The ever-increasing emission of pollutants and green

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1 The Clean Development Mechanism in the Indian steel industry India is planning to quadruple its crude steel production to 200Mt/y by 2020 based on adaptation of clean technologies and to world technology standards. As a result, energy consumption will reduce and environmental emissions of dust, CO 2 and NO x will be significantly curtailed. However, the Clean Development Mechanism (CDM) benefits are not used to the extent they should be due to ignorance of project registration procedure and/or in-depth knowledge of the project cycle. This article describes the importance of the Kyoto Protocol and CDM to help Indian steel industries better avail themselves of the benefits. Author: Rajkumar Agrawal Mars Vapours Carbon Foot Print Pvt Ltd The ever-increasing emission of pollutants and green house gases (GHGs) into the atmosphere is causing significant concern because of its potential deleterious effect on world climate, human health, food security, economic activity, water, other natural resources and physical infrastructure. Alarmed by these consequences, global leaders met at the Earth Summit at Rio de Janeiro in June 1992 and adopted a legally binding convention called the United Nations Framework Convention on Climate Change (UNFCCC). The UNFCCC is an international environmental treaty with the goal of achieving stabilisation of GHG concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference in the climate system. To tackle climate change through a reduction in GHG emissions, the Conference of Parties (CoP) at the third meeting in Kyoto, Japan adopted a protocol on 11 December Under this Kyoto Protocol, developed countries (called annex-1 countries) are required to reduce GHG emissions by an average of about 5.2% below 1990 levels by the years The six greenhouse gases covered are CO 2, which accounts for the vast majority of emissions, methane (CH 4 ), nitrous oxide (N 2 O), hydrofluro carbons (HFCs), per fluorocarbons (PFCs) and sulphur hexafluoride (SF 6 ). For the implementation of the Kyoto Protocol, it required ratification by at least 55 countries and by those countries which accounted for at least 55% of the total GHG emissions in The Protocol came into force on 16 February 2005 after its ratification by Russia. GREEN HOUSE GASES AND THEIR GLOBAL WARMING POTENTIAL These six greenhouse gases have different warming potentials and lifetimes. The GHG level in annex-1 countries in 1990 and 2004 with sources of emissions are shown in Table 1. The CDM is the only mechanism under the Protocol that specifically includes developing countries and has two purposes: first to assist developing countries (non annex-1 countries) in making progress towards sustainable development and to contribute to the UNFCCC objectives. The actual cost involved in emission reduction in developed countries like the UK and USA are much higher than in developing countries like India, China and Pakistan. Hence, it makes business sense to purchase emission reduction units (ERUs) to achieve their targets. Its second purpose is to assist developed countries in the transition towards achieving their emission targets. Non-annex-1 countries are supposed to gain economic, developmental and environmental benefits from implemented projects that generate carbon credits for export which are designed to be bankable from the inception of CDM. Such carbon credits, which can be traded, are referred to as Certified Emission Reduction (CER) units. A CER is a unit which denotes one tonne per annum of CO 2 equivalent reduction in emission. Its market price is highly volatile and varies between 10 and 22 euros/t. Non annex-1 countries reduce their emissions by implementing less GHG-emitting projects and getting them registered with the UNFCCC for issuing of CERs. After getting CERs, the host country can trade these to annex-1 countries or in a carbon market, thus compensating the cost of project to some extent. This is shown in Figure 1. This fulfils the purpose of the CDM as defined in Article 12 of the Kyoto Protocol to the UNFCCC. Recently, in countries like the USA, which have not ratified the Protocol, concerned citizens and corporations have started buying the carbon credits from developing countries to demonstrate their green credentials. Such purchases are outside the ambit of UNFCCC and these carbon credit units are known as Verified Emission Reduction (VER) a 15

2 Green house gas Global warming Lifetime (years) GHG levels in Sources potential (gwp) annex-1 countries (1,000Tg) (1,000Tg) Carbon dioxide (CO 2 ) Fossil fuels, deforestation Methane (CH 4 ) ± Coal mining, oil and natural gas drilling, garbage sitting in landfills Nitrous oxide (N 2 O) Nitrogen-based fertilisers, sewage treatment, automobile exhaust Hydro flouro 140 ~ 11, ~ 264 Three types Three types Aerosol cans, carbons (HFCs) combined combined refrigerators etc Per flouro 6,500 ~ 9,200 2,600-50,000 Three types Three types Aluminum and carbons (PFCs) combined combined semiconductor manufacture Sulphur 23,900 3,200 Electricity industry, hexaflouride (SF6) semiconductor industry, also during aluminum smelting (Data Source: UNFCCC subsidiary body for implementation, 25th session, Nairobi, 6th 14th November 2006, 1 Teragram(Tg) = 1 million tonnes; 1000 Tg = 1 billion tonnes) r Table 1 Greenhouse gases and their global warming potential 16 r Fig 1 How CDM works units. Typically