Accelerate shift towards green steel

Flagship: Greening steel in Czechia By 2030, maximised secondary steel production combined with electrification (through Electric Arc Furnaces) leading to 4.5 Mt of CO2 mitigated.

Author: Dr Boris Valach eclareon GmbH

Developing a ‘flagship’ to decarbonize the steel sector Key elements for the flagship analysis What is a flagship?

Key transformative investment opportunities that are priorities for climate action in sector Flagship analysis is accompanied by a set of recommendations for financing and reforms to implement then Example: “add XX thousand solar rooftops by 2025” or “help XX cities decarbonize their district heating & cooling networks by XX”

• Assessment of the progress that can be achieved by the Recovery and Resilience Plan (RRP) against the respective investment needs baseline, discussion of the gaps and how they can be closed through modifications in the RRP and/or the National Energy and Climate Plans, provision of a critical review considering the 2030 and 2050 targets/ relevant strategies • Assessment of contribution for GHG emission reduction

• Review of cost-effectiveness and investment needs (in order to achieve 2030 climate targets) • Reforms: Identify the existing regulatory and non-regulatory barriers to investment in flagship technologies and identify key enabling reforms • Finance: Identifying the role of public and private sector finance to enable implementation of flagships. Opportunities from RRP and EU Green Deal: what's missing and what can be covered by national government or promotional banks

3

Flagship overview: Industry in Czechia 2030, a total of 280,00 single-family houses combined have been with deeply renovated and the rate of deep ByBy 2030, maximised secondary steel production electrification (through Electric Arc renovations of single-family houses4.5 is increased to 40,000 houses/year.

Furnaces) leading to approx.

Mt CO2 mitigated annually.

Rationale behind the target • In Czechia, 81% of primary steel manufacturing capacity is slated for reinvestment by 2030. Currently, over a half (58%) of steel scrap produced in the country is exported.

• Czechia has a long tradition of scrap metal collection (up to 5.5 Mt p.a.), sufficient treatment and processing capacities for scrap metal. Relatively low additional electricity capacity (1.17 TWh annually per 1 Mt of crude steel) compared to not-ready large-scale H2 deployment are needed. As the EAFdriven steelmaking process is also used for the primary production through DRI-C/H, a future switch to (renewable) hydrogen could ensured as of 2030, if needed.1

Investment needs • 4.1 Mt of BF-BOF capacities replaced by scrap recycling & Electric Arc Furnaces (EAFs) are leading to the following est. max. additional investment costs: • approx. €540 million (CAPEX) + €270 million (OPEX) p.a.

Greenhouse gas emissions savings Reaching the flagship target would result in the following savings (estimated): • approx. 4.5 Mt of CO2 & 4 Mt of iron ore, 2 Mt of coal and 0.5 Mt of lime stone p.a.

Complementary measure 0.5 Mt of BF-BOF capacities replaced by (greenfield) NG-based DRI-EAF (without Carbon Capture) are leading to: • est. max. additional investment costs: approx. €225 million (CAPEX) + -€175 million (OPEX) p.a.

• est. energy savings of: approx. 0.85 Mt of CO2 & -4,500 TJ of natural gas, 8,750 TJ of coal consumption • est. additional electricity needed: approx. 0.25 TWh p.a.

Flagship overview: Implementation Overall priorities • Czechia should make use of its steel scrap reservoir it already possesses. Given the fact that the MPO expects insufficient steel scrap available at the domestic market, a recycling pathway for the steel industry decarbonisation should be complemented by low-carbon primary steelmaking.

• In order to do this, Czechia needs to implement policies with high steel closure potential, simultaneously being prepared for coming energy needs to be covered by renewable electricity for green hydrogen production used in the DRI-C/H-EAFs.

Action 1 – Draft a thematic industry transformation plan for the steel industry

Action 2 – Promote higher utilisation of domestic steel scrap

Action 3 – Implement integrated electricity & gas infrastructure planning

Background info: Industry in Czechia Emissions from industry sector →

GHG emissions from metal industry have been stable in Czechia for the past 20 years.

industrial sector accounts for 28 % of total emissions, of which: →

iron and steel (24%) (vs. EU-average of 15% for iron and steel),

→

followed by industrial energy (16%), minerals (15%), chemicals (12%), and others1

→

despite stable steel production in 2010-2016, no significant decarbonisation of the sector may be observed2 Production of selected products in Czechia

GHG emissions and removals (in kt CO2 eq.)

Year

Metal industry

2010

6,752.62

2015

6,975.84

2016

7,311.48

Source: Final NECP of Czechia, 2019

Source: CHMI, 2021 7

Background info: Industry in Czechia GHG emissions from industry sector → in 2019, the sector of industrial processes was the fourth largest contributor to GHG emissions, totalling approx. 12%1

The CZ industry sector accounts for 12% of national GHG emissions, with steel and metal processing being responsible for more than 5%.

→ steel and metal processing accounts for more than 5% of overall GHG emissions in the country → around half of the hard-coal production is used for coke in the iron and steel industry2 Total GHG emissions per sector in Czechia (in Mt CO2)

Source: European Parliament, 2021 8

Background info: Steel industry in Czechia Energy consumption of the Czech metallurgy sector Manufacture of basic metals, metallurgical processing of metals; foundry (CZ-NACE 24)

Development of emission allowance prices in the EU ETS System (2017-2021)

→ stable electricity and natural gas consumption over the last years (2015-2019)1, 2 → no nation-wide figures available solely on the energy consumption of each technological steps3 → 100% transitional free allocation for sectors deemed to be at risk of carbon leakage (incl. relevant NACE C24 categories)4 is to be phased down by 10% annually from 20265 → due to unfavourable market conditions, (CZ) steel industry is deciding whether it makes more sense to decarbonise or rather move outside the EU6 9

Background info: Steel industry in Czechia Status quo in the Czech metallurgy sector → CZ metallurgy sector employs around 44,000 people and generates approx. €8.2 BN in revenues annually1 → iron and steel industry is concentrated in two large manufacturing sites (Ostrava, Třinec) with around 5.1 Mt of crude steel produced in 2018, and only 4.6 Mt (-8%) in 2019 due to decreasing demand → even lower production (by another -6%) since the COVID-19 pandemic hit the global market fully2 → in Czechia, so-called primary/integrated route (production from ores) is the dominant steel manufacturing approach → only around 10% of steel is produced solely from steel scrap (so-called secondary route used for recycled steel manufacturing)3

Image source: Wuppertal Institute, 2020

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Background info: Steel industry in Czechia By 2030, 81% of primary steel capacity is slated for reinvestment Liberty Ostrava (LIBERTY STEEL) •

Blast furnace 2: 1 Mt capacity, relining: 2022

•

Blast furnace 3: 1 Mt capacity, relining: 2022

•

Planned investment: construction of two additional Electric Arc Furnaces (EAFs) to use more scrap by “hybrid steelmaking technology“ until 2023 totalling approx. €750 million by 20301

•

Total steel production capacity: 3.6 Mt p.a.

Moravia Třinec (MORAVIA STEEL)

Source: Agora Energiewende, 2021

•

Blast furnace 4: 1 Mt capacity, relining: 2024

•

Blast furnace 6: 1 Mt capacity, modernisation and repair in August-October 2021 (approx. €26 million)2

•

Total steel production capacity: 2.5 Mt p.a.

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Background info: Steel industry in Czechia A window of opportunity for the decarbonisation of primary steel production is widely open How do the low-carbon steelmaking announcements of European steel companies match up the reinvestment requirements by 2030?

16.5

8.3

6.9

6.0 6.0

5.5

4.1

4.4 2.5

0,0

0,0 SWE

GER

NED

FRA

CZ

0,0 ROM

3.6

2.4

2.1 0.3 AUT

0,0 BEL

4.1

3.6 1.3 0,0

ESP

0,0 FIN

0.5 ITA

0,0

0,0 POL

2.9 0,0

SLK

0,0 UK

Blast furnace capacity with end-of-life before 2030 Announced primary low-carbon steelmaking capacity by 2030 Source: Agora Energiewende, 2021

Note: primary capacity to be reinvested (in Mt/year) 12

Background info: Steel industry in Czechia Policy Context: National Energy and Climate Plans (NECP)

NECP, Dimension Decarbonisation (2021, p. 80): ‘The achievement of climate and energy goals in the area of manufacturing industry, which includes, for example, the steel, […], is a separate and very complex issue.’

