Energy and Climate Change CommitteeMemorandum submitted by Tata Steel

0. Summary

0.1 We think the consumption-based approach avoids the issue of burden shifting across national boundaries (carbon leakage) and stimulates a life cycle approach to product design. The use phase of products causes much higher emissions than the production phase does eg for cars and buildings. The benefits of design for reuse (eg reuse of (parts of) buildings, lighter cars) and design of energy efficient goods reduce emissions in a more cost-effective way. Products should be designed and used in a way that the use of less carbon becomes a financial benefit.

Specific Questions

1. How do assessments of the UK’s greenhouse gas emissions differ when measured on a consumption rather than a production basis?

1.1 A production based approach only considers the emissions that are directly associated with manufacturing steel in the UK. In contrast, a consumption based approach considers the emissions associated with manufacturing steel in the products that are used and consumed in the UK. The main difference between the two approaches is that consumption discounts for the impact of trade between the UK and other regions of the world, which can be significant.

1.2 Using trade statistics for steel products and UK production data for 2008 a preliminary analysis of the difference between UK CO2 emissions, calculated on a consumption rather than a production basis, has been carried out. This has shown that the UK is a net importer of around 13 Mt CO2 for steel containing products and goods, which is half of UK production emissions.

1.3 Figure 1 shows the flows of steel in the UK and how a significant amount of steel, in the form of finished steel products and steel goods, requires steel to be made outside of the UK.

Figure 1

Steel flows and CO2 emissions associated with the consumption and production of steel in the UK in 2008. Steel flows are shown in black and associated CO2 emissions are shown in red (in brackets) in units of Million tonnes. Steel material flow data are taken from ISSB and CO2 figures have been calculated from worldsteel data.

1.4 From a consumption perspective Figure 1 illustrates that:

The import of steel in goods, such as cars, accounts for a significant proportion of the consumption based emissions because 11Mt of steel goods requires the production of 15Mt of crude steel and further processing elsewhere in the world. The difference between these two figures (4Mt) reflects yield losses in the supply chain.

The UK is a net exporter of steel scrap, which from a consumption perspective reduces the national emission figure because there is a saving in CO2 emissions in the countries that use the scrap. If steel scrap is excluded from the analysis then consumption emissions increase to 183% of production emissions.

1.5 Figure 2 shows a breakdown of consumption based emissions and demonstrates how trade of steel products and scrap impact on the total UK figure when compared to UK production emissions reporting.

Figure 2

Data are based on those shown in Figure 1.

1.6 The data, on which this assessment is based, would need further refinement to account for differences in yields and manufacturing emissions between different product categories. Issues such as transport of imported goods might also need to be included. However, these differences are likely to be relatively small and similar conclusions have also been drawn by the Carbon Trust1 and Allwood et al.2

2. Is it possible to develop a robust methodology for measuring emissions on a consumption rather than production basis and what are the challenges that need to be overcome to deliver this?

2.1 The work carried out by ourselves and others eg Carbon Trust, has shown it is possible. The challenges are:

Consumption has to include the use of final products (eg cars) and not just individual sectors (eg steel, power, automotive and construction etc.) to avoid burden shifting. The feasibility of this could be investigated using Life Cycle Assessment methods.

Prevention of double counting: eg end-use sectors versus material production like automotive versus the steel industry.

Recycling: a huge benefit of steel is the possibility of infinite recycling. The very high rates of recycling that are achieved in many sectors should be rewarded in the methodology. The approach proposed in the Figure 2 should be used as starting point.

Calculating the carbon emissions caused by imported goods (eg a car) outside the UK is very difficult. This could be solved by using worst case default data until the company can prove their product has a better performance. In other words, the emphasis should be put on the supplier to provide this information.

3. What are the benefits and disadvantages associated with taking a consumption-based rather than production-based approach to greenhouse gas emissions accounting?

3.1 Benefits:

The consumption-based approach is fair compared to the production-based approach, because when the UK causes emissions abroad, it’s the responsibility of the UK.

