Round-table discussion moderated by Dieter Aigner, Managing Director of Raiffeisen KAG, and the experts
Andreas Drescher, Programme Manager Carbon Reduction (RHI Magnesita), Vienna
Wolfgang Hribernik, NEFI Network Coordinator and Head of Center for Energy (Austrian Institute of Technology), Vienna
Elvira Lutter, Mission Director of the international Net-Zero Industries Mission (Climate and Energy Fund), Vienna
Wolfgang Pinner, Head of Corporate Responsibility (Raiffeisen KAG), Vienna
“Net zero can’t happen without heavy industry!”
Ms Lutter, if the EU has its way, energy-intensive industries will have to completely give up fossil fuels by 2050 and become climate neutral. Are there efforts at the political level in Austria to move forward in this regard?
Elvira Lutter: The European Commission has rolled out the Green Deal, which aims to create a resource-efficient, competitive economy with net zero emissions of greenhouse gases by 2050 and decouple economic growth from the use of resources. This is an idea that originated with Barack Obama. At the moment, there is quite a bit happening in Austria. The Federal Ministry for Climate Action recently launched the climate and transformation offensive to transform industry. It focuses on companies in manufacturing industries, in particular companies that participate in the EU’s Emissions Trading System (ETS), so ones that are involved in emissions trading. Around EUR 3 billion will be available through to 2030.
What specifically is being supported?
Elvira Lutter: The funds are to be provided for plant and equipment that help decarbonise industrial operations. A smaller amount of around EUR 240 million, which is still a lot by Austrian standards, will be used for a research and innovation programme. The aim here is to develop and build pilot facilities, which can then be scaled up for industrial applications. One new aspect is that there will be an interface between the two programmes. The goal is to implement innovations that are “Made in Austria”. Austria has a lot of companies that are involved in the construction of industrial plant and equipment.
...which are very successful around the world.
Elvira Lutter: Yes. In this regard, I always like to mention the Linz-Donawitz process, that was invented in Switzerland in the 1930 and perfected by Voestalpine in the 1950s. The first plants were built here in Austria. Up until recently, about 70 per cent of the world’s steel was produced using this process, and Voestalpine received a lot of licensing revenues for it. This example highlights the scope available to the country if one strengthens innovation: It promotes local decarbonisation, generates a great deal of added value, allows one to sell technology abroad, and also makes a very important contribution to climate protection. At the global level.
Net zero can’t happen without heavy industry, because the share of heavy industry in carbon emissions is simply too high. And because the products made by this sector form the basis for achieving climate neutrality in the first place. Such as steel for wind turbines, components for power lines, refractory materials for new furnaces that use hydrogen, and so on.
"We need to address technology sovereignty much more actively in Europe."
Mr Hribernik, NEFI, which stands for New Energy for Industry, is an organisation that brings together know-how and expertise from science, technology providers, and companies, in order to achieve decarbonisation in industry. You recently presented a study which sets out three different scenarios for climate neutrality in the industrial sector.
Wolfgang Hribernik: Yes. In that study, we took a closer look at what the transformation pathways to achieve climate neutrality by 2050 might look like. We divided the industrial sector into 13 subsectors to develop these scenarios, with strong cooperation from our industrial partners. Along with energy-intensive sectors such as iron and steel or chemicals, there are also other non-energy-intensive ones such as manufacturing activities. In a number of steps, industrial data on energy use, fuels, and potential energy efficiency improvements were collected and analysed in the three scenarios. In order to achieve climate neutrality, industry must transition away from fossil fuels, such as coal, natural gas, and oil, as quickly as possible and start using carbon-neutral, renewable energy sources.
What scenarios are there for this?
Wolfgang Hribernik: Examining the details of the three scenarios would go beyond the scope of this discussion. But based on the data, it is quite clear that electrification based on renewable electricity plays a central role in the transformation of the industrial sector. At the moment, 20 per cent of the total energy consumption of Austrian industry is covered by electricity, which amounts to around 27 terawatt-hours (TWh). The study shows that, disregarding the additional electricity required for hydrogen electrolysis, about 49 TWh of electricity is needed for final energy applications to achieve industrial climate neutrality. In addition to general electrification efforts, such as heat pumps, the increase in electricity demand is driven in particular by electric arc furnaces and carbon capture plants in the subsectors iron and steel and non-metallic minerals. Additionally, if all hydrogen demand is met by electrolysis in Austria, total electricity demand for industrial production rises to 116 TWh in the third, zero emissions scenario. Furthermore, targeted research, development, and pilot projects will be necessary together with the industrial enterprises, in order to quickly implement the new technologies. It is crucial to expand the energy infrastructure to be able to meet the high energy demand of 172 TWh in the zero emissions scenario, mainly for electricity, hydrogen, biomass, and natural gases. This includes suitable networks for electricity and gas, including hydrogen and its derivatives, both for domestic supply and for cross-border transport.
That sounds like an enormous job. Innovation will play a key role. How is Austria doing in this regard?