→ NECP addresses the topic of industry decarbonisation insufficiently1, referring mainly to the country’s upcoming policy documents of strategic and sectoral nature → no information on the drafting of an Industrial Policy of the Czech Republic yet and the National Economic Strategy 2030 is still under preparation (status as of Oct 2021)

‘[…] this sector is not dealt with in detail in the submitted material.’

→ hydrogen technologies mentioned several times in the NECP, however, still regarded only as a future possibility; measures and objectives are missing2

‘The prerequisite is the rapid development of an independent industrial policy of the Czech Republic for the period 2021-2030 with a view to 2050, which will address the sector in a comprehensive way […].’

→ apart from injection of hydrogen into the gas infrastructure, NECP highlights a possible role played by hydrogen produced from natural gas through pyrolysis or steam reformation in combination with Carbon Capture (CC) technologies as a viable way to fulfil the country’s climate and energy goals 13

Background info: Steel industry in Czechia Policy Context: National Recovery and Resilience Plan (RRP)

RRP, Component 2.7 (2021, pp. 2, 5): ‘[…] investments will focus on the support and development of circular solutions for businesses, in particular investments in innovative technologies enabling new or increased usage of secondary raw materials replacing primary resources, investments in innovative technologies to reduce production material intensity and primary inputs and substitution of primary input raw materials by secondary ones […].’

‘The goal of investing in circular solutions is to significantly kick-start a faster green transformation of industry and business towards a low-carbon, circular and digital economy.’

→ RRP: ‘Czechia should maintain its strong industrial base […] through the green and digital transformation, which will use the most advanced technologies.’ → targets for steel decarbonisation are missing entirely → in the context potentially relevant for the metallurgy transition, RRP focuses mainly on: ▪

Component 2.7 Circular Economy, Recycling and Industrial Water: no information on scrap metal collection (approx. €169 million in total; Bankwatch: 55% green agenda)1, 2

Circulatory solutions in businesses: main focus on business entities that intend to concentrate on the area of circular economy (approx. €39 million until the end of 2025) ▪

Component 2.3 Switch to Cleaner Energy Sources: apart from new sources provided in the NECP, additional PV plants with the installed capacity of 270 MW should be supported (approx. €256 million in total; Bankwatch: 100% green agenda)1, 2 14

Background info: Steel industry in Czechia Policy Context: Other strategic documents → Raw Materials Policy (2017): ‘support for the use of secondary raw materials as a tool for reducing the energy and material intensity of industrial production’; ‘steel scrap should stay within the Czech economy to serve the need of the domestic manufacturing industry’ → Secondary Raw Materials Policy (2019): highlighting a key role of the steel industry → Hydrogen Strategy of Czechia (2021): priority given to green hydrogen from RES → Circular Czechia 2040 (under preparation as of Oct 2021): ‘promote effective closure of material flows, for selected commodities, with real recycling currently at a low level, incl. metals’ → National Economic Strategy 2030 (public consultation undergone, not approved yet): 10 priority areas, industry being one of them Further strategic documents: → National Initiative Industry 4.0 (2016) → National Investment Plan 2020-2050 (2019) → National Research and Innovation Strategy 2021-2027 (2021) → etc.

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How to decarbonise? Technological pathways & challenges Key challenges in emission reductions for (steel) industry →

emission cuts from industry requires comprehensive changes to production processes

→

industrial processes are deeply integrated and can rarely be changed in isolation

→

industry has very long investment cycles - 2050 is only one investment cycle away

→

emission allowance prices under the EU ETS are neither sufficiently high nor stable

Source: McKinsey & Company, 2020

→

not all the technologies for decarbonising industry are commercially available yet

→

dependence on the carbon footprint of electricity mix; clean energy is needed

Source: EUROFER, 2019

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What needs to be done in coming years?

Messages by representatives of the Czech steel industry →

at the national level, neither impact studies nor transformation plans exist and should be drafted

→

at the EU level, long investment cycles are considered insufficiently, i.e., what was sufficient a few years ago is not enough now, making capitalintensive projects risky (unstable and unpredictable investment environment)

→

highest transformation potential identified in an increased utilisation of steel scrap (so-called secondary route) combined with electrification (through Electric Arc Furnace; EAF), primary route: Direct Reduced Iron (DRI) plant (i.e., iron making) + EAF (steel making) with natural gas (C) being utilised as an energy carrier, considering technologically feasible green hydrogen applications known as a DRI-C/H-EAF

→

steel production via EAFs understood as a threat/opportunity for the current electricity transmission network (interconnectors should be reinforced)

→

large-scale hydrogen deployment until 2030 is not feasible, however, partial pilot applications are possible

→

NG as a reducing agent not competitive within the EU, incl. Czechia, but relevant as an energy carrier

→

National Energy and Climate Plan (NECP): poor information on the decarbonisation of steel industry provided

→

National Resilience and Recovery Plan (RRP): insufficient funding for the sustainable industry transformation

→

Modernisation Fund (MF) & Just Transition Fund (JTF): are regarded as the most promising sources by the Czech steel industry representatives

→

EU Funds (ESIF): high investment intensity makes decarbonisation projects unfavourable (not eligible or with too low co-funding rate)1, 2

17

What needs to be done in coming years?

Identifying transformation potential: recycling & steel scrap → → → →

→

→ →

→

no minerals domestically available for the production of steel and cast iron in Czechia1 rapid decline in hard coal mining in recent years, the last mine to be closed in 2024 at the latest2 steel scrap is recyclable to almost 100% long tradition of scrap metal collection, sufficient treatment and processing capacities of scrap metal3 scrap purchase facilities in Czechia: overall estimated capacity of around 5.0-5.5 million tonnes per year (only up to 54% of capacity used) export of steel scrap: approx. 2.3 Mt per annum, making Czechia a net scrap exporter4 OECD (2021) highlights an immense environmental potential of increased recycling and reuse of metals in Czechia5 in the EU market, the availability of scrap will be increasing as of 2020 onwards as the steel stock saturates6

Image source: adapted from Toman, 2018 (translated by the author) Note: in tonnes p.a.

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What needs to be done in coming years?

Identifying transformation potential: hydrogen →

relatively high share of polyethylene (hydrogen-ready) pipelines in the Czech gas distribution grid, incl. high storage capacities

→

technical and economic feasibility of converting gas distribution networks to pure hydrogen: 57%1

→

no hydrogen large-scale industrial projects in Czechia yet and none planned by 20302

→

Ten-Year Plan for the Development of the Transmission System in the Czech Republic 2022-2031: Moravia Capacity Extension (MCE) Project more than doubling the current output capacity in late 2022: ‘[...] readiness for other transport needs resulting from efforts to secure an environmentally friendly energy source for industrial production’ 3, but the progress is slow, according to IEA (2021)4

→

current plans expect insufficient electricity surplus for large-scale renewable H2 production in electrolysers from water by 20305

→

Czech Silesian Coal Basin with the est. capacity of around 118-380 Mt of CO26 for Carbon Capture and Storage (CCS), which is, however, deemed a dead-end road by some authors7

Image source: Ministry of Industry and Trade, 2021

Image source: NET4GAS, 2021

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What needs to be done in coming years?

Czechia needs to quadruple its RES-E capacities by 2030 Regions with an access or deficit of tech. potential for green electricity

Image source: Agora Energiewende, 2021

Image source: Kokoulaki et al., 2021

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Defining Flagship Future technological pathway for the Czech steel industry’s decarbonisation By 2030: I.

Recycling pathway – secondary steel: Circular Economy – Enhancing the Recycling of Steel

→

EAFs used for increasing recycling (secondary) route (with Technology Readiness Level of 9; TRL)1

→

maximisation of secondary flows and recycling by higher demand for secondary steel2, 3

II.