the carbon credit generated from GHG reduction projects implemented beyond the regulations of UNFCCC attract VER benefits, whereas those registered with UNFCCC attract CER benefits. The cost of VER is much lower than CER. CDM PROJECT CYCLE Claiming CER involves several steps: project analysis, preparation of a project information note (PIN) and project design documents either by adopting approved baseline methodology (if it exists) or by development of methodology (if it does not). These approved methodologies are all coded AM, ACM or AMS (Approved Methodology, Approved Consolidated Methodology or Approved Methodology for Small Scale Projects). If a project developer cannot find an approved methodology that fits their particular case, they may submit a new methodology to the Methodology Panel and, if approved, the new methodology will be converted to an Approved Methodology. Subsequently, the project design document (PDD) is submitted to the host country s Designated National CDM authority to ascertain if the project meets the national sustainability goals. The PDD is a principal document used by project participants to get a CDM project approved and comprises a general description of project activity, monitoring methodology and plan, and calculation of GHG emission. Environmental impact and stakeholder comments are also encompassed. After the host country s approval the project needs to be validated by an independent and authorised evaluator called a Designated Operational Entity (DOE). The formal acceptance of a validated project is then achieved through registration of a project with the Executive Board (EB) of UNFCCC. Once the project is implemented, the project proposer compiles all relevant data necessary for calculating GHG emission reduction in accordance with the monitoring

3 plan included in PDD. The DOE, thereafter, through an annual independent verification, determines the monitored GHG emission reduction and certifies that during the specified time period, the project achieved the GHG emission reduction. The CDM Executive Board then issues CERs, which become tradable. Under CDM, a carbon crediting period could be for a one-off 10 years or a seven-year period renewable twice ie, 21 years in total. The CDM Project cycle is shown in Figure 2. CRITERIA FOR CDM REGISTRATION For CDM registration of a project, it needs to fulfill the following criteria: The project should contribute to sustainable development It should improve social, economic, environmental and technological performances. It should be a pioneering effort in the field of energy efficiency in steel manufacturing and one that leads to sustainable development of the host country. The sustainability aspects of the project activity are described below: ` Social well-being The project activity should not require any dislocation of the local population. Furthermore, project activity should employ local people both in the project facilitation phase as well as in the operational phase thus improving the quality of life of the local people. ` Technological well-being The project activity should not be business-as-usual, should be done differently and have replication potential in a similar sector. ` Environmental well-being The project activity should result in reduced energy consumption which in turn will lead to a corresponding reduction in energy generation. Indian energy demand is primarily catered for with fossil fuels. Therefore, reduction in energy generation will lead to reduced fossil fuel consumption and subsequently reduction in GHG emissions, the primary cause behind global warming Therefore, the project activity should be a positive step towards mitigation of global warming. Reduction in fossil fuel combustion will also lead to reduction in SO x and NO x emissions, therefore the project activity should also improve the local air quality. ` Economical well-being The project activity should generate business opportunities for consultants, vendors, suppliers etc, during various stages of its implementation. This would indirectly benefit the local economic structure. Emission reduction should be real, measurable and quantifiable A monitoring methodology should be set up for obtaining data to calculate emission reduction r Fig 2 CDM Project cycle through quality assurance, equipment selection and their calibration as prescribed by manufacturers. Comparison to historical averages and correlation to other operational data received can cause inaccurate or invalid readings. CER should be accurate, real and measurable Thus, volume of emission reductions attributed by the project is accurately measured and analysis of GHG emissions from a project within its boundary is determined. The PDD also includes the monitoring plan. The project should fulfill the additionality clause There are several procedures that are mandated by the UNFCCC to ensure that the CER is accurate, real and measurable. It is necessary that project reductions must be additional to any that would have occurred in the absence of the project. Due to project implementation the additional reductions are clearly visible through a baseline. The baseline methodology must be approved by UNFCCC. It should be available to the public along with the approved PDD and monitoring plan. The project owner has to show monitored and evaluated CER in their project compared to what would have happened in the absence of the project. It should clearly demonstrate that with the implementation of the project GHG has reduced as shown in Figure 3. BARRIERS There are different types of national barriers to the development of CDM projects: Policy/legislative barriers in host countries These are two very important factors for investors that will have an impact on CDM activity in a country. Host country governments should help encourage investment, both domestic and foreign through: ` Stable laws CDM project investors should be assured stable legislative provisions to encourage investors to generate CERs uninterrupted in the long run. a 17

