Oh, new pure world
The world will pay a higher price for reducing its carbon footprint. Developing countries - and Ukraine among them - will pay three times more.
We will actually start paying around 2026, but we need to prepare right now. Or rather, we should have done it yesterday, writes Svitlana Shmeliova in №15 of Korrespondent Magazine.
What actually happened: the EU revised the terms of the Green Deal towards a sharp tightening, which regulates the pace of greenhouse gas emission reduction, and the reduction of the carbon footprint in all sectors - from industry and energy to agriculture and utilities.
For a month now, experts, industrialists, and European officials (Ukrainian ones - not yet) have been actively discussing the Fit55 initiative, put forward by the leaders of the European Commission. Its essence is to reduce greenhouse gas emissions by at least 55% by 2030 compared to the 1990 baseline. On July 14, the package of measures was presented by the European Commission - it is a kind of protocol of intent. That is, it is not a directly applicable law. Then there will be two to three years of the process of implementing this grandiose program, both in terms of costs and challenges. First, the norms proposed by the European Commission will be discussed, then the relevant EU Directives will be adopted, and after that, individual EU states will introduce the relevant norms into national legislation.
That is, we have two to three years to prepare for the new carbon reality. Further - complications. Namely: additional taxes on products imported into the EU if they are produced with high emission volumes.
What will be changed in general - emission limits will affect even those sectors that were previously weakly regulated or not regulated at all. For example, aviation, maritime transport, and even housing and communal services.
What exactly is the tightening? Minus 55% by 2030, although previously the Green Deal spoke of 60% only by 2050. Now, by the way, by 2050, the EU plans to achieve full carbon neutrality. The EU will finance all this from special funds, which will partly be filled by taxes on imported products that are produced with a high carbon footprint. And partly - at the expense of payments for the carbon footprint within the EU. For households (read: ordinary citizens), small businesses, etc. Increased costs are planned to be compensated by special subsidies.
It is important to understand here: although the new rules will actually be introduced in a few years, the old ones have not been canceled, and the implementation of stricter norms must be prepared now. So what about our decarbonization rates?
Over the past 10 years, Ukraine has almost halved its pollutant emissions, though this was largely influenced by the country's deindustrialization. But deindustrialization is hardly a good idea. Because it means a reduction in the country's already low GDP, job cuts, reduced state budget revenues, and problems in industrial cities.
Therefore, the solution is not in deindustrialization, but in the transformation of industry. This is the path taken by Metinvest Group, which is already demonstrating leadership in the decarbonization of its metallurgical enterprises. And it didn't start today: in 2020, the group entered the top ten best metallurgical companies in the world according to the rating of Sustainalytics, a leading independent provider of research, ratings, and data in the ESG field.
Metinvest Group's share in the total volume of environmental investments in the country is over 40%. The Group's CEO, Yuriy Ryzhenkov, explains this figure by the desire to maintain Ukraine's leading position as a producer of metallurgical products in the face of rapidly increasing environmental requirements: "This shows that, unlike the general trend towards deindustrialization in the country, Metinvest has chosen an investment path that will allow us in the long term to both preserve a strategically important industry and be environmentally friendly, as well as meet all global standards."
NEWS AT THE BORDERS
The main news of the proposed project is not even the acceleration of the EU's own decarbonization, but the introduction of a policy to combat the relocation of enterprises that generate large volumes of greenhouse gases and other emissions outside the European Union. In other words, they are going to exclude the possibility of hiding the carbon footprint outside the EU. To do this, a Carbon Border Adjustment Mechanism (CBAM) will be created, meaning that imports of products manufactured with "dirty" technologies will be subject to special taxes. They explain the need for such a mechanism simply.
The EU believes that they should not put their economy in an uncompetitive position compared to the economies of those countries where carbon standards are weak and environmental requirements are much softer than in Western Europe.
