction potentials,” noted Mr. Ślęzak.
[Tweet "Wacław Gąsior, KGHM: a more rational ETS policy is a must"]The challenge facing the steel industry is that the current ETS proposals would lead to huge shortages of emission allowances for steel. This would result in strong carbon, investment, and job leakage. This situation is similar in the case of the non-ferrous metals sector, including copper mining and smelting. According to Wacław Gąsior from KGHM, the Paris agreement is too general to provide a proper balance between the EU’s plans to cut emissions by 40%, and China’s decision to raise them. “In this situation, a more rational ETS policy is a must. We believe that, after 2020, Europe should implement a harmonised system of allowances for direct CO2 emissions, as well as financial compensation for the cost of indirect emissions (resulting from electricity consumption). There should also be proper compensation of what the process emits. These may not be fully controlled in the copper industry, due to organic carbon from concentrates being the main source of these discharges. Therefore, carbon leakage allowances should be granted, based on real technological benchmarks, and not simple arithmetical reductions.”
[Tweet "In Europe, we are already close to the most energy effective model of ammonia production process"]The specifics of emissions allowances is equally important for the chemical and fertilizer industry. Marek Kapłucha, Vice- President of Grupa Azoty, underlines that it is also in this field that the Paris summit will impact upon the company’s business activities. “In our industry, two-thirds of CO2 emissions are generated by the usage of natural gas in the process of ammonia production, and not heat generation. This is the only ammonia production technology available in the world, and CO2 emissions are inevitable in this process. In Europe, we are already close to the most energy effective model of this production process, and further CO2 emission reductions are hardly possible, and virtually impossible. In this case, the only solution is to have a guarantee of 100% free allowances for each installation that has met global benchmarks. Otherwise, Europe will be losing capacity and will not be able to compete with other regions, in which environmental regulations are not so stringent. This will inevitably lead to the leakage of industry outside the EU, to such countries as Russia, China, or the US. The consequence will be, not only the loss of jobs in Europe, but also raising – rather than lowering – global emissions.”
The way CEEP members see it, the system of emission allowances should be planned to create incentives to boost production in the EU. “If we do not want to continuously lose our global competitiveness, we need to find a compromise between climate goals and technological solutions that are currently avfailable,” stated Jan Woźniak, a Member of the Board of Impexmetal, a metals production and trade company. That is why the Paris summit should open a gate for the re-orientation of the global energy system to one that is consistent with global climate goals. This is also important for the refining industry, which is continuously seeking to improve its energy efficiency, based on valuable technological know-how. Anna Dąbrowska, from Grupa LOTOS, hopes that all countries align their efforts in the fight against climate change, so that regulatory differences are equal, particularly between the EU and other major world economies. “Fighting climate change is a global challenge, requiring effective measures to be undertaken by all significant world economies, under an effective and clear international global agreement,” she stressed.
It is the global perspective of the energy markets that is most important for coal producers. According to the World Coal Association, up till 2040, the production of energy from coal will grow by almost one-fourth. This, however, applies for mostly developping countries, with major energy deficits. At the same time, the readiness to reduce CO2 emissions was – for the first time in history – officially declared by such countries as China and the US. “These countries are the world’s leading coal producers and consumers. Once they proceed with CO2 emission reductions through lower coal consumption, we will see additional oversupply of this resource in the international markets. This will lead to a further drop in coal prices, which will negatively impact upon Polish and European mining companies,” said Piotr Bojarski from JSW the EU’s largest coking coal producer and an active CEEP member in 2015. Furthermore, Daivis Virbickas, CEO of Litgrid (Lithuania’s electicity TSO), declared that, in such a situation, the electricity producers who use traditional fossil fuel for power generation, will have to revise their operations and implement measures mitigating environmental impact.
That is one of many challenges faced by the power industry in Europe, especially Central Europe. According to Perica Jukić, Chief Executive of HEP (Croatia’s leading energy company), enabling renewable penetration, customer involvement and digitalisation requires a transformation and involvement of the demand side, through new efficiency business models. “We need to map out the technical and financial feasibility, along with the environmental benefits of different penetration levels for electrification. Within the COP-21 agreement, developed countries are supposed to continue taking the lead by undertaking absolute emission reduction targets. The biggest challenge is that, as Annex I of UNFCCC states, Croatia is officially declared as a developed country. Yet, taking into account that our GDP per capita is only 59% of the EU-28 average, it will be very hard for our power sector to tackle and achieve those absolute emission reduction targets.”
CEEP members agree that despite the lack of specific solutions and binding regulations, the results of the Paris summit are going to impact upon their businesses. The word ‘compromise’ is used by most of them, as if they were relieved that something much worse could have happened. At the same time, none of the major challenges of the European energy sector and energy-intensive industry have been solved. The COP-21 agreement dealt with global issues and specifics, not European ones, and this is the underlying concern for Europe’s energy and energy-intensive sectors, whilst the spectre of ETS reform may yet present further problems. Yes, major challenges for European industry remain!