Increased coal usage a serious setback for carbon reduction in

Global rating agency Moody's today said that Indian steel industry is yet to introduce more stringent emission regulations, and an increase in coal usage poses a serious limitation to the potential for carbon reduction.

The global steel industry's progress in reducing emissions and energy use continues to be limited. The challenge for the industry will be to lower carbon intensity at a time when demand for steel is forecast to grow 31 per cent by 2030, from 2016 levels.

The World Steel Association reports CO2 intensity has increased by more than 10 per cent, to 1.9 tonnes per tonne of steel manufactured over the past decade, while energy intensity has fallen modestly.

Under the Paris agreement India has agreed to reduce the emissions intensity of its GDP by 33 to 35 per cent by 2030 from 2005 levels. India has yet to introduce more stringent emission regulations. We expect measures to be introduced, but they could be more gradual given India's abundant supply of iron ore, which could delay the shift to electric arc furnaces (EAF's), Moody's Investors Service said in its report here.

Potentially offsetting the benefits of China's rationalisation is the expected doubling of Indian steel production by 2030, challenging the industry's efforts to correct overcapacity and reduce carbon intensity.

The International Energy Agency (IEA) projects India's share of energy dedicated to steel making will rise to 29 per cent by 2040, up from 21 per cent in 2013, while energy consumed by the industry is set to more than quadruple over the same period.

India's anticipated steel growth is due to the country's rapid urbanisation, large infrastructure needs, and an increasing preference for steel and cement over materials such as clay bricks. Steel making is likely to become less carbon intensive as new mills are built and more scrap becomes available, however coal is expected to remain the dominant energy source for the sector, the report said.

Increased coal usage poses a serious limitation to the potential for carbon reduction within the Indian steel industry, since the steel sub-sector is the largest industrial energy user in India and also the source of the largest forecast increase in industrial energy use over the period to 2040. In addition, the imposition of tariffs under Section 232 on steel imported into the US is likely to result in some capacity restarts.

Steel-makers across the globe are facing increasing pressure to reduce greenhouse gas emissions. Efforts to decarbonise the global economy will bring greater scrutiny to the energy and carbon intensity of the steel sector, which is responsible for 6-7 per cent of global emissions. Yet the industry's carbon intensity will likely continue to rise through 2020, coinciding with a period of strong demand growth, Moody's said.

According to the IEA, China's steel production will begin to decline as its industrial activity switches to higher-technology in coming years, falling about 30 per cent by 2040 from 2015 levels. At that level, China would account for only 30 per cent of global production in 2040, down from almost 50 per cent today, it said.