The cost of steel production: reclaiming Ilva or feeding an eco-monster

4/11/2019 Update: Arcelor-Mittal, following the removal of the “penalty shield” and the persistence of an unstable and unclear government strategy on the issue, communicated its desire “to rescind an accord to lease with acquisition the assets of the Italian steel group and some units acquired according to a deal sealed on October 31”. And the icing on the cake — the rescission comes with no penalty, leaving Italy with years of bargaining, no money to invest in the ex-Ilva plant, and un-resolved climate catastrophe and nothing else.
Once again, political instability and a never-ending electoral campaign are negatively affecting the Italian economy and most of all its environment. For more than a decade, a central issue is still unresolved in the country, and in the European region overall, regarding the largest steel plant in Europe, located in the southern city of Taranto, and whether it should be closed or “reclaimed”. The recent and umpteenth revocation of the “penalty shield” for the new owners Arcelor-Mittal, casts serious doubt on the fact that that Ilva would either be reclaimed or completely shut down, at a time when Italy and the EU should embrace a coherent approach both in its economic and environmental long-term strategies. A complete shutdown of the plant would lower Italian CO2 emissions and could improve health condition in Taranto, however, this won’t efficiently solve the problem of global GHGs.
After agreeing with Arcelor-Mittal a 4.2 billion euros plan, in which 1.2 billion are being destinated to curb pollution by 2024, the Renzi government in 2016 guaranteed to the new investors a “penalty shield”, to prevent criminal proceedings during the implementation phase of the new environmental requirements. Many critiques and perplexities have been raised after the implementation of this decree, however, the rationale behind this measure was to allow the new managers to implement (with strict deadlines) timely solutions without the excuse of bureaucracy inefficiency for example. In the last 3 years, however, this decree has been approved and revoked 4 times, considering also the 4 different governments that have followed since 2016.
The factory was originally publicly owned and then sold to the Italian Riva Group in 1995, however, private ownership resulted in the scarcity of state-supervision and aggressive profit-based strategies. After a European Court of Justice judgement, and a subsequent one by the European Court of Human Rights, in 2012, a scandal took place when Taranto Judiciary ruled the confiscation of the entire steelworks and the arrest of its managers because of environmental disaster, related to the death of several workers and inhabitants of the area (around 11.500 casualties).
Ilva happens to be one of the most important plants in the all-region, contributing to almost 1% of Italian total GDP and directly employing over 9000 workers and other 16000 employees in related sectors. At the same time, the facility heavily contributes to CO2 emissions, being the top polluter in Italy, and the top ten worse CO2 polluters in the region. As measured by Peacelink, the Arcelor-Mittal plant produces 4.700.000 tons/year of CO2 from the steelworks itself, including the two thermoelectric plants (namely CET2 and CET3) that serve exclusively the facility, the total emissions rise to 10.688.650 tons/year. In 2017, the 17 Sustainable Development goals (SDGs) required by the 2030 Agenda for Sustainable Development, adopted by Italy as well. However, the Asvis 2019 Report revealed how the country improved in some categories, while it worsens in sectors such as sustainable agriculture, energy system and condition of seas and terrestrial ecosystems.
It is clear how complex and strategic is the issue of the biggest steel plant in Europe, however, both the European Union and the Italian government never worked on a shared strategy on how to solve this enormous “question mark”. As most of the industrial-related environmental challenges, the debate seems to rotate around two crucial elements of the equation: the economy and the safeguard of the environment.
First of all, Ilva contributes to 4.67% of the global output of steel in the market, and it exports only the 16% of its product, compared to a 37% export average in other steelworks. The Italian economy is highly dependent on this specific plant, mainly because it is way cheaper to use steel produced at home. Without this local source of steel, the country will have to rely on foreign markets and to reduce the weight of higher costs of transportation, there are high probabilities that cheaper steel (lower quality, greater CO2 emissions for its production) from China or India. Keeping in mind that CO2 emissions affect everyone globally, we could assume that, overall, the 10.000.000 tons/year emitted in Taranto would not be definitely wiped out, but indirectly displaced to other (riskier) locations. De-carbonization and the reduction of steelworks overall should be still imperative goals for all international and national institutions; however, the strategic and biggest plants should be forced to fulfill the highest environmental standards available, otherwise, a complete dissolution of the entire steel industry seems unfeasible in the next years.
In addition to an economic aspect, there is also a structural and technical one. As analyzed previously, the 10.688.650 tons/year emitted by Arcelor-Mittal is the result of emissions coming from the steel production and the two thermoelectric plants powering the industrial complex. These two facilities, however, won’t be completely disused following the potential closing of Ilva, since they would still represent a key power source for Italy, that would destinate these outputs to other ends. Italy is trying to reduce the 16% yearly energy imports (50% from France) to gain more independence, and CET2 and CET3 plants will serve that purpose. Consequently, 5.988.650 tons/year CO2 emissions would still be released into the atmosphere.
In the Ilva case, it should be recognized the strategic and inevitable unique role of the biggest steelworks in the European region, which does not imply surrendering to market forces. On the contrary, there would be an opportunity to promote and enforce stricter environmental rules to one of the top 10 EU polluting facilities. The ongoing political battle over the admissibility or not of the criminal immunity for this transitional and implementational phase it is ultimately maintaining an inefficient and polluting monster alive, instead of fixing it. However, the rulings from European Courts helped the issue to be raised and faced by the Italian government, which however cannot be left alone without a comprehensive EU strategy to de-carbonize the steel industry.
