Document Type

Report/Policy Paper

Publication Date

7-2024

Abstract

The heavy industry sector, a significant contributor to global CO2 emissions, is at a critical juncture. Accounting for 25% of total CO2 emissions annually, this sector is poised to see an increased demand for materials through 2050, particularly from developing countries focused on infrastructure expansion and transitions toward net-zero emissions. However, the sector's dependency on high-emission technologies, notably in steelmaking, underlines the pressing need for a swift and decisive shift to low-emission alternatives.

Our latest publication under the COMET initiative, A Market Mechanism for the Creation of a Climate-differentiated Market in the Steel Industry, introduces a twofold market mechanism specifically designed to enable the transition from traditional Blast Furnace-Basic Oxygen Furnace (BF-BOF) steelmaking methods to more sustainable Electric Arc Furnace-Direct Reduced Iron (EAF-DRI) technologies. This paper proposes the implementation of a Green Steel Certificate (GSC), bundled with a Virtual Offtake Agreement for Steel (VOAS), creating a mechanism that aims to overcome the prevalent challenge of additionality - ensuring that emissions reductions are genuine, substantive, and wouldn't occur without the intervention of this market mechanism.

Traditional market mechanisms have struggled to guarantee that the environmental benefits they claim directly contribute to creating new, additional capacity for low-emission production. Our mechanism is designed to fill this gap by absorbing the green premium of near-zero emissions steel production, making green steel more competitive and viable, and creating a climate-differentiated market for it. This proposed market mechanism provides a robust certificate that verifies the emissions intensity of the steel produced and allows buyers to claim Scope 3 emissions reductions by purchasing these certificates. By bundling these certificates with a long-term virtual offtake agreement, the proceeds from the sale of these certificates ensure consistent cash flow for steel producers and create financial certainty for producers and investors to invest in new decarbonization projects.

Together, the GSC and VOAS create a synergistic effect. The GSC ensures the environmental integrity and additionality of green steel, while the VOAS secures the financial viability necessary to finance and implement these advancements –all of this being monitored and overseen by a robust Registry that will instill the whole system with the necessary transparency and traceability. This publication provides a guideline for the design principles of this twofold market mechanism to create a climate-differentiated market for “green” steel products.

Disciplines

Energy and Utilities Law | Environmental Law | Law

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