4 r Fig 3 Additionality for CDM project ` Tax/incentive As a bonus they should be given tax benefits or other incentives for CDM project finance. ` Reduce participation/ownership restrictions on foreigners Non-resident Indians (NRIs) should be permitted, the same as Indian citizens ` CDM projects and the ownership of CER policy The project should be implemented and CER policy should be clear. Financial barriers Inadequate finance is the most common barrier to CDM project development. High initial investment cost is also a major constraint, particularly in developing countries. Normally project appraisal is made on the basis of the installation cost rather than the life cycle cost of production. This favours conventional technologies with low capital cost rather than energy-efficient technology. As the CDM processing cost is high for developing countries, it becomes non-viable for them. Financial barriers impose risks associated with a CDM project in addition to the conventional project risks: political, exchange rate, time overrun and capital cost over-run. These risks influence project financing institutions decisions and they may not be in agreement with the financing of a CDM project. and capacity utilisation from to India is the fifth largest steel producer, thus in , with a specific generation of CO 2 of Kg/t crude steel, India produced a calculated Mt of CO 2. Thus emissions in the steel industry are huge and energy consumption high, which provides good scope for emission reduction, energy conservation technology implementation and CDM benefits. The technologies envisaged/implemented are as follows: Technologies suitable for transfer to Indian steel industry and availing CDM benefits: Primary steel making ` Coal and coke beneficiation ` Coal moisture control ` Coke dry quenching ` Recovered coke oven gas utilisation for generation of power in captive power plant ` Waste heat recovery from furnaces, sinter coolers, molten slag, and soaking pits generated during steel making process ` Power generation using top pressure of blast furnace gas (Top recovery turbine) ` Carbon injection in blast furnaces ` Switching from twin hearth to BOF ` BOF gas recovery (LD Gas recovery) ` Utilisation of BF and BOF gas ` Continuous casting ` Walking beam re-heating furnaces ` Using latest technologies such as Midrex, Hismelt, Castrip and FINEX ` Change-over to gas-fired boiler from coal fired Secondary steel making ` Scrap re-heating in EAF ` Use of UHF furnace ` Oxy-fuel burners ` Energy-efficient initiatives (variable voltage variable frequency control for motors, lighting, ultra high power transformers etc) ` Efficient reheating furnace 18 OPPORTUNITIES IN THE INDIAN STEEL INDUSTRY The Indian National Steel Policy 2005 projected steel consumption to grow at 7% based on a GDP growth rate of 7-7.5% and production of 110Mt by These estimates will largely be exceeded and it is envisaged that in the next five years, demand will grow at an annual rate of more than 10%, compared to around 7% achieved between and It has been assessed that on a most likely scenario basis, steel production capacity by the year will be nearly 124Mt. Table 2 shows installed plant capacity, crude steel production Use of renewable energy ` Biomass based fuels ` Wind ` Solar thermal, solar photo voltaic BASELINE METHODOLOGIES MOST SUITABLE FOR THE STEEL INDUSTRY There are many approved methodologies for claiming CDM benefits. In the absence of approved methodologies, if the project meets the CDM Board requirements the methodologies need to be developed and approved by the UNFCCC Board to register the project. Some of the

5 YEAR Installed capacity ( 000t) Production ( 000 tonnes) Capacity utilisation (%) ,910 38, ,995 43, ,171 46, ,843 50, ,845 53, ,400* 54, (Source: JPC * = 3Mt capacity added in December 2008) r Table 2 Crude steel production CDM project status Biomass Energy Fuel Waste gas/heat Wind as of april 2010 efficiency switch utilisation power Requesting registration At validation CERs issued r Table 3 Status of CDM projects in Indian steel sector methodologies that can be used in iron and steel sectors are as follows: i AM0066 GHG emission reductions through waste heat utilisation for pre-heating of raw materials in sponge iron plants. ii AM0068 Methodology for improved energy efficiency by modifying ferroalloy production facilities. iii ACM0002 Consolidated methodology for grid connected electricity generation from renewable sources. iv ACM0012 Consolidated baseline methodology for GHG emission reductions from waste energy recovery projects. v AMS-I.C. Thermal energy production with or without electricity. vi AMS-I.D. Grid connected renewable electricity generation. vii AMS- II.C. Demand-side energy efficiency activities for specific technologies. viii AMS-II.D. Energy efficiency and fuel switching measures for industrial facilities. ix AMS-III.Q. Waste energy recovery (gas/heat/ pressure) projects. x