If Ukrainian metallurgists want to do business with Europe, open-hearth furnaces need to become a thing of the past.
Under its Green Deal, the European Union will implement environmental protectionism and charge high tariffs for goods that don’t meet ecological standards. Staying competitive in the European market means investing in technology that greatly reduces emissions.
The up-front investment is extremely costly. For example, oligarch Victor Pinchuk’s Interpipe Group spent $1 billion to transform its Dniprosteel plant from using oil and gas-burning furnaces to ones that use electricity. Such a transformation also makes running the plant more expensive. Gas prices are currently very low, while electricity in Ukraine is pricey.
Like it or not, this is something that companies will eventually have to do — or they will find it difficult to compete, said Oleksiy Ryabchyn, adviser to the deputy prime minister for European integration.
“This is a worldwide trend. It will be everywhere,” agreed Denys Morozov, the economic and finance director at Interpipe. “All the developed countries will fight (against CO2), this is inevitable.”
Only five enterprises in Ukraine, 6% of the total industry, potentially qualify as “green metallurgy” plants. This is because, besides the looming Green Deal, there have been no incentives for Ukraine’s producers to make the switch. Until now.
Electricity discount
In July, as part of its attempt to solve the renewable energy problem, parliament passed Ukraine’s first ever incentive for qualifying “green metallurgy plants.” The law will exempt them from having to cover the controversially high feed-in tariff to renewable energy producers.
The difference is enormous. In its early projections for 2021, state power line operator Ukrenergo estimated that regular enterprises would have to pay Hr 501 (over $17) per kilowatt-hour in transmission fees. Exempt enterprises will instead have to pay about Hr 92 ($3.25).
These will not be the final transmission prices, which are still under development. The energy authorities are still working out alternative ways to pay its mounting debt to green energy producers, like bank loans or selling government bonds.
The energy regulator announced that it approved a general tariff of about Hr 310 ($11) per kilowatt-hour for 2021. “Green metallurgy” plants may still qualify for a deep discount and may end up paying less than Hr 92, according to Ukrenergo.
But the discount is not in place yet because multiple bylaws have to be worked out by the ministries of economy and environmental protection. Neither ministry responded to requests for comment by publication time.
“The criteria for carbon intensity and how it’s all measured have to be established in the bylaws” said Ryabchyn.
Ukrenergo head Volodymyr Kudritsky told the media that this will lead to a Hr 100 million ($3.5 million) shortage. He said he considers this discount unfair, as it creates unequal conditions on the market.
A spokeswoman for Ukrenergo said that that this shortfall will be covered by other electricity consumers. That means the less green metallurgy companies have to pay, the more everyone else will have to chip in to make up the difference.
Ryabchyn said that, in this difficult economic period, there will be “a battle over every kopek.”
Morozov said that green metalworks account for less than 1% of the total of energy consumers. More importantly, he said it’s hardly fair that companies that invested such huge sums into being “green” then have to keep shelling out large sums for other “green” companies.
“Green metallurgy is no different from green energy, it’s the same thing,” said Morozov. “So why is it that one is stimulated and the other has to pay for it?”
Environmental control
Metallurgy is a very energy intensive process that produces massive amounts of carbon dioxide and a plethora of toxic waste chemicals.
Open hearth furnaces are widespread in Ukraine, where they’re called Martin furnaces, named after the French engineer Pierre-Emile Martin, who developed a steelmaking furnace in 1865. These primarily use hydrocarbons as fuel to maintain the extreme temperatures required.
Electric arc furnaces are a less carbon-intensive alternative. Hydrogen furnaces, currently in their infancy, will also be viable ways to reduce CO2 emissions.
However, switching to electric arc furnaces does not necessarily mean that carbon emissions go away — if their energy comes from fossil fuel power plants. By switching away from gas and oil, “green metallurgy” plants use much more electricity.
While half of Ukraine’s energy is nuclear, close to a third still comes from coal. Coal is also being used to balance out the output swings from renewable energy sources, paradoxically making it more prominent as the country tries to move away from it.
CO2 is not the worst of it. Ukrainian metal centers, especially the Metinvest hotspot of Mariupol, have long been plagued by emissions of metal dust, including zinc, cadmium and mercury, as well as volatile chemicals like dioxins and furans. These build up in the human body, leading to respiratory problems, heart attack, stroke, dementia and other diseases.
Electric furnaces are no exception and still require significant investments in dust and gas mitigation. The AIP Conference Proceedings publication reported that “the electric arc furnace is an important polluting emissions generator, having a strong impact over the environment.”
Morozov said that, as far as Interpipe is concerned, Dniprosteel reduced all pollution below European norms and passed all inspections, as it could not have gotten credit from European financial institutions otherwise. He added that the company undergoes independent monitoring for its emissions.
However, monitoring is not actually required by law, said Maksym Borodyn, a Mariupol activist leader who organized mass protests against Metinvest. It’s not possible for the Ukrainian government and public to get a real picture of pollution.
“The polluter itself measures its own emissions,” said Borodyn. “And it’s impossible for the government to confirm. Even though certain objects have measuring devices already installed, there is no law forcing them to disclose it publicly to the tax and environmental authorities.”
While the government made some progress under Prime Minister Oleksiy Honcharuk, his replacement with Denys Shmyhal ground everything to a halt, said Borodyn,
