Financing hydrogen iron

Published by Anonymous (not verified) on Sun, 15/09/2019 - 1:18am in



We know how to make the electricity supply renewable. We know how to make land transport electric. Both are on track. But there are four problem industries where things are not so clear.

These estimates are not all for the same year and not strictly comparable, but they are good enough to make the point that to reach net zero emissions, the four sectors (together 20% of global fossil emissions) cannot be ignored.

The challenges are distinct but they have common features.

  1. Very plausible
    technological pathways exist to decarbonise. But these are not
    mature, and for the moment they are far more expensive than BAU.
  2. There is no
    guarantee or strong expectation that technical progress will ever
    eliminate the cost barrier, in contrast to electricity and land
  3. The industries
    are typical of modern capitalism: they are international and
    oligopolistic, with a lot of trade, a handful of large companies,
    and a myriad of small ones.
  4. Their products and services rarely have plausible substitutes. (We shall see later on why this matters).

Points 1 and 2 mean that the issue for public policy is not R&D (pace all the Democratic presidential hopefuls) but early deployment.

Recall how we got to cheap wind, solar and batteries. It wasn’t a carbon tax, since that does not exist anywhere in the pure form. Partial cap-and-trade exists in the EU, but it has only just started to bite, after giveaway initial allocations. It was done by subsidies for early deployment to create economies of learning and scale:

  • In the USA, tax breaks for wind, solar, and electric cars; renewable obligations at state level.
  • In Europe and China, tax breaks, subsidies, and regulatory privileges for electric cars.
  • FITs and ringfenced auctions for wind and solar generation in Germany, other European countries, China and India.

The costs of FITs have been large in the past, though the cumulative liability (in Germany for instance) has now almost stopped growing as the few surviving FITs are near market rates. Well worth it of course, especially if you aren’t a German consumer.

The same principle holds for our four problem industries. Carbon taxes are politically toxic, and a coordination nightmare in globalised industries. So what’s the workable second-best kludge?

I’d like to float a possible solution. I’ll take steel as the example. The principle extends to the others ceteris paribus.

Steelmaking has two stages. Step 1 is reducing the iron oxides found in nature to pig iron, typically by heating with coke in a blast furnace, a Han-dynasty Chinese invention. Take hematite. In multiple chemical steps,

2.Fe2O3+ 3.C → 2.Fe + 3.CO2

POSCO blast furnaces at Pohang, Korea

Step 2 converts the brittle pig iron to more versatile steel by adding a small percentage of carbon in an electric arc furnace. This can also be done with scrap iron and steel, 25% of all steel production today. Since Step 2 can be done with renewable electricity, the carbon emissions problem is all about Step 1, pig iron.

Electric arc
furnaces are distributed all across the globe in industrial cities
with a good supply of scrap metal. Blast furnaces are found in
monstrous coastal integrated plants, run by the largest companies.
The 15 largest steel producers:

Source: World Steel Association

These 15 are
responsible for a third (32%) of global steel production, but more –
I suppose over 40% – of the new pig iron we are interested in.

The technology for decarbonization of ironmaking is direct reduction (DRI). Iron ore is heated up with natural gas (CH4), reformed to a mixture of carbon monoxide and hydrogen :

3.Fe2O3 + 6.CO → 6.Fe + 6.CO2

and 8.Fe2O3 + 24.H2 → 8.Fe + 24.H2O

This is done at
reasonable scale today (100 mt/yr), mainly in India.

However, the process works fine just with the hydrogen:

Fe2O3 + 3.H2 → 2.Fe + 3.H2O [equation corrected]

Two pilot plants for hydrogen DRI are being built in Sweden and Austria by SSAB and Voest respectively with EU research funding. ArcelorMittal are also building a pilot hydrogen DRI plant in Hamburg. These are major and long-established steelmakers; the process almost certainly works.

Technically, but not yet financially. The price of catalysed hydrogen will have to drop a lot for that to happen. The steelmakers are saying “we can do it, but it’ll cost you”. None will move at a large scale – decommissioning a blast furnace is an expensive decision – without an incentive. Collective action problem! So we need early deployment subsidies once again.

Here’s my Cunning Plan (Baldrick™). There are many proposals floating around for fiscally neutral general carbon taxes: the revenue is typically rebated to low income taxpayers. The main objections to this are (a) it’s still a carbon tax (b) it’s too clever by half. But also (c) nobody knows how effective it would be. Relative prices shift (good) but you are also throwing in an uncertain income effect on those who don’t get the rebate, and you are hoping for a cultural nudge too.

difficulties mostly go away with a sectoral levy-and-rebate

The early German FITs for renewable energies tried to remove the incentive to waiting for prices to come down aka the penalty for early adopters. The aim was to maintain a roughly equal ROI over time, steadily lowering the FIT rate in line with installation prices. It wasn’t perfect but basically worked. In particular, it was seen as fair, and SFIK there is no significant resentment of the early adopters who got the high FITs.

