Securing competitiveness of energy-intensive industries through relocation: The pulling power of renewables

 Countries with limited potential for renewables could save up to 20 percent of costs for green steel and up to 40 percent for green chemicals from green hydrogen if they relocated their energy-intensive production and would import from countries where renewable energy is cheaper, finds a new study by the Potsdam Institute for Climate Impact Research (PIK). This 'renewables pull' would create strong incentives for businesses to invest in low-emission production facilities in these renewable-rich countries. Renewable-scarce countries could put all focus on down-stream production and refinement as the smart way to secure industrial competitiveness.

"Our new study shows that renewable-scarce countries like parts of the EU, Japan and South Korea could save between 18 to 38 percent in production costs," explains Philipp Verpoort, scientist at the Potsdam Institute for Climate Impact Research (PIK) and lead author of the study published in Nature Energy. "They could do so by relocating their production of industrial basic materials like green steel and chemicals based on green hydrogen to countries where renewable energy is cheap." The use of renewable electricity and green hydrogen is a key solution to cut greenhouse-gas emissions when producing steel and chemicals. However, not all industrialized countries would be able to produce these in sufficient quantities and at competitive prices in the long term due to their geographical conditions. "If these countries focus on producing green hydrogen domestically or importing it, this will be costly for both industry and society. It could even become a dead-end as it results in a lack of long-term competitiveness on global markets. Importing industrial intermediate goods such as iron sponge, ammonia, or methanol and focusing on down-stream production and refinement could be a cheaper and more robust strategy for securing competitiveness," explains Verpoort.

Importing hydrogen via ship could hinder long-term competitiveness of hydrogen-based value chains

To arrive at these results, the scientists looked at the green value chains of three primary basic materials: steel, urea and ethylene. They argue that an electricity-price difference of 4ct/kWh between some existing renewable-scarce industrial production sites (e.g. Germany, Japan or South Korea) and favourable locations elsewhere on the globe (e.g. Australia, Chile, South Africa) can be expected in 2040. The researchers then assessed the cost effectiveness of competing decarbonisation strategies by comparing different trade options -- import of industrial products, import of intermediate products, import of hydrogen, and no imports (i.e. full domestic production). Their research demonstrates that cost savings in case of relocation could be huge and that importing hydrogen does not seem to be a cost-effective strategy -- especially when imports occur via ship.

Source: ScienceDaily