Integrated pathway – primary steel: Carbon Direct Avoidance – Electricity & Hydrogen

→

replacing coal-based BFs/BOFs with a DRI coupled with smelting in EAFs (TRL of 9) as a complementary measure1, 4, 5

→

DRI-C/H-EAF enabling high CO2 mitigation as a transition step to green production, easily convertible to near-zero systems5, 6

→

first demo projects using renewable H2 produced on-site or nearby4

From 2030 onwards: II.

Integrated pathway – primary steel: Carbon Direct Avoidance – Electricity & Hydrogen

→

commercial usage of renewable hydrogen in the industry sector, but Czechia will mainly rely on imports initially

→

energy consumption of approx. 0.4 TWh p.a. will be reached to (locally) produce 7 kt of hydrogen per year in the steel sector in 20307

→

over 25 TWh p.a. will be consumed for the (local) production of approx. 360 kt tonnes of hydrogen p.a. if 4 mil. t of iron and 5 mil. t of steel (corresponding to 2018) are produced solely through DRI-H-EAF in 2040-20507, 8 21

Flagship potential and investments Calculations on investments and emissions Costs and emissions of steelmaking technologies

Source: Dialogue on European Decarbonisation Strategies (DEEDS), 2021 22

Flagship potential and investments Calculations on investments I. RECYCLING PATHWAY – SECONDARY STEEL: → est. 2017 total steel scrap supply: approx. 3.86 Mt of domestical steel scrap supply p.a., totalling around 4.34 Mt of overall annual capacity (incl. import)1 → est. 2017 total steel scrap utilisation: 2.1 Mt used in steel manufacturing when 4.65 Mt of steel produced

→ in 2017, only around 10% of steel produced solely from steel scrap2 → est. 2020 CAPEX and 2030 OPEX: €78 corresponding to (brownfield) retrofitting of BF-BOF + €484 per tonne p.a.3 → est. 2020/2030 CAPEX and OPEX: €210 corresponding to (greenfield) scrap recycling & EAF + €550 per tonne p.a. → est. CAPEX and OPEX difference: +€132 million / +€66 million per 1 Mt of crude steel p.a.

II. INTEGRATED PATHWAY – PRIMARY STEEL: → est. 2020/2030 CAPEX and OPEX: €527 corresponding to (greenfield) NG-based DRI-EAF (no CC) + €132 per tonne p.a. → est. CAPEX and OPEX difference: +€449 million (vs. BF-BOF brownfield retrofitting) / -€352 million per 1 Mt of crude steel p.a.

23

Flagship potential and investments Calculations on emissions Approx. 6 Mt of crude steel estimated to be produced in 20301 CO2 EMISSION CALCULATIONS →

total CO2 emitted by fossil fuels-driven BF-BOF: 1,900 t CO2 per 1 tonne of crude steel2

→

vs. (greenfield) scrap recycling + EAF: est. reduction of max. -1.71 Bt of CO2 per 1 Mt of crude steel produced (up to the 90% CO2 emissions reduction compared to BF-BOF based on fossil fuels) or each tonne of scrap avoids 1.5 t of CO23

→

vs. (greenfield) primary steel production via NG/H2-based DRIEAF (no CC): est. reduction of approx. -1.7 Mt of CO2 per 1 Mt of crude steel produced4

Source: CHMI, 2021

Source: Agora Industry, 2021

24

Defining Flagship Summary → there is the potential of around 5.5 Mt of crude steel manufactured through the so-called secondary (recycling) pathway in Czechia using only domestically available steel scrap reservoir → 4.1 Mt of BF-BOF capacities replaced by scrap recycling & EAF are leading to: → est. max. additional investment costs: approx. €541 million (CAPEX) + €271 million (OPEX) p.a. → est. energy savings of: approx. 4.41 Mt of CO2 & 4.1 Mt of iron ore, 2.18 Mt of coal and 0.34 Mt of lime stone p.a. → est. additional electricity needed: approx. 1.17 TWh p.a. → but there is a risk of insufficient steel scrap availability in coming years, therefore, it should be complemented by at least 0.5 Mt of crude steel produced (*or imported) through a NG(/H)-based DRI-EAF route in 2030 if Czechia wants to be ready for full decarbonisation in the long-term (6 Mt of crude steel are expected to be manufactured in 2030) → 0.5 Mt of BF-BOF capacities replaced by (greenfield) NG-BASED DRI-EAF without CC are leading to: → est. max. additional investment costs: approx. €225 million (CAPEX) + -€176 million (OPEX) p.a. → est. energy savings of: approx. 0.85 Mt of CO2 & -4,500 TJ of natural gas, 8,750 TJ of coal consumption → est. additional electricity needed: approx. 0.25 TWh p.a.

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Defining Flagship Findings on investments and emissions → secondary steel production through recycling pathway should be deemed as a no regret option when it comes to lowcarbon steel in Czechia → state investments for higher recycling are considered far lower compared to necessary gas infrastructure & grid investments relevant for other „full decarbonisation possible“ technologies

→ recycling path should be, however, complemented by NG with transitioning to renewable H2 DRI(-EAF) as of 2025 as the MPO estimates future low steel scrap availability and new gas network capacity should become available in late 2022 → highest one-shot capital expenditures (CAPEX) of greenfield NG/H2-based DRI-EAF (without CC) are more than compensated by lowest annual operating expenditures (OPEX) already in the short-term → however, in the calculations, only costs incurred for production facilities (entrepreneurs) are factored in

→ Czechia operates a relatively high share of H2-ready infrastructure → insufficient amount of renewable electricity for large-scale H2 production is expected under the current scenario by 2030 → no large-scale hydrogen industrial projects in Czechia yet and none planned by 2030 26

Financing Promising funding sources identified → most instruments do not (currently) fit to directly reduce CAPEX & OPEX of clean steel production itself → most promising instrument (InvestEU) can provide cheap capital through funds if adequately introduced → some instruments can indirectly help to reduce particular costs of steel production (such as energy production or energy efficiency) → Czech steel industry has to show creativity and ownership to make use of existing funding opportunities as there have been no large projects so far

27

Financing InvestEU as a way to access cheap capital albeit probably only for specific investments → successor of the European Fund for Strategic Investments (EFSI) that already financed R&D activities & energy efficiency activities of steel companies (albeit no production facilities) → implemented through the EIB → broad definition of supported activities but not clear whether scrap & green steel would fall under it

→ started in 2021 and still in the initialisation phase1

28

Financing Horizon 2020 useful for specific transition projects → approaching deadlines are challenging to be met, but relevant for specific topics → funding of specific topics under Horizon 2020 conditions → current topics: →

Raw material preparation for clean steel production

→

Modular and hybrid heating technologies in steel production

→

Innovation Fund large-scale projects

→ actual deadline set to 30 March 2022 → analysis/triggering of future calls required1

29

Financing European Partnership for Clean Steel – promising but limited

→ CSP budget of €1.4 BN comprises of three main funding sources: →

€350 million from assets of the ECSC in liquidation

→

€350 million from Horizon Europe

→

€1 billion at least matched by steel sector

→ implementation of at least two demonstration projects → first call passed (23 Sep 2021), second closing soon (30 Mar 2022)1 Image source: EU Clean Steel Partnership (CSP), 2021 30

Financing Modernisation Fund – limited scope but attractive conditions → indirect application of RES/EE measures → limited scope on RES, EE, energy storage, energy networks and just transition → money stems from auctioning of EU ETS EAs → implemented through the EIB → Member States are responsible for investment proposals1

→ Czechia: ENERG ETS programme for emissions reductions in the industry covered by the EU ETS with the est. allocation of approx. €800 million by 2030 → currently it is not possible to draw funds only for electrification (without RES deployment), but hydrogen applications (no NG) are fundable → max. support rate of 70%, but lower for large enterprises (4560%)2

Image source: European Commission, 2021

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Financing Innovation Fund with some potential → currently not relevant but partially useful