Wolfgang Hribernik: Within the framework of our project, I could see that we have great expertise in systems integration for technologies in Austria. In particular, this applies to digital technologies, which are critical in terms of efficiency and flexibility in industrial processes. In this regard, one key expression is ‘technological sovereignty’. In Europe, we simply must take a much more active approach to this issue, both as a society and as a location for business and industry. And this applies to various areas, not only the industrial sector, but also in education, in economic policy, and so on.
Elvira Lutter: Clearly, government action is also needed in this regard. The government must provide financial support for innovation and research. Because, of course, a great deal of money is at stake and there is considerable technical risk in the event that an industrial plant does not work as planned when it is scaled up. And when it is not only public funding that is involved, when for example credit institutions are also providing financing, they have to be able to assess the risks. There has to be an exchange of information starting from a very early stage. The projects have to be suitable for bank financing and have to be assessed. That is a very important aspect for financing.
RHI also has ambitious goals for net zero emissions. What’s been your experience and how do you want to get to net zero?
Andreas Drescher: Yes. We set this goal at the group level and we are gradually adjusting our external commitment and taking a cautious approach overall. There are other corporate groups that have made even more ambitious commitments and are already communicating these externally as requirements. For 2025, the goal we have set is to reduce our carbon dioxide emissions by 15 per cent on the basis of the 2018 data, and we are following a roadmap that leads us to net zero in 2050. If we are successful with several things, we can achieve our goal more quickly, but a lot also depends on global developments. We are taking a bottom-up approach to planning and only committing to shareholders and stakeholders when we really know that we will be able to meet our goals. We have strong support for this path from our main shareholders.
RHI’s production is very energy-intensive. Where does one start to make adjustments?
Andreas Drescher: We have started by defining three steps in our roadmap. Unfortunately, we consume an enormous amount of energy and most of this still comes from fossil fuels. When possible, we use natural gas. We have production operations around the world. Only about one tenth of our carbon emissions occur in Europe. But for Austria, this is a lot. Within Europe, we generate the most carbon emissions here in Austria, because we have very resource-intensive operations here. The first step is to take conventional measures. This involves switching fuels where it is possible. For example in Brazil we are discontinuing the use of heavy oils. We have been building a pipeline there for years. When it is ready, we will be able to switch over to gas. We are also attempting to use gas instead of oil at other locations, and where it is available, green electricity. This is still a problem in India and in the USA, because green power is essentially not available there. The second measure is electrification. But we are running into certain limitations in this regard. Specifically, at 1,000 degrees Celsius. And in our line work, this is just “lukewarm”. Below that level, electrification of the processes proceeds well. But for calcination and sintering, the heat levels in the rotary kilns get up to 1,200 to 1,600 degrees. And then I can’t get what I need from electrification. We are still investigating this, but we have not advanced far enough with the development to put it into operation. The third step in conventional measures is to use our waste heat and not lose energy.
Above and beyond these conventional measures, you must also be pursuing other avenues to achieve your goals?
Andreas Drescher: That brings us to step two and our plans for CCUS, or carbon capture utilisation and storage. That’s my special hobbyhorse, together with step three, the use of hydrogen. Together, these two aspects will play a key role later in our timeline. There is still a lot of uncertainty, but I am optimistic that we can organise the import of hydrogen by 2028–2030, working together with the Austrian hydrogen import alliance. That would be huge. We’ll see whether we are successful and whether the costs involved will allow us to be competitive at the international level. As a globally active company, one aspect that is extremely important for us is the fact that we produce a lot in Europe, in Austria, but almost 70 per cent of our production is exported outside of the EU. For us, the European Carbon Border Adjustment Mechanism (CBAM) is a major challenge. While it helps us in inner-European trade, it makes our exports outside of Europe very difficult. Another aspect is that, similar to the cement industry, we have so-called geogenic emissions: more than 50 per cent of our carbon emissions come from the raw materials magnesite and dolomite. In the cement industry, it’s lime. Even if we manage to reduce the use of fossil fuels completely, we’ll still have this share of the emissions. The only solution for this is carbon capture utilisation and storage.
Wolfgang Pinner: I’d be interested in hearing about the importance of utilising and storing carbon emissions in relation to the net zero goal. Was this also taken into consideration in the NEFI study we talked about?
Wolfgang Hribernik: There are industries that use high temperature processes and have process-related emissions, where there’s not much else that can be done, and these industries are aware of this. Essentially, the technical solutions and the scenarios depend on the technology being used and of course on the use. In our scenarios, the utilisation of carbon is very strong in the chemicals industry, for example for synthesising hydrocarbons. There certainly is an awareness that we need carbon utilisation and storage and that the technologies for this are known. In the public discourse with decision-makers, the topic is not so popular. One need only point out the CCS ban in Austria. But in the meantime, there is also some development on this front, both legally and in terms of the infrastructure. It is my firm belief that CCUS should be included in integrated infrastructure planning, just like hydrogen, carbon dioxide, and electricity. And I think this is also a weakness that we have: In Austria, we are planning power grids in a very sectoral approach, we’re planning them for generation scenarios and not for load. What we need, however, is a complete paradigm shift towards a holistic approach, i.e. the developments in consumption and the sector linkages that we have. Only then can we plan energy grids. How we go about doing this in a federalised structure is whole other story. I think that in terms of the planning basis for the infrastructure, we are always one and a half steps behind compared to the needs viewed in a holistic context.