Both companies and consumers have a responsibility to reduce emissions. Companies have successfully reduced emission (and should continue to reduce), but it seems to be hard to get the consumer to take some of the responsibility. Consumption-based emission reporting might be used to increase the awareness of consumers or even be used to force the society to reduce emissions per capita.

All parts of the life-cycle are taken into account, which will give a good overview at which point in the life-cycle the most cost-effective measures can be taken.

3.2 Disadvantages:

It’s very hard to get good data at a disaggregated level. The latter is needed to improve the quality of the assessment and determine route causes of CO2 emissions.

One of the possible measures to reduce the carbon emission on a consumption level is Boarder Adjustments. BA’s are very hard to apply, because the complexity of the “carbon emission content” of imported goods.

4. Is there any evidence of industry relocating from the UK to other countries as a result of UK climate change policy?

4.1 The question should not be relocation, but diminishing competitiveness: what’s the difference in margin/profit in the EU and outside the EU. This is important, because relocation will only take place after a long time of “harvesting” the current installations (=minimal maintenance) where margins are low/negative. The figure below (Carbon Trust: International Carbon Flows, Steel. 2011) show that cost of carbon is very important for the margin. CIS countries are most important for European steel industry.

4.2 Several studies have been carried out that show the potential risk of carbon leakage as a result of Climate Change policy. They all agree that the Iron and Steel industry is at risk and the EC should make sure that this will be minimised. In the EU ETS directive carbon leakage is defined by two indicators: (1) Increase of indirect and direct carbon costs, calculated as proportion of GVA and (2) Intensity of trade with non-EU. The graph below (circle) shows the position of the Iron and Steel industry.

5. Would it be (a) desirable and (b) practicable for the UK to adopt emissions reduction targets on a consumption rather than production basis?

5.1 It would not be desirable for the UK unilaterally to adopt targets based on a different currency from the rest of the world. It would be desirable on a world wide scale. It will show the parts of the supply chain with the highest potential for improvement. This is often the use phase, so the focus should be on the energy efficiency of the product rather than the material. Eg the example of the Body In White (BIW) of a car (see: The total weight of a typical five-passenger family car is 1,260 kg, with the BIW structure accounting for 360 kg. By replacing the BIW with an optimised structure made of Advanced High Strength Steel (AHSS) products (at little additional cost relative to conventional steel) the overall weight saving is 117 kg or 9%. Due to this weight reduction, the powertrain can be down-sized to achieve vehicle performance comparable to that of the heavier, conventional steel structure vehicle. The resultant fuel saving is 5.1%. This is a 5.7% reduction in GHG emissions over the full life cycle of the vehicle.

In the Netherlands, half of the energy efficiency target, in the steel industry, can be met by energy efficient products instead of energy efficient steelmaking (which is the other half of the target).

The consumption-based approach should also include the economic parameters like employment: a consumption based approach might give the same environmental improvement with less loss of employment in the UK.

5.2 It is not yet practicable. A lot of assumptions will have to be made to get useful figures. However, we shouldn’t accept to be in a policy lock-in of production based reporting. In other words: although the production based data are much better at the moment because we have been collecting them for a long time, it doesn’t mean that we shouldn’t start the collection of consumption based data if we think the latter approach will be more fruitful in the end as the basis for policy making. A start might be made with a few sectors. Another solution for lack of data is to start with some (worst case?) default assumption, so the database can be improved at a later point.

6. What are the potential implications at the international level of the UK adopting a consumption- rather than production-based approach to greenhouse gas emissions accounting?

6.1 It will show that imports account for a lot of carbon emission outside of the UK. The potential policy implication might be to create price adjustments for our emission abroad. This will incentivise the production of low carbon goods (instead of the current penalty for producing low carbon products in the UK). This will then create additional skilled jobs and keep employment in the UK.

7. Are there any other issues relating to consumption-based emissions reporting that you think the Committee should be aware of?

October 2011

1 Carbon Trust, International Carbon flows, Steel, 2011.

2 J Allwood, J Cullen, Sustainable Materials with Both Eyes Open, Cambridge, 2011.

Prepared 17th April 2012