→ green steel technology can be supported partially and indirectly (low-carbon hydrogen use and storage, and infrastructure projects) → funding of specific first-of-a-kind projects that are not yet bankable

→ 60% of cost support (both OPEX & CAPEX) → first call closed: HYBRIT demonstration project chosen on 16 Nov 20211

Source: European Commission, 2021

→ second call launched on: 26 Oct 2021 (until 3 Mar 2022)2

32

Financing Just Transition Fund – only partially useful → rather secondary than primary solution

→ basic concept: EC grants to MS to help regions territories expected to be most negatively impacted by green transition, not meant for the transition itself → possible topics: →

research and innovation

→

clean energy

→

up- and reskilling of workers

→

transformation of existing carbon-intensive installations1

Source: European Commission, 2021

33

Financing No ideal instrument and more initiative from Czechia required

Directly Applicable • InvestEU

Directly applicable but not at the moment • Horizon 2020 • European partnership for green steel

Indirectly applicable • Modernisation fund • Just transition fund • Innovation Fund

34

Financing Carbon Contracts for Difference (CCfDs)1, 2, 3 →

EA prices under the EU ETS are neither sufficiently high nor stable

→

perceived as a threat to new investments leading to risky environment

→

CCfDs remove uncertainty & price risks from ambitious projects

→

higher certainty leads to improved overall financing conditions, incl. higher share of debt leading to reduced cost of capital

→

low-emission steel production is not competitive at the moment

→

contracts awarded based on a competitive auctioning system

→

the lower the strike price, the better bid for the public body

→

organised in sectoral and tech. pots with max. ex-ante strike price

→

investments are visibly translated to reduced carbon emissions

→

public subsidies equal to the difference between the agreed (strike) and the current carbon price under the EU ETS annually

→

although CCfDs may be implemented at the national level (e.g., France, etc.), they are likely to be implemented at the EU level as a part of the EU Innovation Fund4

Image source: McWilliams, B. & Zachmann, G., 2021 * Note: Illustrative commercialisation contract (a form of CCfD)

35

Financing Green Bonds →

a type of fixed-income instrument that is specifically earmarked to raise money for climate and environmental projects1

→

the EC published a proposal for a regulation on the European Green Bond Standard (EU GBS) in July 20212

→

Strategy of the Czech Republic 2030 anchored promotion of green finance in the country3

→

first-ever emissions of green bonds by private banks emitted by Reiffeisen Bank (RBI Group) amounting to €350 million in June 20214

→

highest bank emission of green bonds in Czechia with a 7-year bond maturity worth €500 million provided by Česká spořitelna (Erste Group) in September 20215

→

largest gas distribution system operator in Czechia (GasNet, Czech Grid Holding respectively) announced green issuance totalling €500 million in September 20216 36

Reforms for speeding up the Czech steel industry transformation What kind of policy measures are applicable?

Overarching framework → Ministry of Industry and Trade (MPO): draft a thematic industry transformation plan for the steel industry1, 2 → MPO: promote more RES-E capacities as more renewable electricity will be needed (shift towards EAFs & hydrogen produced on-site or nearby)3, 4, 5 → Czech Statistical Office: improve statistical data collection on the steel industry manufacturing sector via a more detailed reporting system (e.g., consumption per technology, not only per prevailing economic activity)4

I.

Pathway: Circular Economy – Enhancing the Recycling of Steel

→ Ministry of Finance: introduce tax incentives for products manufactured from secondary materials, incl. steel → MPO: implement labels and standards for the secondary (recycled) steel as indirect instruments encouraging a higher usage of scrap6 → Government of the Czech Republic: promote green public procurement instead of procurements with the lowest price criterion only6, 7 → MPO: organise public campaigns on good practices on secondary utilisation of products, incl. steel7 37

Reforms for speeding up the Czech steel industry transformation What kind of policy measures may make sense?

II. Pathway: Carbon Direct Avoidance – Electricity & Hydrogen → MPO (& NET4GAS): prepare a study on investment needs of the current gas infrastructure to be ready for pure H21 → MPO (& NET4GAS): develop legal and regulatory framework for future injection of hydrogen into the gas network2

→ MPO (& ČEPS, NET4GAS): promote integrated electricity & gas infrastructure planning through aligning long-term network development plans with input provided by energy-intensive industries and the RES sector → Government of the Czech Republic: promote pilot projects in hard-to-abate sectors via dedicated subsidy programmes, incl. steel manufacturing industry, through higher participation in the EIA’s Technology Collaboration Programmes (TCPs), such as the one on hydrogen & CCUS2

38

Conclusions and final remarks → due to long investment cycles and coming relining dates, a low-carbon implementation plan on the steel industry transformation should be drafted with high priority → renewables upscaling is becoming a question of competitiveness and slow RES-E deployment must be neutralised by significant RE upscaling → CZ Government should aim for more RES-E capacities by 2030 to be fully prepared for the transformation → CZ steel industry lacks capital for its sustainable transformation

→ more funds with more attractive conditions should be provided to large enterprises → new innovative funding instruments should be introduced (e.g., Carbon Contracts for Difference) → combination of low-carbon primary and secondary steelmaking is needed to fully decarbonise in the long-term

→ Czechia should make use of its steel scrap reservoir it possesses in the first place → later, it should take the opportunity to utilise its hydrogen-ready NG network and the coming extension project → other decarbonisation technologies such as CCS are deemed a dead-end road 39

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Annex – Footnotes, abbreviation, glossary Greening steel in Czechia Slide 1 2 3 4 5

6 7 8 9

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Footnotes and sources 1 Mayer et al., Macroeconomic implications of switching to process-emission-free iron and steel production in Europe, 2018, https://reader.elsevier.com/reader/sd/pii/S0959652618335224?token=E125AE6910836286A3C8D0C210A0566851AD70ACA86F8DEE46743EF3638BBB65D80A8F122D5C3D835EA2C96F9AFC31E6&origin Region=eu-west-1&originCreation=20211115140926 1 McKinsey & Company, Pathways to decarbonize the Czech Republic, 2020, p. 17, 41 2 Trading Economics, Czech Republic Steel Production, 2021, https://tradingeconomics.com/czech-republic/steel-production 1 European Parliament, Climate Action in Czechia: Latest State of Play, 2021, p. 3, https://www.europarl.europa.eu/RegData/etudes/BRIE/2021/689329/EPRS_BRI(2021)689329_EN.pdf 2 IEA, Energy Policy Review: Czech Republic 2021, 2021 1 Czech Statistical Office, Consumption of selected fuels and electricity: by CZ-NACE from 2018 to 2020, 2021, https://www.czso.cz/documents/10180/142738778/1501422102.pdf/527bc3f3-6c404668-ab50-f34a9e1347e3?version=1.1 2 Czech Statistical Office, Consumption of selected fuels and electricity: by CZ-NACE from 2015 to 2017, 2018, https://www.czso.cz/csu/czso/spotreba-paliv-a-energie-2017 3 Madej, M., Srb, J., Role vodíku v zajištění energetické bezpečnosti ČR v kontextu dekarbonizace ekonomiky, 2021, https://www.amo.cz/wpcontent/uploads/2021/05/AMO__Role_vodiku_v_zajisteni_energeticke_bezpecnosti_CR_.pdf 4 European Commission, COMMISSION DELEGATED DECISION (EU) 2019/708 of 15 February 2019 supplementing Directive 2003/87/EC of the European Parliament and of the Council concerning the determination of sectors and subsectors deemed at risk of carbon leakage for the period 2021 to 2030 (Text with EEA relevance), 2019, https://eur-lex.europa.eu/legalcontent/EN/TXT/PDF/?uri=CELEX:32019D0708&from=EN 5 Balkan Green Energy News, EU announces carbon border tax from 2026 – what lies ahead for exporters from Western Balkans, Turkey, 2021, https://balkangreenenergynews.com/eu-announcescarbon-border-tax-from-2026-what-lies-ahead-for-exporters-from-western-balkans-turkey/ 6 Online conference call with the representatives of Steel Union. Interview conducted on 4 October 2021 1 Ministry of Industry and Trade, Decarbonisation Study of the Economy of the Czech Republic, 2020, p. 1 Exchange rate from xe.com as of 14 November 2021: CZK 1 = EUR 0.0396168 2 Ocelarska Unie, VÝROBA OCELI V ČESKU LONI KLESLA O 8 %, VÝHLED PRO EU JE LETOS JEŠTĚ HORŠÍ, 2020, https://www.ocelarskaunie.cz/vyroba-oceli-v-cesku-loni-klesla-o-8-vyhled-pro-eu-jeletos-jeste-horsi/ 3 Ministry of Industry and Trade, Secondary Raw Materials Policy of the Czech Republic, 2019, p. 33