And here a problem arises: to calculate carbon taxes on the import of certain goods, an accurate assessment of greenhouse gas emissions is needed - which is not always possible in developing countries. For example, due to the opacity of accounting in such countries or even direct falsification. But no problem - the European Commission decided, we will use the same mechanism as provided in the WTO (World Trade Organization) for anti-dumping processes. There, for example, the possibility of "constructing" market prices for countries with non-market economies is allowed. So, for assessing "carbon" goods in a particular opaque economy, the European Commission wants to apply a very simple trick, of course, beneficial to the EU. They will take the volume of emissions for a particular "opaque" product at a level characteristic of the 10% worst productions in the EU.
Priorities have also been set: first of all, the carbon footprint of goods such as cement, steel (as well as raw materials for its production), aluminum, and mineral fertilizers will be tracked. The production of such goods in the EU will be modernized to sharply reduce the carbon footprint. Well, the relocation of such productions abroad is not ruled out, but here it must be remembered that their imports will be subject to environmental taxes.
For Ukraine, this is a sensitive topic: domestic companies supply steel and iron ore, agricultural products, and much more to EU countries. Aluminum, cement, and mineral fertilizers are, rather, not about us. But it is important to remember that the entire production chain will be tracked. That is, when importing agricultural products, they may find out how environmentally friendly the fertilizers used in their production were. Perhaps the strongest challenges will be the transformation of domestic metallurgy and mining.
Ukrainian metallurgy is still lagging behind European metallurgy in reducing greenhouse gas emissions: in Ukraine, 2.3 tons of CO2 per ton of steel, in Europe - 1.9 tons. This lag is a problem, but it also shows the path of transformation.
"We have serious potential in reducing the carbon footprint using existing technologies: energy saving, using waste gases and heat, using the right combination of fuel, gas exchange. This is what Metinvest is actively engaged in," says Yuriy Ryzhenkov, CEO of Metinvest Group.
At the Group's enterprises, the main share of CO2 emissions comes from pig iron production, where carbon is used as a reducing agent for iron. Therefore, the main focus of the company's decarbonization roadmap is on pig iron and steel production. This involves a gradual abandonment of the traditional scheme, where pig iron is produced in blast furnaces, and steel is smelted from pig iron in converters. Instead, Metinvest Group has begun the transition to an alternative technology: direct reduced iron (DRI) production, from which steel is made in electric arc furnaces.
The first steps in this direction have already been taken: in early 2021, Central GOK (Kryvyi Rih) began producing DRI pellets. "We produce raw materials that can be used for low-carbon steel production. Our further steps include the construction of direct reduced iron modules and the transition to electrometallurgy. And in the future, these technologies can be linked to renewable energy sources and hydrogen when it becomes available to industry," Ryzhenkov explains the transformation strategy. "About 20-30% reduction can be achieved by using hydrogen in traditional metallurgy production. Today, we have such a project moving forward," he added, referring to the construction of a hydrogen production plant in Mariupol. The hydrogen produced at this plant will be used for low-emission steel production.
NEW NEWS
Until now, aviation, maritime transport, and housing and communal services were virtually outside the Green Deal, but now the European Commission insists on abandoning free CO2 emission allowances for aviation. Obviously, this will lead to an increase in airline costs and an increase in prices for their customers. Because innovative low-carbon aviation fuels are more expensive. European airlines already offer the option to "reduce CO2 emissions" by paying a few extra euros when buying tickets. Now there will be no choice - we will all pay.
At first glance, the FuelEU maritime initiative will not particularly affect us - it should stimulate the introduction of environmentally friendly fuel in maritime transport and zero-emission technologies. This will all apply to vessels calling at European ports. But one way or another, it will lead to an increase in transport costs, and we will see this in a certain increase in prices.
Extremely strict conditions have been put forward for the sale of new cars - starting from 2035, these companies must have zero emissions. That is, the sale of cars with internal combustion engines will be banned in the EU. Obviously, incentives will be introduced for Europeans to part with such cars sooner, switching to electric ones. A stream of cheap old cars will flow into Ukraine - no longer diesel, as now, but with gasoline engines.
