Reuters reported that the merger of Japan's two largest steelmakers will likely cut steel output at home as they look to expand offshore and will further curb demand for UN backed carbon credits beyond 2012.
Steelmakers in resource poor Japan have steadily become more efficient since the 1970s and now use 15% to 20% less energy to produce a tonne of steel than their counterparts in the United States, Germany, India or China. They are also well below self pledged emissions targets linked to the Kyoto Protocol, the UN's main climate change pact that sets targets for about 40 rich nations during the 2008-2012 first phase.
Japanese steel firms could have a competitive advantage by expanding in poorer nations since they will be more efficient and ahead on the emissions reduction curve against rivals. It could also drive greater efficiency in the industry.
Mr Masaki Mita, Japan representative for energy data and pricing service Argus Media, said that "A positive implication of the merger would be the chance they can make their advanced energy saving technology a global standard."
Nippon Steel Corporation and Sumitomo Metal Industries have likely achieved emission goals they set for themselves over the five years to March 2013, helping Japan meet its Kyoto obligations for its 2008-2012 phase.
Once the merger is completed in 2012, the combined firm will be the world's No 2 steel producer behind ArcelorMittal and is expected to lower their emissions further from the combined figure of about 60 million tonnes of CO2 equivalent per year now.
A Tokyo based carbon trader said that "The merger is set to be completed in 2012, so I don't see any big news that would affect demand for Kyoto credits right now. But in the longer term, changes in Japan's industrial structure mean there will be fewer buyers of carbon credits, and that will have an impact on the market."
Similar success by other firms in Japan's steel sector, the country's main CO2 emitter, has seen firms ceasing to buy Kyoto carbon credits, including CERs (certified emissions reductions).
Japan's steel sector as a whole has bought about 50 million CERs or 5% of the total estimated flow of CERs for Kyoto's five year first phase. The credits are generated from UN approved clean energy projects in developing countries.
Each CER represents one tonne of CO2 saved from being emitted, such as using wind power instead of coal to generate electricity. Based on current market prices in Europe, the 50 million credits bought by the steel sector are worth around EUR 570 million, showing how significant the sector is to the international market.
Carbon traders said that steel companies have considered selling their surplus CERs, but are waiting to see projected final emissions balances for 2008-2012.
That is partly because the goal the sector set for itself for 2020 looks easier to meet than the one for 2008-2012. S, Japan is developing an alternative to the U.N. market schemes to promote its energy saving technology such as those used by steelmakers, and can obtain carbon offset certificates via bilateral agreements with poorer countries. This means the steel sector might have another option even if it fails to meet its 2020 goal.
Unlike Japanese firms, ArcelorMittal has had little appetite for Kyoto credits, benefiting from having more than half of its steel production in non EU countries where carbon regulations are looser.
Carbon dioxide from burning fossil fuels is the main greenhouse gas that scientists say is heating up the planet. Growth in steel demand centers on emerging markets, which are the target for Nippon Steel and Sumitomo as well.
Mr Akihiro Sawa executive senior fellow at the 21st Century Public Policy Institute in Tokyo said that the two firms would come up with steps to cut their CO2 emissions worldwide by 10% to 20% below current levels. He added that "I don't think they have agreed to consider a merger in the context of global climate change. Their intention has been driven by rivals like ArcelorMittal and concerns about their purchasing power against resource firms. Having said that, I'm sure their agenda for merger talks will include a strategy to fight climate change."
In 1990, Japan's steel sector as a whole emitted just over 200 million tonnes of CO2. But a peak out in domestic output means the sector is well within the goal of 183 million tonnes a year on average for 2008-2012, which would be down 9 percent from the Kyoto Protocol's base year of 1990.
The steel sector has set its own target for 2020 based on CO2 per unit of output, which does not necessarily cap CO2 in contrast to its 2008-2012 goal. If the sector meets the Japanese government's crude steel output estimate of 119.7 million tonnes for 2020, up 9% from last year, its self pledged target is to cut CO2 by 5 million tonnes from business as usual levels of about 210 million tonnes by 2020.