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1 Liberty Steel Group, LIBERTY Steel launches major carbon neutral project in Czech Republic, 2020, https://libertysteelgroup.com/news/liberty-steel-launches-major-carbon-neutral-project-inczech-republic/ 2 Trinecke Zelezarny, 2021, https://www.trz.cz/clanky/37/dok444/vysoka-pec-je-po-dvaadvaceti-letech-v-rekonstrukci 1 Online conference call with the representatives of Steel Union, Interview conducted on 4 October 2021 2 FCH, Opportunities for Hydrogen Energy Technologies Considering the National Energy & Climate Plans, 2020, p. 11 1 CZ Recovery and Resilience Plan, 2021, https://www.planobnovycr.cz/ 2 Bankwatch, 2021, https://euagenda.eu/publications/assessment-of-the-czech-republic-s-recovery-and-resilience-plan Images: McKinsey & Company, Decabornisation challenge for steel, 2020, p. 5 Images: EUROFER, Low Carbon Roadmap: Pathways to a CO2-neutral European Steel Industry, 2019, p. 4 Primary sources (own research): 1 Online conference call with the representatives of Steel Union, Interview conducted on 4 October 2021 2 Written anonymous input, Feedback provided on 18 October 2021 1 Ministry of Industry and Trade, Raw Materials Policy of the Czech Republic, 2017, p. 44 2 Ministry of Regional Development, PLÁN SPRAVEDLIVÉ ÚZEMNÍ TRANSFORMACE, 2021, p. 8, https://dotaceeu.cz/getmedia/c3861f78-a4ef-4b65-a955-18e992a38bd2/PSUT_fin.pdf.aspx 3 Ministry of Industry and Trade, Secondary Raw Materials Policy, 2019, p. 34 4 Toman, Material Flow Analysis of Steel Waste in CZ, 2018, p. 80 5 OECD, Towards a national strategic framework for the circular economy in the Czech Republic, 2021, p. 16, https://www.oecd-ilibrary.org/environment/towards-a-national-strategic-frameworkfor-the-circular-economy-in-the-czech-republic_5d33734d-en;jsessionid=pUZ1QCVdxYMrcaGjkJnlzFN0.ip-10-240-5-31 6 Material Economics, Industrial Transformation 2050: Pathways to Net-Zero Emissions from EU Heavy Industry, 2019, p. 80 1 FCH, Opportunities for Hydrogen Energy Technologies Considering the National Energy & Climate Plans, 2020, p. 11 2 Ministry of Industry and Trade, The Czech Republic’s Hydrogen Strategy, 2021 3 NET4GAS, Ten-year Plan for the Development of the Transmission System in the Czech Republic 2022-2031, 2021, p. 55 4 IEA, Energy Policy Review: Czech Republic 2021, 2021, p. 170 5 Madej, M. and Srb, J., Role vodíku v zajištění energetické bezpečnosti ČR v kontextu dekarbonizace ekonomiky, 2021, https://www.amo.cz/wpcontent/uploads/2021/05/AMO__Role_vodiku_v_zajisteni_energeticke_bezpecnosti_CR_.pdf 6 EU GeoCapacity, Assessing European Capacity for Geological Storage of Carbon Dioxide, 2009, p. 49 7 Agora Industry, Global Steel at a Crossroads, 2021, p. 3, https://static.agora-energiewende.de/fileadmin/Projekte/2021/2021-06_IND_INT_GlobalSteel/A-EW_236_Global-Steel-at-aCrossroads_WEB.pdf Kakoulaki et al., Green hydrogen in Europe – A regional assessment: Substituting existing production with electrolysis powered by renewables, 2021, p. 8 Agora Energiewende, 2021 https://www.agora-energiewende.de/en/events/member-states-driving-the-green-energy-transition/ 1 Dialogue on European Decarbonisation Strategies (DEEDS), Industry – Iron and steel, 2020, https://deeds.eu/wp-content/uploads/2020/05/Iron-and-Steel_web.pdf 2 EUROFER, Low Carbon Roadmap: Pathways to a CO2-neutral European Steel Industry, 2019 3 OECD, Towards a national strategic framework for the circular economy in the Czech Republic, 2021, p. 22, https://www.oecd-ilibrary.org/environment/towards-a-national-strategic-frameworkfor-the-circular-economy-in-the-czech-republic_5d33734d-en;jsessionid=pUZ1QCVdxYMrcaGjkJnlzFN0.ip-10-240-5-31 4 McKinsey & Company, Pathways to decarbonize the Czech Republic, 2020

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5 Agora Industry, Global Steel at a Crossroads, 2021, https://static.agora-energiewende.de/fileadmin/Projekte/2021/2021-06_IND_INT_GlobalSteel/A-EW_236_Global-Steel-at-a-Crossroads_WEB.pdf 6 Iniciativa průmyslníků pro podporu transformace Moravskoslezského kraje k nízkouhlíkové ekonomice, Specifická doporučení – udržitelná, inovativní a digitální řešení, 2020, http://prumyslnicimsk.cz/#about 7 Ministry of Industry and Trade, The Czech Republic’s Hydrogen Strategy, 2021, p. 32 8 Ministry of Regional Development, PLÁN SPRAVEDLIVÉ ÚZEMNÍ TRANSFORMACE, 2021, pp. 12-13, https://dotaceeu.cz/getmedia/c3861f78-a4ef-4b65-a955-18e992a38bd2/PSUT_fin.pdf.aspx 1 Toman, Material Flow Analysis of Steel Waste in CZ, 2018, p. 80 2 Ministry of Industry and Trade, Secondary Raw Materials Policy of the Czech Republic, 2019, p. 33 3 Dialogue on European Decarbonisation Strategies (DEEDS), Industry - Iron and steel, 2021, pp. 1-4 1 Toman, Material Flow Analysis of Steel Waste in CZ, 2018, p. 80 2 Ministry of Industry and Trade, Secondary Raw Materials Policy of the Czech Republic, 2019, p. 33 3 Dialogue on European Decarbonisation Strategies (DEEDS), Industry - Iron and steel, 2021, pp. 1-4 Sources: 1 CHMI, Projections of the main pollutants, 2021, p. 5 2 Dialogue on European Decarbonisation Strategies (DEEDS), Industry - Iron and steel, 2021, p. 1 3 World Steel Association, Steel facts, 2018, p. 41, https://www.worldsteel.org/en/dam/jcr:2a96b408-325e-4691-ae50-10c43c3a90fd/scrap_vf.pdf 4 Agora Industry, Global Steel at a Crossroads, 2021, p. 30 Sources: 1 European Union, Contribution to the Green Deal and the Just Transition Scheme, 2021, https://europa.eu/investeu/contribution-green-deal-and-just-transition-scheme_en Sources: 1 European Commission, Funding & tender opportunities, 2021, https://ec.europa.eu/info/funding-tenders/opportunities/portal/screen/opportunities/topicsearch;callCode=null;freeTextSearchKeyword=steel;matchWholeText=false;typeCodes=1,2,0;statusCodes=31094502,31094501;programmePeriod=null;programCcm2Id=null;programDivisionCode=n ull;focusAreaCode=null;destination=null;mission=null;geographicalZonesCode=null;programmeDivisionProspect=null;startDateLte=null;startDateGte=null;crossCuttingPriorityCode=null;cpvCode= null;performanceOfDelivery=null;sortQuery=sortStatus;orderBy=asc;onlyTenders=false;topicListKey=topicSearchTablePageState Sources: 1 EU Clean Steel Partnership (CSP), General information about the Clean Steel Partnership – presentation, 2021, p. 7, https://www.estep.eu/clean-steel-roadmap/ Sources: 1 European Commission, Modernisation Fund, 2021, https://modernisationfund.eu/ 2 SFZP, Podmínky pro poskytování podpory z programu ENERG ETS, 2021, https://www.sfzp.cz/files/documents/storage/2021/05/18/1621342174_ModF_ENERG%20ETS_podminky.pdf Sources: 1 FuelCellsWorks, HYBRIT Granted Support for its Hydrogen Green Steel Project as EU Innovation Fund Invests over €1 Billion Projects to Decarbonise Economy, 2021, https://fuelcellsworks.com/news/hybrit-granted-support-for-its-hydrogen-green-steel-project-as-eu-innovation-fund-invests-over-e1-billion-projects-to-decarbonise-economy/ 2 European Commission, Large-scale projects, 2021, https://ec.europa.eu/clima/eu-action/funding-climate-action/innovation-fund/large-scale-projects_en 1 European Commission, The Just Transition Fund, 2021, https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal/finance-and-green-deal/just-transition-mechanism/justtransition-funding-sources_en