And energy: they plan to bring the share of energy from renewable sources to 40% by 2030. This will be achieved through the use of renewable energy sources in transport, heating and cooling of buildings, as well as in industry. We will have to follow their example - increase the share of hydro, nuclear and renewable energy sources. And, of course, utilize everything that can generate energy. Because the carbon footprint of electricity will "dirty" any product in the production of which it is used. And therefore, there will be problems with the export of such goods.
Decarbonization for Ukraine is largely a forced step. If we don't start today, then in four or five years the export of many types of products will be virtually blocked. But at the same time, it is also a strong incentive for the modernization of traditional industrial enterprises. "If we hadn't thought about decarbonization, we wouldn't have looked at the possibilities of direct iron recovery or electrometallurgy. The story of decarbonization appeared - the idea of using high-quality pellets instead of scrap arose. And it turned out that in the process of decarbonization we can give a second life to Ukrainian metallurgy," Ryzhenkov believes.
As the head of the industrial group - a leader in decarbonization, Ryzhenkov insists on the fastest possible formation of a strategy within the entire country, otherwise the transformation will drag on and be too expensive: "Ukrainian industry faces a serious challenge that will affect the life of the entire country. Decarbonization can completely change both production and technology. The sooner business and the state develop a unified approach to achieving carbon neutrality, the easier this process will be for the Ukrainian economy."
INITIATORS OF FIT55 SPEAK
Ursula von der Leyen, President of the European Commission
The saving of fossil fuels has reached its limit. We want to leave the next generation a healthy planet, as well as good jobs and growth that does not harm our nature. The European Green Deal is our growth strategy aimed at decarbonizing the economy. Europe was the first continent to declare itself climate neutral by 2050, and now we are the first to put a concrete roadmap on the table. Europe is negotiating climate policy through innovation, investment and social compensation.
Frans Timmermans, Executive Vice-President of the EC for the Green Deal
This decade is a decisive step in the fight against climate and biodiversity crises. The EU has set ambitious goals, and today we present how we can achieve them. Achieving a green and healthy future for all will require significant efforts in every sector and in every Member State. Together, our proposals will stimulate the necessary changes, allow all citizens to feel the benefits of climate action as soon as possible, and provide support to the most vulnerable households. Europe's transition will be fair, green, and competitive.
Paolo Gentiloni, European Commissioner for Economy
We are updating our 20-year-old energy taxation rules to encourage the use of greener fuels and reduce harmful competition through energy taxes. And we propose a carbon border adjustment mechanism that will align the price of imported "carbon" goods with the price prevailing in the EU. In full compliance with our WTO commitments, this will ensure that our climate ambitions are not undermined by foreign firms with softer environmental requirements. It will also promote the adoption of greener standards beyond our borders.
Kadri Simson, European Commissioner for Energy
To achieve climate neutrality by 2050, we need to turn the evolution of renewable energy into a revolution and ensure that energy is not wasted. Today's proposals set more ambitious goals, remove barriers, and add incentives so that we move even faster towards a net-zero energy system.
Adina Vălean, European Commissioner for Transport
With our three transport initiatives - ReFuel Aviation, FuelEU Maritime, and the Alternative Fuels Infrastructure Regulation - we will support the transport sector's transition to a future-oriented system. We will create a market for environmentally friendly alternative fuels and low-carbon technologies, and build the necessary infrastructure to ensure the widespread adoption of zero-emission vehicles and vessels. This is an opportunity to make the EU a leading market for advanced technologies.
Virginijus Sinkevičius, European Commissioner for Environment, Oceans and Fisheries
We must expand the use of biodiversity-friendly methods and ensure the health and resilience of forest ecosystems. The Forest Strategy is a game-changer in how we protect, manage, and grow our forests for our planet, people, and economy.