ENVIRONMENTAL COMPETITIVENESS OF THE BRAZILIAN STEEL INDUSTRY: IMPACTS OF INTERNATIONAL POLICIES

ENVIRONMENTAL COMPETITIVENESS OF THE BRAZILIAN STEEL INDUSTRY: IMPACTS OF INTERNATIONAL POLICIES Cristiane Belize Bonezzi, Armando Caldeira-Pires*, Antonio César Brasil Jr.* Center for Strategic Management and Studies – CGEE – Brazil *University of Brasilia – Center for Sustainable Development – Brazil

Keywords: Environmental competitiveness; international organization; clean development mechanism; steel industry; environment technology ABSTRACT

The Brazilian steel sector corresponds to one of the more competitive sectors in the world. According to IBS and IISI, in 2004 Brazil was the eighth largest steel producer in the world. The sector’s relevance is extended to socio-environmental aspects, due to the definition, by the Brazilian government, that the steel sector is a strategic sector for the socioeconomic development of the country. The industry is also one of the most energy-intensive productive sectors and one of the main responsible for the emissions of greenhouse gases (GHG), contributing to 7% of the anthropogenic CO2 emissions. This essay presents an overview of the present stage of environmental technological development of the steel industry, the effects of the steel production process over the environment, including a presentation of a carbon emissions balance, based on an analysis, developed during my master course, of five Brazilian industries. Finally, this paper assesses the political influence of the Kyoto Protocol over the policy decision-making and the technological adjustment of the Brazilian steel industry to international agreements, especially by the use of charcoal in the production process.

reduction. The privatization of the national industry was the most important fact for the Brazilian steel industry in the 90s, especially due to the increase in the investments in the sector. Until the 90s, the world steel production was stabilized in around 700 millions tons, when it started to rise, because of the ascension of China in the world market, reaching 900 millions tons/year. Despite the recent decline in the Brazilian exports, caused by the drop in the dollar prices, the sector remains in expansion, attending to China’s demand that revolutionized the world market, causing a strong increasing in exports. In the context of the world steel perspective, it is visible a recent change in its course, caused by the increase of the production commercialized, changes in the production mix, geographical reallocation towards developing countries, production concentration and by the consolidation of big industrial corporations. These changes, pursued by the elimination of commercial barriers and by the increasing concern with costs reduction and improvement of products, are fundamental in the sector’s competitiveness evaluation. The Brazilian competitive advantage intensification is, in part, on account of the Chinese market dimension, that, on the one hand, is usually taken as a positive externality for the economic development and the job promotion in Brazil, but, on the other hand, means a disloyal competition for the Brazilian market, because of its aggressive commercial opening, the different laborstructures, the majority of mini-mills and its increasing specialization in production and in steel exports, with extremely low costs. Ribeiro [4] notes that due to the

OVERVIEW OF THE WORLD STEEL PRODUCTION AND THE BRAZILIAN INSERTION IN THE WORLD MARKET The Brazilian steel sector corresponds to one of the more competitive sectors in the world, according to IBS [1] and IISI [2], in 2004 Brazil was the eighth largest steel producer in the world. The sector’s relevance is extended to socio-environmental aspects, due to the definition, by the Brazilian government, that the steel sector is a strategic sector for the socioeconomic development of the country. The industry is also one of the most energyintensive productive sectors and one of the main responsible for the emissions of greenhouse gases (GHG), contributing to 7% of the anthropogenic CO2 emissions. This essay presents a brief overview of the steel production process effects over the environment and the present stage of environmental technological development of six Brazilian steel industries (Bonezzi) [3]. It assesses the political influence of the Kyoto Protocol over the policy decision-making and the technological adjustment of the Brazilian steel industry to international agreements, especially by the use of charcoal in the production process The first integrated steel mill established in South America, in 1921, Belgo-Mineira, with 4.5 thousand tons crude steel production, innovated the steel production when introduced the charcoal reduction method in the process. In the seventies, the industry received huge technological investments in atmospheric pollution

7e Conférence internationale Ecobilan 2006, Tsukuba. 2006.