AMS-III.V. Decrease of coke consumption in blast furnace by installing dust/sludge recycling system in steel plants. sector the result is not very encouraging. There are two main reasons for failure: (a) a long time is needed for project registration, and (b) validation and verification delays (see Figures 4 & 5). This is mainly because there are few evaluators/verifiers and the failure rate, at 43%, is very high. The reasons for failures are many. Reasons for failure ` Incorrect methodology ` Monitoring plan not matching methodology ` Barriers are not projected properly ` Technology transfer is not taking place ` Benchmark: the project benefits should be better in comparison to alternatives. ` Financial indicator not defined correctly ` Comparable projects: investment comparison with different alternatives. ` Consultant is not very efficient and competent ` Inadequate knowledge of project owner on CDM and depending only on consultants. ` Additionality could not be demonstrated due to project owner not ready to share the project data correctly Even after registration some projects could not reap the CDM benefit owing to the following inadequacies: More than 130 projects were submitted from the iron and steel sector for registration and are waiting Executive Board approval. CER has been issued to 15 projects only. Table 3 shows the status of Indian CDM projects as of April CDM SCENARIO IN INDIAN STEEL SECTOR Many projects are eligible for CDM benefits, but many projects are not getting registered and in the iron and steel ` Data acquisition was not adequate ` Monitoring was not conducted as designed and per approved plan ` Project design was changed during execution Registered projects in steel sector Currently India has 520 registered CDM projects. To date, 79 million CERs have been issued to Indian projects. Assuming a 19

6 HNA Submitted for Validation Stuck in Validation In Process Requested for Registration UNFCCC Registrated ` Facilitating the use of the new generation of steels to improve the energy efficiency of steel-using products in partnership with customers. ` Adopting common and verified reporting procedures that account for, and report progress towards, achieving CO 2 emission reduction. ` Implementation of energy management systems. ` Conservation of natural resources. ` Harnessing waste energy and mitigation of GHG emission given utmost importance. ` Promotion of renewable energy. ` Conducting regular energy audits. (HNA is host nation approval) r Fig 4 Registration delays The global problem of climate change requires global solutions. Policies to improve energy efficiency and reduce CO 2 emissions are important in all sectors. The growing importance of steel production in developing countries such as China, India and Brazil means the steel industry in these countries has a crucial and important role to play in helping reduce emissions. Adaptations of energy-efficient cleaner technologies, efficient process operation, use of cleaner fuel, improved quality raw material etc, are key to reducing GHG emissions from the iron and steelmaking processes. r Fig 5 CDM failure rate a conservative price of $10 per CER, this amounts to US$790 million. The smallest is 2,710 CER and the largest, 811,566 CER. In total, 2,313 projects have been registered by the CDM Executive Board of the UNFCCC and have the potential to generate 43 million CERs per annum which amounts to approximately 12% of the total annual CERs generated by registered CDM projects globally. COMMITMENT FROM INDIAN STEEL INDUSTRY Indian producers are poised to reduce GHG emission whether they get CDM benefit or not. Every producer has understood the importance of CO 2 emission reduction, GHG effects and global warming. The steel industry is committed to reducing global GHG emission by the following actions: ` Expanding the use of cleaner and efficient technologies, widely used in modern steelmaking processes to minimise CO 2 emissions. ` Undertaking research and development for new technology solutions to radically reduce the level of CO 2 emissions per tonne of steel produced. ` More steel recycling. ` Maximising the recovery of byproducts and their value. CONCLUSIONS Advanced technologies and a strong will to produce green steel is a real incentive to reducing GHG emissions worldwide. Recycling used steel and use of steel waste (now termed a byproduct) has gained in importance. With the implementation of the Environment Management System and energy efficient technologies, CO 2 emissions/ts have reduced drastically and the trend is continuing. The Kyoto Protocol is undoubtedly helping developing countries to replicate efficient technologies. However, help is required with respect to retrofitting old processes, elimination of intellectual property rights and reduction in time it takes for CDM registration. The actions of developed countries and the UNFCCC Executive Board would really help developing countries implement the latest technology and meet the desired target of GHG emission. The ultimate objective is that every tonne of steel produced must aim at improving the quality of life for everyone, both now and for future generations. ACKNOWLEDGEMENTS The author thanks the UNFCCC Executive Board for its valuable support in publishing this article. He is also thankful to his wife Veena and son Robin. MS Rajkumar Agrawal is Corporate Consultant at Mars Vapours Carbon Foot Print Pvt Ltd, Mangalore, India. Contact: rk_agrawal@ymail.com 20