Posted on 16 Nov 2021
Acceleration in Climate Change Actions in ASEAN and the Implications for the Steel Industry
Climate Change & Global Warming
Climate Change is the change in the usual weather patterns, that is becoming different and extreme in the longer term. It could be the temperature changes leading to wildfires and heatwaves. It could be changes in rainfall intensity causing severe floods. It could also explain the more frequent tornadoes or stronger hurricanes. Simply, it means the climate is becoming unpredictable, threatening lives and livelihood of mankind.
Global warming, a phenomenon associated with climate change, is in progress. Glaciers are melting, sea levels are rising and scientists have linked all these to many human activities that release heat-trapping gases into the atmosphere; these gases are known as greenhouse gases.
The Greenhouse Gas effect is the natural warming of the earth due to gases in the atmosphere, which trap heat from the sun. The heat from the sun heats up the earth and this radiates back towards space. However, most of this heat is absorbed by these greenhouse gases and is reflected back to the earth, making it warm and liveable.
Greenhouse gases comprise carbon dioxide, methane, nitrous oxide, ozone, chlorofluorocarbons, hydro-fluorocarbons and water vapour. While water vapour is the largest component, its residence time in the atmosphere is only 9 days, compared to years or centuries for the other gases e.g. carbon dioxide or methane.
As more greenhouse gases are released by human activities (burning of fossil fuels, deforestation, etc), the concentration of these gases has risen from 200-280 parts per million to more 400 parts per million is causing extra heat to be trapped in the atmosphere. This is how greenhouse gases lead to global warming.
The 2015 Paris Agreement
In 2015, almost every nation signed up to the goals of the Paris climate agreement in 2015; this includes the 10 ASEAN member states. This pact aims to keep the rise in global temperatures well below 2oC above pre-industrial levels and to pursue efforts to keep it under 1.5oC.
The pre industrial years are generally taken to be the period 1850 – 1900, where the CO2 levels are estimated to be around 280 parts per million at that time. By 2020, the concentration had risen to 412.5 parts per million, according to US government figures.
To keep global temperatures within the agreed limits, countries have to control greenhouse gases emissions.
“We must act decisively now, to keep 1.5 alive.” – SG @ United Nations
However, according the UN Secretary-General António Guterres, the Inter-Govermental Panel on Climate Change Working Group’s report on 9 August 2021, was nothing less than “a code red for humanity. The alarm bells are deafening, and the evidence is irrefutable”.
He noted that the internationally-agreed threshold of 1.5oC degrees above pre-industrial levels of global heating was “perilously close. We are at imminent risk of hitting 1.5oC in the near term. The only way to prevent exceeding this threshold, is by urgently stepping up our efforts, and pursuing the most ambitious path”. Note that the world has already warmed up by 1.1 oC.
The UN chief continued on to say that the solution is clear, that, “Inclusive and green economies, prosperity, cleaner air and better health are possible for all, if we respond to this crisis with solidarity and courage”.
Long Term Climate Change Strategies in ASEAN
Up to October 2021, only a few countries have confirmed the schedule to meet their net zero targets. Malaysia recently committed to reach net zero by 2050 in their 12 Malaysia Plan. Indonesia’s Long-Term Strategy for Low Carbon and Climate Resilience 2050 report set a net zero target by 2060 or earlier, which would require the use of carbon capture and storage (CCS) technologies. Thailand aims to achieve net zero by 2065-2070, using carbon capture, utilisation and storage (CCUS) technologies. The other ASEAN countries have not provided a target year to reach net zero.
Climate Change Trends in ASEAN
In 2019, Singapore became the first ASEAN country to implement the carbon tax of SGD 5 per metric tonne of carbon dioxide equivalent (/MTCO2e) emitted by businesses. Prices are expected to be revised to SGD 10 – 15 /MTCO2e (USD 7.44 – 11.16/MTCO2e) from 2024 to 2027, to be tabled in the 2022 Budget.
Earlier this year, Singapore also announced the establishment of a new global carbon exchange and marketplace which is expected to be up by end of 2021. Climate Impact X (CIS), the exchange platform by DBS Bank, Temasek, Standard Chartered and the Singapore Exchange (SGX), aims to help firms go greener and boost efforts to establish Singapore as a carbon services and trading hub.
On 17 November 2020, Vietnam’s National Assembly passed a revised law on Environment Protection legalizing carbon emissions trading. The law stipulates that the government will establish a carbon emission trading scheme that is suitable in the local context as well as in compliant with international climate change treaties. The law takes effect on 1 January 2022.
While there is no mention about the introduction of carbon tax in Vietnam, apparently this is still possible within the framework of the revised law.
On 28 June 2021, 11 of the largest and most successful organisations in Thailand formed the Carbon Market’s Club, with voluntary emissions offset programme that is intended to expand to a carbon emissions trading system for Thailand. The idea is to build an emissions trading system similar to those in Europe & China, where emitters purchase carbon credits to reduce their carbon footprint.
In July 2021, the Thailand Greenhouse Gas Management Organisation (TGO), in collaboration with the Federation of Thai Industries launched the “Thailand Carbon Neutral Network” (TCNN), which is aimed at establishing a National Carbon Trading Platform for the Thai industries.
In the meantime, the Thailand Excise (Tax) Department is studying the feasibility of levying carbon tax on the industrial sector, with the aim to protect the environment.
Indonesia recently announced a new carbon tax, costing IDR 30 per kg of CO2e (USD 2.1 /MTCO2e). This is lower than the originally proposed IDR 75 /kgCO2e (USD 5.30 /MTCO2e), as the country needs to recover from COVID19.
The carbon tax will be levied against coal fired power plants in Indonesia, starting April 2022. Emissions above a certain cap will be subject to the tax. There is no deadline yet for the rollout of carbon tax to cover all businesses that emit greenhouse gases. A carbon market that will allow emitters to buy carbon credits, is expected to start in 2025.
Meanwhile, the Department of Finance of the Philippines have been reported to prefer an emissions trading system over an outright carbon tax. A cap-and-trade system has been tabled for discussion and the measure is pending at the House Committee on Climate Change.
Malaysia, in its 12 Malaysia Plan, has also committed to carbon tax, but there is no further detail on the rollout.
Implications to the Steel Industry
All trends point to carbon pricing that will increase the cost of production for ASEAN steel producers. If carbon tax has not yet landed, it will, sooner or later.
One issue is on imported steel that are not subject to carbon tax at sources and destinations which could end up cheaper than locally produced steel. This needs further consideration by governments, lest the local industry gets unfairly penalised for national decarbonisation efforts.
This issue could lead to the consideration for carbon border tax, similar to the European Commission’s (EU) plan. The EU has put forward plans for the world’s first carbon border tax, on imports of carbon-intensive steel and other products, to meet its climate target as well as to protect local industries from overseas manufacturers that can produce steel at lower cost because they are not taxed for their carbon output. This should phase in from 2026.
As government policies evolve, investors should be aware of the implications of climate change policies on carbon emitting investments, such as blast furnaces & coal plants.
While the Global Steel Industry is also working towards decarbonisation, there is also the challenge of lack of proven and feasible decarbonisation technologies as well as large funding needs to shift towards clean technologies.
Source:SEAISI