Steelmakers in resource poor Japan have steadily become more efficient since the 1970s and now use 15% to 20% less energy to produce a tonne of steel than their counterparts in the United States, Germany, India or China. They are also well below self pledged emissions targets linked to the Kyoto Protocol, the UN's main climate change pact that sets targets for about 40 rich nations during the 2008-2012 first phase.
Japanese steel firms could have a competitive advantage by expanding in poorer nations since they will be more efficient and ahead on the emissions reduction curve against rivals. It could also drive greater efficiency in the industry.
Mr Masaki Mita, Japan representative for energy data and pricing service Argus Media, said that "A positive implication of the merger would be the chance they can make their advanced energy saving technology a global standard."
Nippon Steel Corporation and Sumitomo Metal Industries have likely achieved emission goals they set for themselves over the five years to March 2013, helping Japan meet its Kyoto obligations for its 2008-2012 phase.
Once the merger is completed in 2012, the combined firm will be the world's No 2 steel producer behind ArcelorMittal and is expected to lower their emissions further from the combined figure of about 60 million tonnes of CO2 equivalent per year now.
A Tokyo based carbon trader said that "The merger is set to be completed in 2012, so I don't see any big news that would affect demand for Kyoto credits right now. But in the longer term, changes in Japan's industrial structure mean there will be fewer buyers of carbon credits, and that will have an impact on the market."
Similar success by other firms in Japan's steel sector, the country's main CO2 emitter, has seen firms ceasing to buy Kyoto carbon credits, including CERs (certified emissions reductions).
Japan's steel sector as a whole has bought about 50 million CERs or 5% of the total estimated flow of CERs for Kyoto's five year first phase. The credits are generated from UN approved clean energy projects in developing countries.
Each CER represents one tonne of CO2 saved from being emitted, such as using wind power instead of coal to generate electricity. Based on current market prices in Europe, the 50 million credits bought by the steel sector are worth around EUR 570 million, showing how significant the sector is to the international market.
Carbon traders said that steel companies have considered selling their surplus CERs, but are waiting to see projected final emissions balances for 2008-2012.
That is partly because the goal the sector set for itself for 2020 looks easier to meet than the one for 2008-2012. S, Japan is developing an alternative to the U.N. market schemes to promote its energy saving technology such as those used by steelmakers, and can obtain carbon offset certificates via bilateral agreements with poorer countries. This means the steel sector might have another option even if it fails to meet its 2020 goal.
Unlike Japanese firms, ArcelorMittal has had little appetite for Kyoto credits, benefiting from having more than half of its steel production in non EU countries where carbon regulations are looser.
Carbon dioxide from burning fossil fuels is the main greenhouse gas that scientists say is heating up the planet. Growth in steel demand centers on emerging markets, which are the target for Nippon Steel and Sumitomo as well.
Mr Akihiro Sawa executive senior fellow at the 21st Century Public Policy Institute in Tokyo said that the two firms would come up with steps to cut their CO2 emissions worldwide by 10% to 20% below current levels. He added that "I don't think they have agreed to consider a merger in the context of global climate change. Their intention has been driven by rivals like ArcelorMittal and concerns about their purchasing power against resource firms. Having said that, I'm sure their agenda for merger talks will include a strategy to fight climate change."
In 1990, Japan's steel sector as a whole emitted just over 200 million tonnes of CO2. But a peak out in domestic output means the sector is well within the goal of 183 million tonnes a year on average for 2008-2012, which would be down 9 percent from the Kyoto Protocol's base year of 1990.
The steel sector has set its own target for 2020 based on CO2 per unit of output, which does not necessarily cap CO2 in contrast to its 2008-2012 goal. If the sector meets the Japanese government's crude steel output estimate of 119.7 million tonnes for 2020, up 9% from last year, its self pledged target is to cut CO2 by 5 million tonnes from business as usual levels of about 210 million tonnes by 2020.
(Sourced from www.reuters.com)
Tags:CERs, European market, Carbon traders, Kyoto credits
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