20.05.22 Green conversion of steel and other industries Author: Constantin Gillies • Reading time: 6 min.

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Summary

The production of crude steel, paper and cement consumes a huge amount of energy. Nevertheless, these processes often still take place in Germany. To ensure that this remains the case, the energy-intensive industries are pushing ahead with decarbonization.

A deep borehole could soon be drilled on the site of the Kabel Premium Pulp & Paper plant in Hagen, because the company is planning to build a geothermal powerplant. Water will be pumped through pipes into the rock to a depth of more than 3,000 meters where the temperature is more than 100 degrees Celsius. This heat from deep underground will be used to produce steam, which is an essential part of paper production. It is used to heat the huge rollers that transport and dry the pulp. 

Until now, paper manufacturers have used timber waste and, most importantly, natural gas to generate steam, but this produces a large quantity of greenhouse gas. According to the statistics company Statista, in 2019 around 9.8 million metric tons of carbon dioxide were emitted during the production of paper and cardboard, which is 5.8 times the amount of emissions from internal flights in Germany in 2019, as measured by the OECD. Now the industry plans to move away from fossil fuels, with the help of geothermal energy among other things. The technically ambitious pilot project in Hagen, which is supported by researchers from the Fraunhofer-Gesellschaft, is intended to pave the way for this to happen. 

Decarbonization is an issue that is right at the top of the agenda for all energy-intensive industries. The widely accepted definition of this category includes all industries that spend at least twice as much on energy as the industrial average, measured in terms of the value of the products they manufacture. In Germany, the energy-intensive industries are construction materials, glass, chemicals, metal production and paper. Together they use 120 terawatt hours of electricity per year, while the remainder of the manufacturing sector consumes only 110 terawatt hours. Their levels of fossil fuel are also high. As a result of these two factors, the raw materials industry generates 22 percent of Germany’s CO2 emissions. Only the energy sector at 36 percent causes more harm to the climate. But can the energy-intensive industries decarbonize and, if so, how quickly? 

Plants remain unchanged

The paper industry is in a good starting position for its green conversion, because the actual production processes and, therefore, the paper mills themselves can remain largely unchanged. Only the generation of steam needs to be made CO2-free. “All the necessary technologies are already available,” says Jan Christoph Schaffrath, Head of Energy and Climate Policy at the German Pulp and Paper Association (VDP) in Berlin. The manufacturers can replace natural gas with electricity and hydrogen over the years to come, if there is a guaranteed supply at competitive prices. This will leave only five to ten percent of the emissions, which are produced, for instance, when hygiene paper is given its texture by direct heating processes. “Suitable replacements in this case would be biogas or hydrogen,” explains Schaffrath.  

In theory, the paper industry could be decarbonized in just a few years in his view. However, he emphasizes that sufficient electricity and hydrogen from renewable sources will need to be made available and the appropriate political framework will have to be put in place. In other words, the state must help the industry with decarbonization, because phasing out natural gas will be a costly process. 

Green steel produced with hydrogen

For the steel industry, the route to climate neutrality is more challenging, because it uses fossil fuels for two purposes. Coke heats the blast furnaces to temperatures of over 2,000 degrees Celsius, but it also fulfills a chemical function. It extracts oxygen from the iron ore to leave pig iron. This reaction releases 1.7 metric tons of carbon dioxide for every metric ton of crude steel produced. The German market leader thyssenkrupp Steel alone emits 20 million metric tons of CO2 every year. 

This could be avoided with the help of direct reduction (DR). In this process, hydrogen performs the function of coke and removes the oxygen from the iron ore. Although the reaction takes place at around 1,000 degrees, the ore does not melt. The end product is sponge iron, which has to be liquefied in an electric arc furnace. “The quality of pig iron from the electric arc furnace is the same as that from a conventional blast furnace,” explains Dr. Marie Jaroni, Head of Decarbonization and Sustainability at thyssenkrupp Steel Europe, Duisburg. For the process to be genuinely climate-neutral, the hydrogen must, of course, be green, which means that it is produced in electrolyzers powered by electricity from renewable sources. 

