Published 21 January 2016

How basic industry can reduce process emissions

– Sweden can learn from Japan and China

Sweden does not have a clear national strategy for how emissions from basic industry can become climate-neutral by 2050 even though this is probably a requirement in order to reach the two degree goal. This is
not something that is unique for Sweden – no country included in this analysis has such a strategy with resources for the development of new technology and policy instruments that create a demand for such
technology, including a timeline with set times for the meeting of climate adaptation goals. However, most countries have a more developed strategy than Sweden does.

Japan, China and the UK have better developed strategies

Japan, China and the UK have strategies for energy-intensive industries that include both supporting investments in new technology and targeted policy instruments that generate a demand for such new technology. There is therefore a well thought out policy mix for the entire innovation process. However, the level of ambition cannot be seen as being in line with existing national ambitions for climate policy.

Sweden, USA, Canada, Germany and India – focus on technology development

Several countries have a strategy that only consists of resources for the development of new technology. Countries with large fossil resources, such as the USA and Canada, have a strategy where the development of carbon dioxide capture and storage is seen as being a central part of reducing the carbon dioxide emissions of basic industry. However, com­pared with other sectors, only a relatively small proportion of the businesses’ turnover goes to research and innovation.

Sweden is focusing on supporting companies’ innovation needs

The resources provided by the Swedish government go primarily to supporting the innovation needs that basic industry has identified. Even though this aid usually helps to reduce the emission of greenhouse gases from basic industry, it tends not to have a trans­formational effect and stimulate the major changes that are needed in the long term in order to create a climate-neutral industry. Substantially more resources will be required to meet that need, for instance, in order to set up new demonstration plants.

A long-term strategy is needed if Sweden is to serve as a good example of climate policy and have steel industries in 2050

If Sweden is to be credible and serve as a good example regarding the development of climate policy, a strategy for emissions management is needed. This framework must be established by the government since steel industry plays on international and regional markets, it is capital-intensive and re-investment is done roughly every forty years. The framework must consist of a policy mix that both stimulates the development of new technology and the demand for such technology.

One specific issue in a long-term strategy is how to support innovation that can reduce emissions. New process technology needs to be tested on a large scale through, for instance, a large demonstration project, at least before 2030. One matter to consider is whether this demonstration plant should be set up in Sweden or whether international cooperation is required to support a plant in another country. A facility abroad would however mean that Swedish steel manufacturers would need to be involved in the design of the project in order to learn relevant lessons from it.

A Swedish strategy also needs to consider and weigh different alternatives for how to reduce emissions. The point of departure for such a strategy is to reach consensus in that weighing. The business sector is best suited to make technical choices but at the same time, the government must decide, for example, if CCS technology is to be used in Sweden. If Sweden chooses CCS as part of its solution, the Swedish Energy Agency should also be permitted to finance it even though CCS is not of relevance to energy, only to climate.

One risk of having a strategy that is based on CCS for steel industry is how demands for this technology are to be stimulated. CCS is a pure climate intervention which means it is the EU’s trading system that is to make it profitable. However, it is highly uncertain that the price of emission rights will be sufficiently high to justify investments in CCS when basic industry is preparing to make major re-investments. This means a CCS strategy is questionable even in a situation where it would appear that this is the cheapest way of reducing emissions. However, a strategy that is based on hydrogen or electrification can be justified by reasons other than simply reducing greenhouse gas emissions. This means a demand for this technology can be generated through policy instruments that give businesses a low market risk.

One important lesson learnt from the countries that have a clearer vision for their steel industry is that in those countries there is well-developed cooperation between companies, universities and the government. The governments in those countries state clearly that they want to retain their industry at the same time as they will have to impose increasingly ambitious environmental standards. Making this a joint challenge seems to be a central part of such more developed strategies.

Title
How basic industry can reduce process emissions – Sweden can learn from Japan and China

Serial number
Direct response 2016:01

Reference number
2015/217

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