1

into sinter, besides the fact that it uses only a third of the energy to process iron ore.

instability of the steel market in the international scenario, combined to the elimination of steel safeguards by the United States, the American market appears as a good option for the steel industry, offers better prices and opens its frontiers to more value-added products. In Brazil, the increase of production encloses investments in environmental technologies and optimization of resources and energy, responding to the new demands of the world market and policy, combined with the high quality and low cost of the iron ore, the qualified and low-cost workers and the excellent logistics developed by the sector, that combines mills, railways and ports.

Environmental responsibility of the steel industry Since the 70s, and the beginning of the ecological movement, the Brazilian industry has been changing its development strategy. The Brazilian Institute of Steel IBS [6] depicts that at early stages there were a reactant posture, resisting to the environmental legal requirements. This was followed by a responsive posture, encompassing the legal legislation. Until de 90s, when it moved to a competitive strategy, making use of environmental issues to reach a stronger business competitiveness. At the international context, the International Iron and Steel Institute (IISI) [7] advises its associated to develop economical performance assessment criteria, involving environmental issues as well. This international organism established a set of eleven sustainability indicators to evaluate the economical, environmental and social performance of world-wide steel makers. Concerning the GHG reductions policies, there are controversies about its potential to affect the competition between countries subjected to taxes and emissions limits and those not obligated to reduce its emissions. IISI [7] estimates that the world steel industry’s CO2 emissions are around 1.2 billion ton/year, which, in 1998, was approximately 5% of the total CO2 emissions. In the IISI and OECD point of view, industry and government could work together in order to minimize competition distortions and to contribute to the GHG emissions reduction by the implementation of effective public policies. Each crude steel ton produced consumes 20 GJ to 24 GJ energy and 100 m³ to 200 m³ water, and 450 kg coproducts and waste,. Nevertheless, the sector can be considered privileged in its relation with the environment, considering that steel derived products are integrally recyclable, either as scrap or as waste that can be reused in the production process. Moreover end-of-life recycling, the sector also implements dematerialization initiatives, as size reduction and scrap recycle, using them as by-products (scrap stands for 70%). These by-product can be used in the cement production, road construction, railroad, refractory to ceramic industry, and even as fertilizer. Accordingly to Companhia Siderúrgica Nacional – CSN [8] and IBS [9], and regarding the gaseous emissions, they are collect by filters, electrostatics precipitators and washers, and then used as fuel, which supplies 20% of integrated units energy demand.

ENVIRONMENTAL IMPACTS OF THE STEEL PRODUCTION PROCESS Steel production process In the integrated steel plant, based on coal, the coal is converted into coke, producing 318 kg CO2, while iron ore is agglomerated in sinter plants. During the iron making process, iron ore is reduced using coke and injected fuels to produce pig iron in a blast furnace. This step removes carbon and other impurities by oxygen blowing, and emits 1.500 kg CO2. The next step is the production of steel, by converting pig iron into crude steel in the Basic Oxygen Furnace, using scrap, which is responsible for the emission of 29 kg CO2. The characteristics of crude steel are adjusted in a number of ladle treatment processes, according to the client’s specifications. The casting of steel can either be continuous or ingot casting. The cast steel is reheated, rolled and sent to a series of finishing operations. The difference of this process to the integrated steel mill based on charcoal process is that in the last one, eucalyptus is converted into charcoal, which will be used in the pig iron production. Sampaio and Lopes [5] explain that the growing forest that provides the mill with raw material absorbs 18.056 kg CO2. That represents a great positive advantage for the environment and the Greenhouse Effect prevention. The other steps are coincident. In that sense, it is seen that the charcoal based production process present lower environmental impacts, especially concerning greenhouse effects. On the other hand, although the independent mini-mills produce pig iron using charcoal as energy source, the carbon emissions are expressively higher, because they do not follow a reforestation policy. The electric steel mill is different because it receives a composition of scrap and pig iron. The remaining steps are similar to the integrated process. In this process the pollutant emission and natural resources depletion are lower than the integrated process, since in the former there isn’t the transformation of coal into coke and iron

2

Figure 1. Comparison of analyzed enterprises (data refer to 2004). Enterprise Group

