Our path to carbon neutrality

The transformation of steel production gives us enormous potential to reduce CO₂ emissions. We are leveraging this potential by taking various measures that also impact trading in CO₂ certificates.

Two million fewer cars on the road each year would eliminate enormous amounts of CO₂ emissions. The magnitude of the savings is equivalent to the carbon reduction that will be achieved in the future by our two electric arc furnaces (EAFs).

In other words, if everything goes according to plan, starting in 2027 we will save around four million tons of CO₂ emissions per year by replacing one blast furnace each in Linz and Donawitz. This corresponds to just under 5% of Austria’s total current CO₂ emissions. The exact start of implementation still depends on clarifying unresolved funding issues and the timely expansion of the electricity grid.

Green steel production

greentec steel is a major step towards green steel production. It brings us significantly closer to our goal of climate-neutral steel production by 2050. Our technological and environmental efforts are focused on reducing greenhouse gases without compromising the quality of our high-quality steel grades.

CO₂ reduction through a technology shift

Much has already been achieved. We have been able to reduce specific CO₂ emissions per ton of crude steel by around 20% since 1990 through technological progress and improved production processes. But further significant reductions are only possible with a change in technology. Topics such as carbon capture, utilization, and storage (CCUS) can also be building blocks in the overall transformation picture.

High costs for emission rights

Our intensive efforts to reduce CO₂ emissions are also linked to the European Union’s emissions trading system, which currently causes the voestalpine Group to incur annual expenses of around EUR 240 million—with a sharply rising trend.

How does emissions trading work?

The European Union Emissions Trading System (EU ETS) is a key tool for achieving European climate targets. It requires emission-intensive industries, the power generation sector, and aviation to purchase certificates for their CO₂ emissions: one certificate entitles the holder to emit one metric ton of CO₂.

For this carbon market, which operates via auctions, the EU has set a cap on greenhouse gas emissions. It is successively lowering both this cap and the number of tradable CO₂ allowances, which will cause prices to rise over time.

At the end of 2022, the EU agreed to tighten the ETS with its “Fit for 55” package. The sectors subject to the ETS must reduce their emissions by 62% (instead of the previous 43%) by 2030 (as compared to 2005).

The weaknesses of the EU emissions trading system

As effective as the emissions trading system is within the EU, it has one significant weakness: it is an insular system since it is primarily applicable only in the EU. This puts EU companies at a competitive disadvantage compared to other economic areas without a similar CO₂ pricing system. In order to offset these competitive disadvantages and keep the industry from migrating to non-EU countries with less stringent climate protection requirements (carbon leakage), industries at risk of migration—such as the chemical and steel industries—are allocated a certain number of CO₂ certificates free of charge. Two-thirds of voestalpine Group certificates are free certificates.

CO₂ compensation limit and expiry of free allowances by 2034

The pending introduction of a European carbon border adjustment mechanism (CBAM) in conjunction with a revision of the emissions trading system will set the course for our future. Importers will be required to comply with a CO₂ pricing system equivalent to the EU emissions trading system or otherwise pay import duties. In return, free allowances for ETS operations will gradually expire starting in 2026. They are to be abolished altogether by 2034. This means comprehensive and sound climate protection plans like greentec steel are the basis for maintaining the Group’s ability to operate.

Additional indirect CO₂ costs

On top of the cost of direct CO₂ emissions, ETS companies also pay indirectly for CO₂ emissions by purchasing electricity from third parties. This is because the power generation sector, which is also subject to the ETS, passes on its costs for CO₂ certificates by increasing the price of electricity. Since 2012, most EU member states, including Germany, have been using “electricity price compensation” to offset these additional costs. Comparable mechanisms have not yet been implemented in Austria.

Prerequisite for the transformation

We are on the right track with our transformation of steel production. The EAFs alone will enable us to save as much CO₂ per year as the entire building sector in Austria emits in two years. However, this transformation can only work with the right framework conditions. First and foremost, it requires the availability of green energy at competitive prices and strong, European-wide grid infrastructures. We will continue to play a constructive role in shaping these framework conditions in order to achieve the goal of Austria becoming a green and internationally competitive production location.