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1 McWilliams, B. & Zachmann, G., Commercialisation contracts: European support for low-carbon technology deployment, 2021 2 Vogl et al., The making of green steel in the EU: a policy evaluation for the early commercialization phase, 2020 3 Sartor, O. & Bataille, Ch., Decarbonising basic materials in Europe: How Carbon Contracts-for-Difference could help bring breakthrough technologies to market, 2019 4 MONTEL, EC wants rules for carbon contracts for difference – draft, 2021, https://www.montelnews.com/news/1235264/ec-wants-rules-for-carbon-contracts-for-difference--draft 1 Segal, Green Bond, 2021, https://www.investopedia.com/terms/g/green-bond.asp 2 Ministerstvo financi, Evropská komise uveřejnila návrh nařízení o evropských zelených dluhopisech, 2021, https://www.mfcr.cz/cs/soukromy-sektor/kapitalovy-trh/podnikani-na-kapitalovemtrhu/2021/evropska-komise-uverejnila-navrh-narizen-42669 3 Urad Vlady CR, Strategic Framework Czech Republic 2030, 2017, https://www.vlada.cz/assets/ppov/udrzitelny-rozvoj/projekt-OPZ/Strategic_Framework_CZ2030.pdf 4 Reiffeisen Bank international, RAIFFEISENBANK IN CZECH REPUBLIC ISSUES INAUGURAL GREEN BOND, 2021, https://www.rbinternational.com/en/media/2021/raiffeisenbank-in-czech-republicissues-inaugural-green-bond.html 5 Ceska sporitelna, Česká spořitelna posiluje zelené finance – vydala dosud největší emisi zelených dluhopisů v Česku, 2021, https://www.csas.cz/cs/o-nas/pro-media/tiskovezpravy/2021/09/07/ceska-sporitelna-posiluje-zelene-finance-vydala-dosud-nejvetsi-emisi-zelenych-dluhopisu-v-cesku# 6 ALLEN & OVERY, Czech Gas Networks Investments issues EUR500 million green bonds under its Green Finance Framework, 2021, https://www.allenovery.com/en-gb/global/news-andinsights/news/czech-gas-networks-investments-issues-eur500-million-green-bonds-under-its-green-finance-framework 1 Online conference call with the representatives of Steel Union, Interview conducted on 4 October 2021 2 Written anonymous input, Feedback provided on 18 October 2021 3 Ministry of Industry and Trade, The Czech Republic’s Hydrogen Strategy, 2021, p. 32 4 Madej, M. and Srb, J., Role vodíku v zajištění energetické bezpečnosti ČR v kontextu dekarbonizace ekonomiky, 2021, https://www.amo.cz/wpcontent/uploads/2021/05/AMO__Role_vodiku_v_zajisteni_energeticke_bezpecnosti_CR_.pdf 5 Iniciativa průmyslníků pro podporu transformace Moravskoslezského kraje k nízkouhlíkové ekonomice, Specifická doporučení – udržitelná, inovativní a digitální řešení, 2020, http://prumyslnicimsk.cz/#about 6 Plaček, M. et al., Stewardship and administrative capacity in green public procurement in the Czech Republic: evidence from a large-N survey, 2021, https://link.springer.com/article/10.1186/s12302-021-00534-7 7 OECD, Towards a national strategic framework for the circular economy in the Czech Republic, 2021, https://www.oecd-ilibrary.org/environment/towards-a-national-strategic-framework-for-thecircular-economy-in-the-czech-republic_5d33734d-en;jsessionid=pUZ1QCVdxYMrcaGjkJnlzFN0.ip-10-240-5-31 1 ACER, ACER Report on NRAs Survey - Hydrogen, Biomethane, and Related Network Adaptations, 2020 2 IEA, Energy Policy Review: Czech Republic 2021, 2021, p. 170 -

Acronyms BAU

Business as Usual

BEV

Battery electric vehicle

BIK

Benefit in kind

CAPEX

Capital Expenditures

CC

Carbon Capture

CCU

Carbon Capture and Use

CCUS

Carbon Capture, Use and Storage

CCS

Carbon Capture and Storage

CCfD

Carbon Contract for Difference

CDA

Carbon Direct Avoidance

CEE

Central and Eastern European region

CEF

Connecting Europe Facility

CF

Cohesion Fund

COM

European Commission

CSP

Clean Steel Partnership

CZ

Czechia / Czech Republic

DNSH

Do no significant harm principle

EA

Emission Allowances

ECSC

European Coal and Steel Community

EED

Energy Efficiency Directive

EIB

European Investment Bank

EPBD

Energy Performance of Buildings Directive

ESF+

European Social Fund

ESIF

European Structural and Investment Funds

ERDF

European Regional Development Fund

EU ETS

EU Emissions Trading System

GBS

Green Bond Standard

H2

Hydrogen gas-powered vehicles

ICE

Internal combustion engine

IEA

International Energy Agency

JTF

Just Transition Fund

LTRS

Long-term Renovation Strategy

MFF

Multiannual Financial Framework

MoIT / MPO

Ministry of Industry and Trade

MWt

Megawatt thermal

NACE

Nomenclature of Economic Activities

NECP

National Energy and Climate Plans

NG

Natural Gas (fossil gas)

NGEU

Next Generation EU

OPEX

Operating Expenditures

PHEV

Plug-in hybrid electric vehicles

R&D

Research and development

RRF

Recovery and Resilience Facility

RRP

Recovery and Resilience Plan

SMEs

Small and medium-sized enterprises

TA

Technical Assistance

TCP

Technology Collaboration Programme

TEN-E

Trans-European Networks for Energy

TEN-T

Trans-European Transport Network

TJTP

Territorial Just Transition Plan

TWh

Terawatt hours

VAT

Value added tax

ZEV

Zero-emission vehicle

Definitions Agrivoltaics

Blast Furnace

This technology generates renewable electricity through large ground-mounted photovoltaic systems installed on farmland that is simultaneously used for food production. It has the potential to reduce land competition through a dual use of the land. With a suitable technical design, agrivoltaics can increase resilience of crops and agricultural yields beyond just improving land use efficiency.

BF

Blended Finance Instruments

Building-integrated photovoltaics

Integrated blast furnace is a type of metallurgical furnace used for smelting to produce industrial metals, generally pig iron, but also lead or copper.

The strategic use of finance to attract or mobilize additional funds through other EU financial instruments, member state co-financing, or private sector investment to achieve policy objectives. Instruments are often designed to provide financial safety nets or hedge certain risks through e.g. credit insurance facilities.

BIPV

Building components which fulfil classic functions such as thermal insulation, protection against wind and weather or also architectural functions, in addition to generating electricity.