Direct reduction is not new to the steel industry. The process has already been used in some places, but with natural gas as the reducing agent. “We don’t yet have experience of using hydrogen,” says Jaroni. To make this last step in the decarbonization process, thyssenkrupp has drawn up a road map. The first DR plant will be built in Duisburg by 2025 and will initially run on natural gas. “The hydrogen pipeline won’t have been completed by that point,” says Jaroni. At the same time, experts from thyssenkrupp will be testing direct reduction using hydrogen in a pilot plant. 

Investment of seven billion euros

In the long term, all four blast furnaces in Duisburg will be replaced by DR plants and electric arc furnaces. This means that the steel company would no longer need any of its coal logistics system, which would do away with 83,000 goods wagons each year. In addition, the coking and sintering plants would become surplus to requirements. However, these savings would be balanced out by high levels of spending. thyssenkrupp Steel in Duisburg would have to invest seven billion euros to make the full move to direct reduction. In addition, there would be the costs of the hydrogen infrastructure and production. It is estimated that 3,800 offshore wind turbines would be needed to provide the electricity for hydrogen electrolysis alone and Germany had only 1,501 in operation at the start of 2021.

Even the largest companies cannot put projects of this kind into effect without help. This is why the steel industry is also calling for state funding. Marie Jaroni from thyssenkrupp can envisage “lead markets” being created for green steel products. This means that in certain areas the state could require a percentage of green steel to be used. Yet despite the high costs of conversion, decarbonization would not be unaffordable. Experts estimate that the move away from coke would make steel 30 to 65 percent more expensive, which would add only 300 euros to the price of a new car. 

The unique selling point is industrial added value

But should a highly developed industrial nation like Germany still be producing crude steel or paper? Other countries have long since moved away from the energy-intensive production of basic raw materials. Spain and Italy, for example, spend much less on energy per euro of national income than Germany, according to the statistics from the market research company Enerdata. However, some experts believe that the different approach taken by Germany is also the right one. “The vertically integrated supply chain in Germany gives us a competitive advantage,” emphasizes Eric Heymann, economist at Deutsche Bank Research in Frankfurt, the bank’s thinktank. If the steel and automotive industries are concentrated in the same location, they can respond much more quickly to new requirements. 

However, the energy-intensive industries are gradually becoming less important in Germany. The value of plants, buildings, patents and software has been falling for 20 years. In the construction industry, the value of this capital stock fell by 38 percent between 2000 and 2019 and in the chemical industry by almost 12 percent, according to Deutsche Bank Research, which bases its conclusions on figures from the German Federal Statistical Office. At the same time, the phenomenon of investment leakage has been identified. Funding is gradually trickling out of the domestic industries, because manufacturers prefer to invest in their sites in other countries. Heymann believes that this is due to uncertainty about future climate and energy policy. In sectors such as steel and chemicals, plants are designed for twenty or thirty years of operation. “And who knows whether the concessions offered by the renewable energy surcharge and EU emission trading will still apply to the energy-intensive industries by that time?” 

An exodus could be expensive

The energy-intensive industries currently generate almost 15 percent of the value added in the manufacturing sector. Manufacturing in turn makes up over 20 percent of the total gross value added. This means that in total the energy-intensive industries are responsible for only three percent of all the value created in the production process. Given how small this figure is, you might be thinking: Why not just let them go? Why not move production abroad instead of decarbonizing it here at great expense? 

But the exodus of the energy-intensive industries could prove to be costly. If the first level of value added is outsourced abroad, the downstream sectors often follow hard on its heels, because every transport process leads to a reduction in efficiency. The German Association of Energy-Intensive Industries (EID) estimates that domino effects of this kind could result in the loss of 2.5 million jobs. Eric Heymann, the economist from Deutsche Bank Research, has been warning about a creeping exodus of this kind for several years. But it isn’t all black and white. “Even if the government ultimately does not provide financial support for the green transformation, there is still potentially a place for energy-intensive industries in Germany. The COVID-19 crisis and the war in Ukraine have shown how important local production can be.”

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