My scheme would try to identify the current excess cost over 10 years of a hydrogen DRI plant, estimate the likely total volume of subsidised investment, and set subsidy and matching levy rates on carbon-emitting iron. As hydrogen gets cheaper, the rates would fall. You would need a working fund or equivalent budget guarantees to cope with the inevitable errors.

fiscally neutral for the industry. But there are no free lunches.
Hydrogen steel is more expensive to make than the carbon-emitting
variety. Consumers will pay a slightly higher price for all steel to
fund the transition. Most of them will hardly notice. The lack of
substitutes for steel means that the industry as a whole will not
lose significant business to say aluminium.

The scheme depends on negotiation with the leading producers, that is my top 15, but it should be open to anybody. For holdouts and smaller players, governments would have to be prepared to impose the levies as taxes. It also presupposes a lot of coordination between governments. This does not have to be universal. You need a “coalition of the willing” covering a significant proportion of the industry (as a minimum China, India and the EU, if possible Japan, Korea and the USA), and prepared to impose border taxes on holdouts.

too clever by half? Maybe. What’s your alternative?

Exercise for the next session of the Public Policy seminar: work up a proposal on the same lines for aviation, shipping or cement, with the pros and cons. Tip on shipping: flag-of-convenience states are tiny and in no position to stand up to serious diplomatic pressure from big players who mean business. You can stop well short of sending an aircraft carrier to intimidate the Marshall Islands.

BTW, if my scheme works in more than one sector, you are growing a global carbon tax from the bottom up.

One clean beach

Published by Anonymous (not verified) on Mon, 19/08/2019 - 12:43am in



No pretty photograph for this one. How can you take a snap of something that isn’t there?

Plastic litter on my local beach, that’s what.

I moved to Spain 15 years ago. My beach walks were interrupted by regular collections of litter, almost all plastic of one sort or another: drinks bottles, throwaway shopping bags, formless lumps of polystyrene, broken tangles of fishing net. It was densest along the shoreline, so jetsam (nice word: its counterpart flotsam is floating junk).

Recently I have had to leave my spandex Supergramps suit at home. There is hardly any to collect. On reflection, the change has been slow, though I’ve only just noticed it. Why has this happened?

The municipality has been putting an effort into the beach. It’s a standard policy in seaside resorts to try to move upmarket to catch tourists with more to spend, so there are more chiringuitos, beach playgrounds, access ramps for wheelchairs, free showers, dustbins and so on. The litter disappearance is no doubt partly down to the Alcaldía (among many Spanish words in administration and commerce with Arabic roots) putting more effort into beach cleaning. However, I’ve very rarely seen the crews: I suppose they do their work earlier in the morning than I get up. The thing is, the beach is still litter-free at 8 in the evening, time enough for dedicated louts to cover it in rubbish. Much less is being dumped now. Something else is going on.

There is a pretty theory of tipping points that might explain it, a variant of “broken windows” : the idea is that while many people will add their trash to an already polluted environment, few will be the first in a clean one. So Spanish beaches and South Bronx streets alike have two equilibria: Switzerland and slum. The hypothesis is that the cleanup has been vigorous enough to flip the beach to the former. Alternatively, the sight of eccentric foreigners ostentatiously picking up plastic bottles has started a social meme of approval and disapproval, which has by itself reached the general tipping point. I don’t buy this as a significant part of the story, flattering though it is.

The big problem with the tipping-point theory is the sheer variety of social groups who would have had to flip at the same time. Beach litter can be generated by:
Beach users:

  • Spanish local residents
  • Foreign local residents (subdivided by nationalities)
  • Summer Spanish tourists
  • Foreign summer tourists (subdivided by nationalities)

Sea users:

  • local Spanish inshore fishermen\
  • local recreational boat owners (we have a large marina)
  • commercial shipping in the channel a few miles offshore (subdivided into cargo and cruise ships)

Possible river users:

  • local Spanish farmers

The clean beach requires similar and parallel action by all these groups (well, I’m not sure about the farmers). They do not interact much with each other, and in one case – the deep-sea shipping crews and passengers – not at all with the landlubbers. The kind of mutual observation of behaviour and exercise of social pressure required by the tipping point story can only happen on a very weak scale.