Basic Oxygen Furnace

BOF

A vessel used to convert pig iron into steel

Building Performance Institute Europe

BPIE

A thinktank on the sustainability and decarbonization of the building sector, founded by the European Climate Foundation and partly funded by Horizon.

Battery Electric Vehicle

BEV

Also called, all-electric vehicle, only electric vehicle, pure electric vehicle, or zero-emission vehicle (ZEV). BEVs use chemical energy stored in rechargeable batteries without secondary sources of propulsion. They do not use internal combustion engines (ICEs) but electric motors or motor controllers. Often BEV refers to light-weight automobiles, but can also include bikes, vans, trucks, etc.

Business-As-Usual Scenario

BAU

A baseline scenario that examines the consequences of continuing development of current trends in e.g. the economy, demographics, technological innovation, climate change and human behaviour. Often refers to an outcome of a scenario analysis, e.g. as a contrast to the outcomes of EUCO scenarios.

Carbon contracts for difference

CCfDs

CCfDs are policy instruments for supporting the deployment of new ultra-low carbon projects by ensuring a guaranteed carbon price to make up the cost-difference relative to a reference technology. They can be designed to reduce the up-front investment cost for developers, give creditors a higher security for their loans and minimize the downstream costs for consumers. CCfDs work to accelerate R&D and ensure new innovative low carbon/deep decarbonization technologies become commercially viable sooner relative to conventional technologies and have a shorter time period required for commissioning.

Putting a price on carbon that captures the external costs caused by their emissions. Carbon prices can be set via taxation or cap-and-trade schemes.

Carbon pricing Carbon capture, utilization and storage

CCUS

Circular economy

Cleaner Transport Facility

Carbon capture and storage (CCS) and carbon capture and utilization (CCU) technologies that aim to capture CO2 emissions from point sources, such as industrial sources, to prevent emissions from entering the atmosphere.

The purpose of a circular economy is to decouple economic growth from the consumption of non-renewable resources. It is a method of economic development that benefits enterprises, society and environment because of its restorative and regenerative characteristics. The circular economy can be achieved via new resource management systems, nutrient flow systems and reverse logistics systems, which makes it possible to return, classify and reuse products. A circular economy follows the 3R principle of Reducing, Reusing and Recycling materials.

CTF

Initiative of the EIB to support the funding of the development and deployment of cleaner vehicles and their needed infrastructure. It is a one-stop shop that provides technical assistance and access to transport-related loans of the EIB itself and grants, loans, debt guarantees of CEF, TEN-T, Horizon and through JASPERS (technical assistance) and ELENA (technical assistance).

Combined heat and power

CHP

Also known as cogeneration, this implies that heat and electricity are produced simultaneously in one process. Use of combined heat and power helps to improve the overall efficiency of electricity and heat production as these plants combine electricity production technologies with heat recovery equipment.

Component (RRF context)

Recovery and Resilience Plans should be composed of reforms and investments grouped into components. A component is a constituent element or a part of the RRP. Each component should reflect related reform and investment priorities in a policy area or related policy areas, sectors, activities or themes, aiming at tackling specific challenges, forming a coherent package with mutually reinforcing and complementary measures.

Concessional loans

Also known as “patient debt”, these are loans that allow more flexibility on the part of the borrower, often in terms of longer maturities, longer grace periods, lower collateral requirements, subordinated debt or technical assistance. Concessional loans are often issued by financial non-governmental organizations or development banks as opposed to commercial banks.

Deep renovation

Achieve a 60% reduction of energy demand in a given building, as compared to 30% for shallow renovations and 40% for medium renovations.

Digital target (RRF context)

Each Recovery and Resilience Plan should allocate at least 20% of the total plan allocation to digital measures.

District heating system

DH

A system where heat is distributed from a central point through a network of insulated pipes fed by various heat sources, such as heat from heat and power plants, excess heat from industry, and heat from fossil combustion. In the future, district heating may be fed by heat and power plants fuelled by (sustainably produced) biomass, surplus heat from industry, and a combination of other renewables such as solar, geothermal, or heat pumps.

Do it yourself (building renovation context)

DIY

The DIY market aims to help customers improve their home without the need for any extra professional help. Oftentimes, these renovations are shallow, low-quality, step-by-step renovations that do not make a substantial difference in lowering energy use of a home.

Do no significant harm principle

DNSH

Principle under the EU Sustainable Finance Taxonomy: there are six environmental objectives to which no significant harm should be done: (i) climate change mitigation, (ii) climate change adaptation, (iii) water and marine resources, (iv) the circular economy, (v) pollution prevention and control, and (vi) biodiversity and ecosystems. For the RRF, technical guidance has been published on the application of the principle.

Direct Reduced Iron

DRI-C/H

Iron ore in the form of lumps, fines or pellets that has the oxygen removed by using hydrogen (H) or carbon monoxide (C)

Electric Arc Furnace

EAF

A furnace that heats material by means of an electric arc, especially for steel-making

Energy Service Company

ESCO

Companies that supply and install equipment that incur energy savings. ESCOs can also arrange the financing of their operation, sometimes tying their level of success to their renumeration.

EURO 7

European emissions standards for petrol and diesel cars. Rounds of proposals and feedback have been completed for a revision and Commission adoption is planned for Q4 of 2021.

European Fund for Strategic Investment

EFSI

Also known as the Juncker Plan. Initiative launched in 2015 by the EIB Group and the COM to boost the economy by mobilizing private financing for strategic investments.

European Investment Bank

EIB

The long-term lending institution of the EU; a public bank owned by the 27 member states, shared based on economic weight at the time of member state accession. Its activities are funded via bond issuance in international capital markets.

EU Climate Law

Aims to write into law the goal set out in the European Green Deal – namely, for Europe’s economy and society to become climate-neutral by 2050.

European Semester

ES

An annual cycle of coordination and monitoring of the EU’s economic policies and national budgets.

EU Emissions Trading System

EU ETS

A cap-and-trade system administered by the EU. Consists of carbon emissions ceilings (caps) that are lowered over time. Companies can buy or sell emission allowances, trading them when needed.

Electric Vehicle

EV

An electric vehicle uses one or more electric motors for propulsion. Can include only electric motors or battery electric vehicles (see BEV) or combustion motors or plug-in hybrid electric vehicles (PHEV).

Flagship

As used in this assessment context, taken as country-specific recommendations for future key transformative investments and policy reforms that can be used to accelerate climate action

(New) Green Savings Programme

(N)GS

The Czech Ministry of the Environment administers this energy savings program in family houses and apartment buildings funded by the State Environmental Fund of the Czech Republic. It supports the reduction of the energy intensity of residential buildings (complex or partial thermal insulation), construction of houses with very low energy intensity, environmentally friendly and efficient use of energy sources and renewable sources of energy (RES).

Greenhouse gases

GHG

Gaseous constituents of the atmosphere, both natural and anthropogenic, that absorb and emit radiation, which together causes the greenhouse effect. Water vapour, carbon dioxide, nitrous oxide, methane, and ozone are the primary GHGs in the Earth’s atmosphere.

Grant

Grants are non-repayable funds that are given from a government, foundation, corporation to a recipient, for specific projects for reimbursement of necessary costs. Grants often require some level of conditions and mandatory reporting of activities and results.

Green hydrogen

Hydrogen that is produced with sustainable energy, most often through electrolysis where water is split into hydrogen and oxygen.

Green Public Procurement

A voluntary instrument streamlining and promoting the sustainable production and consumption of goods and services by the EU’s public institutions with comprehensive and verifiable environmental criteria.

Green Bonds

A fixed-income instrument to finance climate-related or other environmental projects, often linked to specific assets like hydropower projects. The first green bonds were issued by the World Bank in 2009. They are often combined with tax incentives to make them a relatively attractive investment. The sustainability of green bonds is verified by third parties.

Financial Guarantee

A financial commitment of third-party (guarantor) to repay a percentage of losses in case a borrower cannot honour his repayments to a credit provider, both interest and principal components. Guarantees are insurance policies that often allow investors some financial breathing space to invest a larger share of their funds.