Elvira Lutter: I can confirm that there has indeed been progress. The support programme I mentioned earlier explicitly defines carbon storage as one of its key focus points. In the past, it was allowed for research purposes, but specific projects can now be submitted as part of an innovation programme. With regard to carbon capture and utilisation, Austria would have an extremely good export market for this. It would be crucial for us to do more. Because China, India, and others need it. New industrial sites are being built there and in other Emerging Markets. Demand for steel, cement, and so on is rising. In Europe, we are upgrading facilities, but it is mainly new ones that are being built in these countries. They would represent export markets. We have to think ahead. This allows us to do something globally in support of climate protection, not only in Austria.
Andreas Drescher: RHI is working on a CCUS process that works really well for Austria, which involves transforming the carbon that we have in the exhaust emissions into an industrial mineral. This is one of our biggest projects. We are working in collaboration with the University of Leoben and an Australian partner. It could turn out to be one of the larger plants, when it comes to the volume of carbon capture. In that case, the carbon is then fixed and no longer reacts. We don’t need underground storage or special locations for storage. Our partners in Australia are currently planning on scaling up to industrial levels with one of their own plants. Our joint plant would be even bigger. But what we can see already is that a lot of individual components are needed for construction. And most of these come from Europe, starting with the grinding mills all the way to the filter units. European technology is still extremely important at the global level and, with its locations across Europe, Austrian industry can generate a great deal of technology and know-how in plant construction, working in European alliance. This is very important and in the international context as well, it is clear that users are happy with our technological solutions.
"Sustainable investments have arrived in the mainstream"
As an active asset manager, we can accompany companies on their pathways to net zero and support them with investments. To some degree, this is a tightrope act, as these companies are not sustainable yet, but they are changing and moving in that direction. How does one deal with this?
Wolfgang Pinner: Yes. It’s a double-edged sword. Of course, on the one hand, we want to support transformation. The environment for sustainable investments has developed enormously in recent years. Sustainable investments have become mainstream. For us, as a pioneer in this field, this is great news. With the strong growth seen in this market, a number of different sustainability approaches and investment styles have developed. Due to the depth of this market, companies are willing to move ahead in the process of transformation, and it is often the case that listed companies are financing this process by accessing capital on the stock markets, which is where we are active. On the other hand, companies that are in this process of transformation or maybe just about to embark on it often still show numerous violations of ESG criteria or controversies. And not all of the transformation processes that are announced actually take place as advertised, or even at all. So, this also entails a certain kind of reputational risk for investors. Being invested in a company that is just getting started on the road to transformation can be linked to major damages for the asset manager. Because potential violations catch the attention of critics, the media, and NGOs, who want to see clean investments.
How does one solve this conundrum, if you still want to be supportive?
Wolfgang Pinner: Our approach is to apply the ESG criteria very strictly in the retail funds. With institutional investor portfolios, we discuss the issue with the clients and invest with their consent, including in companies that are still involved in the transition.
A while back we signed the Net Zero Asset Management initiative. What obligations does this entail for us?
Wolfgang Pinner: By signing, we are pursuing the goal of net zero emissions in our portfolio. We want to reach this goal by 2050. We also have intermediate goals: 25% less emissions by 2025 and 50% less by 2030. This all pertains to a defined portfolio, for which it can be calculated well, i.e. for equities and corporate bonds, starting with Scope 1 and Scope 2 emissions (caused by a company’s own activities), and later Scope 3 as well (upstream or downstream emissions). We approach companies and use shareholder engagement. As part of the Net Zero Asset Management initiative, we undertake to contact the biggest polluters, the biggest carbon emitters. Naturally, first of all we have to engage with the energy-intensive sectors, the high-priority sectors. For example, oil and gas, and the steel industry. We adjust the positions in our investments to our emissions targets and we contact the responsible people at the companies, engaging them in dialogue, to help us develop together and be supportive as well. Many companies, such as RHI, are taking the initiative themselves and when they also back this with specific, tangible action, this is very credible.
What do you say to the critics who might see this as greenwashing?
Wolfgang Pinner: That, in principle, every commitment has the possibility of being greenwashing, if it is not taken seriously or acted upon. Accordingly, joining such climate or ESG initiatives is always only one part of the puzzle for us, when it comes to assessing how seriously we take the subject of climate protection and sustainability. We take it very seriously. We want to make progress. We now have suitable metrics and we have made public commitments. Now, we have to press ahead.