The rival theory is that this simply reflects a broad, and pan-European, change in sensibility. Dropping litter used to be OK, except for anal-retentive parents, cops and teachers, now it isn’t. Compare smoking. Could someone please mine Twitter for the spontaneous thoughts of teenagers on plastic and litter? I suspect these have gone from “Eek, spoilsport crumblies” to “Eek, terminally uncool yobs”. Note also that it has required both top-down public policy (beach cleaning, plastic bag fees) and bottom-up movement in civil society.

Trivial? Not if you can generalise it it to the much bigger problem of plastic pollution in general. The cumulative global stock of unrecycled plastic waste has been estimated at 6.3 billion tonnes. The half-life in a landfill varies from 10 to 1000 years. Arctic snow is awash in microplastic particles, and plastic rubbish has been found at the bottom of the Marianas Trench.

As a tiny first step, many European governments have introduced nominal minimum charges by shops for plastic bags. A 5c bag fee is the ultimate test of nudge theory, but it does seem to be working. My local roast chicken takeaway has, without legislative pressure, also introduced the more expensive (15c) option of a nice paper carrier bag: it finds a good many takers. (Not me, I take my own Supergramps insulated bag.) Is the mechanism here that eco-virtue reduces guilt for resorting to a takeaway rather than cooking a Real Meal at home? If that’s so, still fine by me.

Memo to self: research a proper blog post on the cost of sustainable packaging. Meanwhile, my clean beach offers hope that the needed change is doable.

All right, a photo of my ordinary beach at sunset. Nothing special, but I like it.

The Growth of Shadow Banking and State-Finance Relations

Published by Anonymous (not verified) on Fri, 16/08/2019 - 1:04am in

by Matthias Thiemann* How can we understand the growth of a system of credit provisioning outside of the realm of bank regulation since the 1970s which linked non-banks and banks in a convoluted system of market-based banking, securitization and wholesale … Continue reading →

Is there still a role for validation?

Published by Anonymous (not verified) on Thu, 21/09/2017 - 9:02am in



Yes, answers the OU's Phil Berry, who argues that a validation arrangement can benefit alternative HE and established universities - serving to build a better quality sector.

The post Is there still a role for validation? appeared first on Wonkhe.

Time to open the door on sector diversity

Published by Anonymous (not verified) on Tue, 19/09/2017 - 9:04am in



The sector is diverse, but it could offer more choices of delivery methods to support the needs of a wider range of learners. Paul Feldman of Jisc, a member of the Higher Education Commission, introduces their recent report.

The post Time to open the door on sector diversity appeared first on Wonkhe.

On senior pay, the ball is in the sector’s court

Published by Anonymous (not verified) on Mon, 18/09/2017 - 9:03am in



OfS Chair Sir Michael Barber encourages the sector to get their house in order regarding value for money, as he looks towards the formal existence of the new sector regulator in the new year.

The post On senior pay, the ball is in the sector’s court appeared first on Wonkhe.

Can one size fit all? OfS and the future of regulation

Published by Anonymous (not verified) on Fri, 15/09/2017 - 3:07am in



The Higher Education Commission has launched a new report on the challenges facing the OfS in fostering a diverse higher education sector. Wonkhe's Arthi Nachiappan and Catherine Boyd digest the key findings.

The post Can one size fit all? OfS and the future of regulation appeared first on Wonkhe.

The OfS should make university governance a top priority

Published by Anonymous (not verified) on Thu, 31/08/2017 - 9:01am in

Many of the criticism's recently levelled at universities could be fixed with improved governance, but will the new regulator be sufficiently ambitious to ensure reform? Jim Dickinson suggests some ways forward.

The post The OfS should make university governance a top priority appeared first on Wonkhe.

Contracts, complaints and unintended consequences

Published by Anonymous (not verified) on Mon, 07/08/2017 - 4:47pm in

Jim Dickinson reflects on former OIA chief Rob Behrens' new book, in the context of Jo Johnson's latest pledge to further students' rights.

The post Contracts, complaints and unintended consequences appeared first on Wonkhe.

TEF – is it here to stay or a flash in the pan?

Published by Anonymous (not verified) on Tue, 25/07/2017 - 9:01am in



Whilst it is unlikely to outlive external examining, will TEF last as long as Audit and HE Review? Or will it have as short a half-life as TQA and Subject Review? Paul Greatrix takes us through a history of quality assurance and assessment in universities.

The post TEF – is it here to stay or a flash in the pan? appeared first on Wonkhe.