sectoral economic costs and benefits of ghg mitigation - IPCC

Bruce A. Steiner
A North American Steel Industry Perspective 1
Bruce A. Steiner 2
The steel industry is among the more energy intensive industries in the manufacturing sector.
The steel industry accounts for 2-3% of the total energy consumed in the United States, or about
10% of that consumed by industry. Because it represents about 20% of our manufacturing costs,
we have a significant incentive to reduce energy consumption in order to remain competitive.
About 60% of the industry’s energy consumed is in the form of coal, or coke, which is derived
from coal. Another 25% is in the form of natural gas, and the remaining 15% is electricity. In
addition, because much of our manufacturing occurs in the Midwest, where power plants are
principally coal-fired, the industry’s electricity usage is also coal dependent. We are therefore a
fossil-fuel based industry and rely on carbon. Nearly all of the coal and some of gas consumed
serves as a source of carbon used in the chemical reaction necessary to convert iron ore to steel.
In that sense, much of the energy consumed in the steel industry is a basic feedstock and cannot
be reduced by mere energy conservation.
As is the case for most basic manufacturing industries, the steel industry is also very capital
intensive, and investments are made in facilities that are expected to last for 40-50 years or more.
Low profit margins make it difficult to raise the necessary investment capital. In addition, capital
investment requirements to improve quality and productivity often compete for capital to
improve energy efficiency, and these competing projects are frequently customer-driven.
Improvements in energy efficiency in the steel industry come in small increments over long
periods of time as capital stock is replaced. For example, since 1975 we have reduced energy
consumption per ton of steel shipped by about 45%. That record has been accomplished not
because of energy mandates, higher energy costs, or energy taxes, but because energy is a
significant cost of business and reductions were necessary to remain competitive. In fact, energy
costs in inflation-adjusted dollars have actually gone down during that period of time.
Traditionally, steel has been made in a series of batch processes. Energy efficiency has been
improved largely by moving to more continuous processes. The best example is continuous
casting, which allows molten steel to be converted directly to a semi-finished shape. This
eliminates several energy-consuming steps and greatly improves yield. Thus, we can produce
more usable steel with the same amount of energy input.
It is also important to note the international competitive structure of the steel industry. Four of
the top ten steel producing countries in the world – China, India, Korea, and Brazil – are without
obligations under the Kyoto Protocol. Although these nations may be considered developing
countries, be assured that they have very developed steel industries that compete directly with
North American producers in the international marketplace. In the case of other countries, such
as Japan and the European Union, even though they have obligations under Kyoto, it is our lower
1 This paper was previously presented at “The Kyoto Commitments: Can Nations Meet Them with the
Help of Technology,” a symposium sponsored by the American Council for Capital Formation
Washington, DC October 13, 1999. This submission was distributed by Paul Cicil but not discussed at this
IPCC meeting.
2 Vice President, Environment and Energy, American Iron and Steel Institute.
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