Products

Process Integrated

CSN

Gerdau Long carbon steel Gerdau Long carbon steel CSN Hot rolled

V&M

V&M

Integrated

Vega do Sul

Arcelor Flat steel

Steel transformation industry

CST

Arcelor Hot rolled/ Slabs

Integrated

Açominas Cosigua

Special/ Tubes

Electric steel mill Integrated

Fuel Coke

Energy production

75% thermoelectric Electricity Electric and thermoelectric Coke 65% thermoelectric

Air

Water Effluents Residues Green belt Filters Green belt Filters Green belt Filters

Charcoal

Biomass / Green belt 30% Filters thermoelectric Electricity ––––– Green belt

Coke

94,9% Green belt thermoelectric Filters

2.1 Case Studies: 6 Brazilian Steel Industries

Reuse, treatment, selling 96%

Yes

93%

95%

Yes

93%

53,63 dam³/t steel 97%

Yes

93%

Yes

––––––

98,5%

Yes

––––––

97,8%

Yes

96,7%

FRAMEWORK CONVENTION ON CLIMATE CHANGE The first initiative in order to stabilize the GHG concentrations in a way that could stop the dangerous anthropogenic interference over the climate system appeared in 1990, with the establishment of the Intergovernmental Committee for the Framework Convention on Climate Change - FCCC. From the Convention emerged the Kyoto Protocol, which, as described by Cerqueira [10], defines the reduction of combined GHG emissions of the industrialized countries in until 5%, in relation to the 1990 levels, until the period 2008 - 2012, establishes reduction goals and GHG emissions limits for the Annex I countries, that means, industrialized countries of OECD and transition economies (East European industrialized countries and ex-Soviet Union), besides the Clean Development Mechanism (CDM), Emissions Trade and the Joint Implementation. The CDM, established in the Article 12 of the Protocol, disseminated by UNDP [11], consists in the possibility of development, by the Annex I countries, of incentive projects to the sustainable development of no Annex I countries, in order to generate certificated reduction credits and help development countries with financial and technological resources for sustainable projects. The Articles 6 e 17 describe the emissions trade and the joint implementation between the Annex I Parts. A country subjected to reduction goals can sell exceeding emission reduction units to another country that hasn’t achieved the established goal, and can implement emission reduction projects in another country, at lower costs. The Kyoto Protocol definitions had world wide repercussions and divided developed and developing countries in relation to the policies established for emissions reduction. The last country to ratify the

This study identifies 6 main Brazilian steel makers, based on their economical relevance and environmental liabitlity, as presented by IBS and by the Ministry of Industry, Development and International Trade (MDIC). Their choice is also due to their difference regarding production process and main products, namely: Açominas (State of Minas Gerais - MG) and Cosigua (State of Rio de Janeiro - RJ), from Brazilian Gerdau Group, producing long steel in a semi-integrated unit and an integrated one based on coke; Companhia Siderúrgica Nacional – CSN (RJ), producing flat carbon steel in an integrated steel mill based on coke; Vallourec & Mannesmann Tubes – V&M (MG), producing special steel in an integrated charcoal unit; Vega do Sul (State of Santa Catarina - SC), owned by Arcelor Group and Companhia Siderúrgica de Tubarão (CST), producing flat carbon steel. Despite their high polluting level, this study concludes that the steel sector is continuously upgrading their clean technologies to reduce the pollutant emissions, as shown in Figure 1. The steel sector invests permanently in the improvement of technologies for pollution reduction. The main investments of the sector are the installation of filters in its furnaces and basic oxygen furnaces, reuse of water in almost 95%, plantation of forests around the industrial site and promotion of reforestation projects, seedlings nursery to support re-vegetation of mined areas, conservation of natural reserves, re-utilization of processes gases and industrial waste, maximum utilization of recyclable products, such as scrap, sludge and steelworks slag, besides Thermal Plants for self energy generation, by the use of excess gas from the Blast Furnace and of charcoal tar. All of these industries are ISO certified, besides other specific third party labels.

3

instruments for railroads, etc. On the other hand, these activities are not liable to CDM submission, because its cycle represents a short lifetime and would easily return the final product to the condition of waste, eliminating the benefits of the carbon sequestration in the reforestation area.