Heat pump

HP

Investment

Device used to heat or cool building by transferring thermal energy from a warmer to a cooler place or vice versa.

The RRF uses a broad concept of investment as capital formation in areas such as fixed capital, human capital and natural capital. This would also cover for instance intangible assets such as R&D, data, intellectual property and skills.

Internal Combustion Engine

ICE

Heat engine in which the ignition and combustion of and fuel occurs within the engine itself, i.e. with an oxidant (usually air) to convert the energy from combustion chamber that is an integral part of the working fluid circuit. ICE can be powered with fossil fuels, biofuels or efuels.

Important Projects of Common European Interest

IPCEI

Special projects that can promote the innovation of a specific technology up to industrial scale on the basis of a common European interest. This allowance is rather new as innovations are generally only regionally allowed as R&D projects to avoid unfair competition between MS. IPCEI’s are currently limited to microelectronics and batteries but an IPCEI for hydrogen technology is being implemented.

Lead market

In innovation theory, a first sub-market where a specific innovation can be early adopted to spur adoption also by other “lag” markets, e.g. by internationalization. Policies to create lead markets are focussed on creating demand for a specific technology or concept.

Lock-in effects

Lock-in effects come into play when there are substantial costs or other barriers for consumers to get a similar product or service from another vendor. Consequently, consumers or businesses become dependent on one provider. Furthermore, lock-in effects may create serious barriers to market entry, therefore undermining fair competition.

Long-term renovation strategy

LTRS

Strategy enacted by the EU (Directive 2010/31) to support the renovation of Member States’ national stocks of residential and nonresidential buildings, both public and private, into a highly energy efficient and decarbonised building stock by 2050, facilitating the costeffective transformation of existing buildings into nearly zero-energy buildings.

Minimum Energy Performance Regulations

MEPR

Performance requirements for any energy-using technology, effectively limiting the amount of energy that may be used for a particular task.

Minimum Energy Performance Standards

MEPS

Regulations that require buildings to meet a minimum performance standard, specified in terms of a carbon or energy rating or minimum renovation measures, by a certain deadline or at a certain point in the natural life of the building, e.g. at the time of sale or when other construction work is undertaken.

Mobility as a Service

MaaS

Denotes a shift away from personally owned modes for transportation towards shared vehicles that can be booked, planned through joint digital channels. Examples for urban mobility include the business models of companies like Uber and Lyft.

Multiannual Financial Framework

MFF

Also called the financial perspective, the MFF is a 7-year framework regulating the EU’s annual budget by setting ceilings of spending for broad policy themes.

National Energy and Climate Plans NECP

EU countries needed to establish a 10-year integrated national energy and climate plan (NECP) for the period from 2021 to 2030 to show how they meet the 2030 energy and climate targets (within the Energy Union governance).

Next Generation EU

The temporary instrument designed to boost the recovery from the COVID-19 pandemic, includes the recovery and Resilience Facility

NGEU

One-stop shop

A facility or location where a “customer” can get all the help they need in one go to reach a certain goal, delivered by one provider at a clear central location with low administrative barriers.

Plug-in Electric Vehicle

PEV

Includes battery electric vehicles and plug-in hybrid electric vehicles. Road vehicles that be charged with external sources of electricity, stored in battery packages.

Plug-in Hybrid Electric Vehicle

PHEV

Hybrid electric vehicle that uses batteries to power an electric motor and another fuel, such as gasoline, to power an internal combustion engine (ICE).

Power Purchasing Agreement

PPA

PPAs are long-term contract where a business or public entity agrees to purchase electricity directly from an energy generator, with agreed price terms for the sake of financial stability often for a period of 15 to 25 years.

Quasi-equity

Quasi equity instruments are long-term financial instruments, with multiple variants that fall between debt and equity, including subordinated loans, convertible bonds and preferred stocks. Can be more complicated and costly to administer.

Recovery and Resilience Facility

RRF

Makes €672.5 billion in loans and grants available to support reforms and investments undertaken by EU countries with the aim to mitigate the economic and social impact of the coronavirus pandemic and declared objective to make economies and societies more sustainable, resilient and better prepared for the challenges and opportunities of the twin transition

Recovery and Resilience Plan

RRP

Every Member States wishing to access recovery funding under the RRF has to prepare a Recovery and Resilience Plan.

Reform (RRF context)

An action or process of making changes and improvements with significant impact and long-lasting effects on the functioning of a market or policy, the functioning or structures of an institution or administration, or on progress to relevant policy objectives, such as growth and jobs, resilience and the twin transitions.

Renovation Wave

Comprehensive EU strategy put forward by the EC in 2020 to support climate neutrality, economic recovery through actions in building sector with detailed list of policies, measures and tools that must be put in place to overcome existing barriers to renovation and mobilize all actors, including citizens, local authorities, investors and the construction industry. The strategy has a dual ambition of energy gains and economic growth and aims to double annual energy renovation rates in the next 10 years.

Repayment grant

Grant repayment, i.e. if the project achieves a certain energy performance level.

Retrofitting

Process of adding something new to the original building or structure, aiming to improve the functionality of the building by adding new technology, building systems or equipment, such as heating systems, but it might also refer to the fabric of a building, for example, retrofitting insulation or double glazing.

Scenario

Explain use of scenarios?

SECAP

Sustainable Energy and Climate Action Plan; local authorities which join the Covenant of Mayors for Climate and Energy – Europe initiative commit to submitting an action plan within 2 years of sign-up. This action plan is a key implementation tool. It defines mitigation and adaptation goals and is based on a Baseline Emission Inventory and a Risk & Vulnerability Assessment, which provide an analysis of the current situation.

Shallow renovation

A building renovation that is performed quite often (rate of 3%) with an average energy efficiency ambition level reduction of 32% (in energy use for space heating by 2050 compared to 2010), may fail to treat the building envelope as a whole, and includes a low use of renewable energy. This type of renovation misses both environmental targets (CO2-emission and final energy savings) while not providing substantial economic advantage compared to a deep renovation.

Soft Loan

Loans with no interest or below-market rate of interest. May also have lenient terms, such as extended grace periods or interest holidays.

OFten used to encourage investment supporting energy policies and are often complementary to subsidies of fiscal incentives.

Small and medium-sized enterprises Structural reforms

SMEs

SME status depends on both the size and resources of a private enterprise. SMEs have a workforce of under 250 people and have either an annual turnover lower than €50 million or a balance sheet total lower than €43 million.

Structural reforms generally refer to liberalizing economic structures in the national context, including making labour markets more adaptable, liberalizing services, altering taxation systems and restructuring the welfare state.

EU Taxonomy for sustainable activities

The EU Taxomony regulates a sustainability-related classification system of financial products. Providers of financial products and services need to use the taxonomy to report the sustainability of their portfolios. To comply with the EU Taxonomy, companies need to prove that their activities make or enable a “substantial contribution” to climate mitigation or adaptation and fulfil the do-no-significant-harm principle for biodiversity, water, the circular economy and pollution targets.

Territorial Just Transition Plans

TJTP

Central element of the EU Just Transition Mechanism, which defines territories in which the Just Transition Fund will be used and outlines challenges in each territory, development needs and 2030 targets.

Total cost of ownership

TCO

The total cost of ownership of a vehicle is typically calculated for financial purposes by companies to determine the direct and indirect costs of owning the vehicle. In this case, it includes the purchase price of the vehicle plus the costs of operating it over an expected period of time.

Twin transition

The green transition and digital transformation

Trigger points (for renovation)

Key moments in the life of a building (I.e. rental, sale, change of use, extension, repair or maintenance work) when carrying out energy renovations would be less disruptive and more economically advantageous than in other moments. Taking advantage of these moments would facilitate investment decisions to undertake energy renovation works.

Trans-European Transport Network

TEN-T

A planned network of roads, railways water infrastructure and airports across Europe, with ten core networks to be completed in 2030 and a larger comprehensive network to be completed in 2050. The ultimate purpose of the network is to ensure the cohesion, interconnection and interoperability of the trans-European transport network, as well as access to it.