Saving European steel, and the environment too – by Aditya Mittal

Posted on 23.10.14 by

ArcelorMittal

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Soon after World War II a group of visionary leaders, recognizing the importance of steel to European prosperity, formed the European Coal and Steel Community. The ECSC would become an early precursor of today’s European Union.

Aditya Fortune article

Six decades on, the steel industry remains an important engine of Europe’s economic progress, directly employing 335,000 people, indirectly supporting 1.5 million jobs and generating 4% of the EU’s gross domestic product. None of this has escaped today’s EU leaders. In fact, they would like the GDP contribution of Europe’s industries, including steel, to increase to 20% from 15%. But they would also like that growth to be “sustainable,” at the same time reducing the region’s environmental impact.

As the world’s largest steel and mining company, ArcelorMittal wants to play its part in this lower-carbon economy. But we are concerned that the proposed plans to achieve this goal will not only make the targets impossible to reach but will in fact lead to a significant decline in European industry.

So when Europe’s heads of state meet on Thursday and Friday to finalize the 2030 policy framework for climate and energy, there is a lot at stake, for us as steelmakers and for the EU economy, industry and environment.

At its heart the policy framework focuses on reducing greenhouse-gas emissions, increasing renewable energy, making energy supplies more secure and affordable, encouraging Europe to become more energy efficient, and reforming the current CO2-emissions trading system with the aim of encouraging investment in low-carbon technologies.

That’s the theory. In practice, the policy won’t achieve its objective of sustainable economic growth. It treats European industry as a monolith, subject to a single set of targets and performance indicators, and that won’t work. What’s needed instead is an industry-by-industry approach that sets ambitious goals for each sector without putting entire industries at risk. Decarbonization does not have to mean deindustrialization. But, sadly, this is exactly what the proposed policy risks doing.

Just the costs of implementing the policy alone would make European steelmaking uncompetitive and unsustainable: The business model would simply crumble. Between 2020 and 2030, these additional costs are estimated to be around €58 billion ($73.76 billion); this is based on a carbon price of €40 per metric ton combined with the EU’s planned reduction in CO2-emissions allowances and the indirect impact of high energy prices. We calculate that ArcelorMittal would have to bear €20 billion of this cost, or an average of €2 billion a year, far exceeding ArcelorMittal’s European profits. (In the three months to June 2014, ArcelorMittal Europe reported an operating profit of €245 million.)

But it’s not just about the costs. The proposed policy also includes some targets that are impossible to achieve. For example, it has set an unrealistic, unachievable CO2 benchmark to encourage the steel industry to reduce emissions. The benchmark was created by taking best practices from different parts of the steelmaking process. But in reality there is no plant anywhere in the world that combines all of these elements in one place. It is technically unachievable: How does this encourage investment in low-carbon technologies?

Some say that the steel industry just wants to continue receiving free allowances into the new framework period. That’s not correct. This is really about the survival of one of Europe’s biggest and oldest industries.

So what we are asking for is an amended policy that we can work with. Under the current draft, even the best-performing steel plants on the Continent would be punished and would have to pay considerable sums just to continue operating. This on top of the already-hefty electricity tariffs that are twice as high—and still rising—as other regions in the world. (We estimate that our European steelmaking operations are at a $1 billion energy-cost disadvantage compared with our counterparts in the U.S.) The EU needs realistic, sector-based targets set according to what is possible in reality—not theoretical targets that are impossible to achieve.

It’s fair to say that Europe doesn’t need steel made in Europe, but Europe’s leaders have to decide whether they want steelmaking in the EU. If the policy is implemented in its current form, it’s very likely that in several decades’ time there won’t be an option to buy European steel. Steelmaking will be the preserve of economies with low energy costs and, in many cases, a lower bar for responsible environmental stewardship.

Yes, we need a lower-carbon economy and we support practical, realistic efforts designed to achieve this. But the policy under discussion this week is not the answer. Some member states realize this and are supporting crucial amendments to the draft, but more support is needed to prevent the EU from sleepwalking into a decision it may well come to regret.

Note: this article first appeared on http://online.wsj.com/ on Monday 22 October 2014.

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