Pre-release from full report – EUROFER – Hot Metal Benchmarking Curve
The European Union has opted for a cap-and-trade system with a reducing cap over years 2013 through 2020 to achieve its ambitious climate goals. While the general allocation mechanism for CO2 certificates especially to the power sector is auctioning, some free allocation is foreseen, such as for combating carbon leakage. Directive 2003/87/EC revised by 2009/29/EC states that free allocation, where possible, should be based on the average of the ten percent best performing installations for each technical category. Specifically, the benchmarking values should be calculated as the average of the best decile, or the ten percent of installations with the lowest CO2 intensity. Carbon leakage endangered industries such as steel must get one hundred percent free allocation based on the resulting ambitious benchmarks (Art. 10 a).
Phillip Townsend Associates, Inc (PTAI) was contracted to support EUROFER in developing feasible CO2 emissions benchmarking methodology through the collection of historical data, and the execution of an EU27 CO2 benchmarking study for years 2007 and 2008. The purpose of this agreement was done to ensure industry confidentiality and to have an independent third-party involved for data verification and assessments. PTAI was tasked by EUROFER to provide the following services:
The results of this study will be used to support the benchmark approach with data and provide useful results to demonstrate the CO2 emissions performance of EU27 steel producers.
The benchmarking exercise covered in the first phase three reference products as also suggested by the consortium of consultants appointed by the EU Commission1Ecofys/Fraunhofer ISi/Öko Institut:
This paper focuses exclusively on the hot metal benchmark (covering 175 million tons of CO2 and accounting for ca 80% of the emissions of steel making via the iron ore-based route). The validation process is still under progress for sinter and coke. The final curves for these two benchmarks are expected to be published by end of January. The curves for EAF carbon steel and EAF high alloy steel are expected to be available in February.
Methodology Used for the Benchmarking of CO2 Intensity
In line with the requirements of the Articles 1 and 10 a.1 of the revised EU ETS Directive, the benchmarking model used is CO2-based.
The CO2 amount is calculated via a carbon mass balance formula that measures the difference between the carbon flows entering the system perimeter and the carbon flows leaving it. The difference is expected to be emitted as CO2. Using this methodology, the total CO2 content resulting from the waste gases generated by the system, if any, are accounted for since these flows are not measured and counted as outflows. Equally, waste gases imported into the system are not taken into consideration in order to avoid double counting of carbon. This approach also avoids the most challenging data measurement and accuracy issues by explicitly not having to measure waste gas streams. This approach, including its treatment of waste gases, mirrors the current regulation in many EU Member States.
The CO2 intensity is then derived by dividing the total measured CO2 volume by the reference product production i.e. the hot metal production (as tapped from the Blast Furnace). Any further treatment of the hot metal, its conversion into steel at the Basic Oxygen Furnace and casting operations are included in the system boundaries.
Standard Validation Process and Best Decile Scrutiny
Based upon benchmarking experience and technical insights into the processes provided by EUROFER members, PTAI performed extensive data validation for all installations participating in the benchmarks. When data was received from an installation, it was entered into a database managed by proprietary software. Utilizing this software, PTAI filtered through the data using specific validation parameters to identify potential data discrepancies and inconsistencies.
Benchmarking Curve for Hot Metal
The benchmarking curve is based on the validated set of data points following steel industry peer group i.e. thirty-two hot metal installations (Figure 1).
Figure 1: Hot Metal Benchmarking Curve
The benchmarking curve is calculated by arranging the installations in ascending order based on CO2 intensity as pictured in Figure 1. The x-axis is represented as percentage of the aggregate industry installations, and the y-axis is represented as CO2 intensity. The benchmarking curve is shown as a polynomial fit line that runs through each installation on the chart. It must be clarified that the numerical values presented in Figure 2 are calculated as the arithmetic mean of the ten percent best installations as requested by the Directive; they are not taken from the graphs.
Average Ten Percent Best Performing Hot Metal Installations
The industry average value is calculated as a simple average of all producers with data years 2007 and 2008 averaged together. The benchmarking value is set as the average CO2 intensity of the first ten percent of installations with the least CO2 intensity in 2007 and 2008 from all verifiable data sets.
The benchmarking value for Hot Metal is 1476 kg CO2 / ton Hot Metalwhile the industry average is 1630 kg CO2 / ton Hot Metal.
This result corresponds to a data set covering 93% of the emissions of all installations belonging to this benchmark.