Effects of European emissions trading on the transformation of primary steelmaking: Assessment of economic and climate impacts in a case study from Germany

Abstract

Due to climate change and the urgent need to reduce the greenhouse gas emissions of industrial processes, decarbonizing energy‐intensive industries is highly important. In Europe, emissions trading is the main regulatory instrument providing incentives to replace conventional production facilities with low‐carbon alternatives. Using the example of primary steelmaking, this study aims to evaluate the impacts of product benchmark revisions on the transformation of integrated steel mills. To this end, an optimization model for the strategic planning of economically favorable transformation pathways is developed. The model is combined with a prospective assessment of economic and climate impacts from steelmaking processes. By applying the model to a case study from Germany, legislative conditions in which steel manufacturers are encouraged to transform their production infrastructure are identified. Based on current regulations on product benchmarks for steelmaking, investments into low‐carbon technologies are slowed down until allocations of emissions allowances expire. However, benchmark revisions have the potential to speed up transformation plans significantly. In the analyzed scenarios, the greenhouse gas emissions of primary steelmaking between 2024 and 2034 decreased by up to 15%. These results are further strengthened by sensitivity analyses on the main market influences. Hence, this study provides policy recommendations on favorable revisions of product benchmarks for primary steelmaking.