Protocol was Russia, in November 2004, and finally, in February 2005 the Protocol came into force, despite the refuse of the United States to sign in. In the case of the Brazilian steel industry projects related to energetic efficiency, clean technologies, reforestation and biomass benefit, like the substitution of coal for charcoal, which allows the emissions credits selling to developed countries, and promoting the economic and technological development, besides increasing the Brazilian steel industry competitive advantage in the world market. There are two examples of initiatives in that way, a project presented by V&M Tubes, concerning the carbon credits selling based on its CO2 equivalent emissions reduction and a project presented by CST, concerning emissions reduction based on the energetic optimization.

ACKNOWLEDGEMENT Financial support has been partially provided by the Eletronorte Research and Development Funding Program, in the context of the Electrical Energy Sector Fund, under the contract nº Eletronorte 4500013579.

REFERENCES [1] IBS. Statistics (In Portuguese). Available at , accessed on 14Mar2006. [2] IISI. Steel Statistical Year Book 2004. Available at , accessed on 02Abr2005. [3] BONEZZI, Cristiane Belize. Environmental competitiveness of Brazilian steel industry: Impacts of definitions of international forums (In Portuguese), Master dissertation, Center for Sustainable Development, University of Brasilia, Brasília, 2005. [4] RIBEIRO, Ivo. Steel makers focusing on EUA: CSN takes advantage of higher prices and renewed demand (In Portuguese). Electronic Bulletin from Valor On-line, Enterprise and technology/services and industry section, São Paulo, n. 1016, 22/05/04, Available at , accessed on 22Mai2004. [5] SAMPAIO, Ronaldo S.; LOPES, Luiz Eduardo F. The cleaner primary iron in the planet – the iron production based on secondary biomass (In Portuguese). In: Internacional Congresss of the use of biomassa to metal production and electricity generation, 1., 2001, Belo Horizonte-Brazil. [6] IBS. Brazilian steel industry: principles and policies (In Portuguese). Rio de Janeiro, 2002a. [7] IISI. 2004 Sustainability Report. Available at . Acessed on 27Feb2005. [8] CSN. Socioenvironmental report: 2002 (In Portuguese). Rio de Janeiro, 2002. [9] IBS. Steel industry social balance: 2002 (In Portuguese). Rio de Janeiro, 2002b. [10] CERQUEIRA, Cristina Fernandes Montenegro de. From environmental interdependence to multilateral cooperation: the rise of a new international relationship paradigm (In Portuguese). Master dissertation, Department of Political Science and International Relationships, University of Brasília, Brasília, 1994. [11] UNDP. Kyoto Protocol and the Convention of Climate Change (In Portuguese). Brasilia: United Nations Development Programme, 1997.

SCENARIOS AND PERSPECTIVES FOR THE ENVIRONMENTAL COMPETITIVE ADVANTAGE OF THE STEEL INDUSTRY Comparing the production process of integrated mills based on metallurgical coal and based on charcoal as energy source, it is visible the efficiency of the charcoal route on the carbon sequestration and the consequent reduction in global warming contribution, taking into account that the reforestation areas absorb part of the carbon emitted during the production process. This technological process could also be submitted to the Kyoto Protocol, because it consists in a technological improvement that promotes CO2 emissions reduction. Nevertheless, although the industry have economic interests in participating in CDM Projects, and the use of charcoal from reforestation areas is considered a valid project, since the 90s the majority of the industries that used to adopt charcoal have decided to adapt its furnaces to use coal, suggesting a trend towards the technological improvement of efficiency and energetic co-generation instead of substituting raw material, equipments and adapting productive processes. In that sense, it is important to develop a strategic environmental assessment, which encloses the environmental, technological, political and economic viability of the adoption of eucalyptus as raw material for charcoal applied to the steel industry. Concerning the environmental aspects, the use of charcoal without the adequate forest management is even more prejudicial than the use of coke, considering that 1 ton of pig iron consumes 875 kg of charcoal, or 2600 kg of dry wood, represents a 600 m² deforestation of native forests and that the charcoal emits more CO2 than the coal converted into coke. The technological and political viability must be assessed based on the industry availability in investing in adequate technologies and equipments to the charcoal based process and the government’s interest in reducing taxes and bureaucratic barriers that difficult new investments in industry and incentives the creation of reforestation clusters in order to provide the industry with raw material. Concerning the economic viability, the eucalyptus reforestation with the objective of application in the steel industry should be compared to other applications that could be more profitable, like paper production, furniture,

4