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Decarbonization of one of the major GHG emitting industries using technological innovations to reduce CO2 emissions
Decarbonization has become an imperative aspect of mitigating the effects of climate change. Industrial activities are responsible for 1/3rd of the greenhouse gas (GHG) emissions and among this sector, the Steel industry contributes around 9% of the total GHG emissions (Zhang, Jiao, Zhang, & Guo, 2021). A report by the World Steel Association states that in the year 2020, 1.89 tonnes of CO2 emission was contributed from each tonne of steel manufactured (World Steel Association, 2022). The rising values of GHG emissions are leading to climate change and are greatly affecting countries in the global south. India is no exception, the changing patterns of monsoon, reduced glaciers in the Himalayas and many more impacts are observed as a result of climate change (Mallett & Pal, 2022).
Steel is an integral input material in industries like construction, automobile manufacturing etc. The steel industry due to its high dependence on carbon-based technologies is considered a hard-to-abate sector in terms of sustainability due to its high requirement of energy and resources (Mallett & Pal, 2022). The steel industry in India contributes to nearly 2% of its GDP making it a significant sector in economic development (Sun, 2023). India being the second largest producer of steel is committed to decarbonization with a short-term focus on reducing carbon emissions by FY 2030 through the use of renewable energy and promoting energy and resource efficiency. The medium and long-term focus areas for 2047 and 2070 are utilising green hydrogen for steel manufacturing, Carbon capture utilisation & storage (CCUS) and alternative innovations which could assist in achieving the transition to net zero respectively (PIB Delhi, 2023).
Decarbonization Technologies for the Steel Industry
Before we dwell on the de-carbonization technologies for the steel industries, let us understand the key processes prevalent in the industry. The dominant processes for the production of steel are Blast furnace-basic oxygen furnace (BF-BOF), Direct reduced iron (DRI) and Electric arc furnace (EAF). BF-FOF involves reducing iron ore to pig iron in a blast furnace using coal products. The steel is then made from the hot iron which is charged to a basic oxygen furnace. The DRI process reduces solid iron ore by reacting at a temperature below the melting point. Coal or natural gas are the sources of reducing gas. DRI sponge iron requires additional processing, generally EAF. EAF uses an electric arc to heat charged pig iron, steel scraps or sponge iron with electricity (Fan & Friedmann, 2021).
Studies suggest that traditional energy-efficient measures can only reduce around 25-40% of average CO2 emission per tonne of crude steel produced. Hence, technologies like using hydrogen or biomass as reducing agents, and carbon capture utilization and storage (CCUS) are needed to further reduce the emissions (Muslemani, Liang, Kaesehage, Ascui, & Wilson, 2021). Production of green steel using direct hydrogen reduction involves reducing iron ore in a hydrogen-based shaft furnace and EAF is used to cast the reduced iron. Green hydrogen produced via electrolysis i.e., Hydrogen separated from oxygen in water using electric current and electricity required for electric arc casting should be from renewable resources to produce Green steel (Conejo, Birat, & Dutta, 2020). Tata Steel recently initiated the use of hydrogen in their blast furnace and JSW Steel has plans to commission a green hydrogen-based steel plant by 2025. Another innovation is the usage of biomass integrated with blast furnace-basic oxygen furnace. The biomass could be used as a replacement for fossil fuels at the coke-making stage, sintering process or directly in blast furnaces. A study estimated that the use of biomass could reduce around 58% of CO2 emissions (Mandova et al., 2018).
India – A Potential Green Steel Leader
Decarbonization technologies have the potential to impact the emission trajectories significantly and could help in mitigating the higher costs of climate change. The steel manufacturing sector is on the threshold of change with new innovations like green hydrogen and India, one of the top steel producers, has the potential to be a green steel leader. Several industries have already begun initiatives to produce green steel and with the support of regulatory authorities, the green steel industry would develop successfully. Decarbonizing technology to produce green steel with less greenhouse gas production would build a cleaner production roadmap for the steel industry.
Learn how India, a major steel producer, is poised to become a global leader in green steel production and how you can contribute to this transformative journey by contacting Carbon Mandal. Take action now to support green steel initiatives and advocate for regulatory support that will accelerate the transition to cleaner and more sustainable steel production.
References
Zhang, X., Jiao, K., Zhang, J., & Guo, Z. (2021). A review on low carbon emissions projects of the steel industry in the world. Journal of Cleaner Production, 306, 127259. doi:10.1016/j.jclepro.2021.127259
Mallett, A., & Pal, P. (2022). Green transformation in the iron and steel industry in India: Rethinking patterns of innovation. Energy Strategy Reviews, 44, 100968. doi:10.1016/j.esr.2022.100968
Sun, S. (2023). Topic: Steel industry in India. Retrieved from https://www.statista.com/topics/5585/steel-industry-in-india/#topicOverview
World Steel Association, A. (2022). Retrieved from https://worldsteel.org/publications/policy-papers/climate-change-policy-paper/
Fan, Z., & Friedmann, S. J. (2021). Low-carbon production of iron and Steel: Technology Options, Economic Assessment, and policy. Joule, 5(4), 829–862. doi:10.1016/j.joule.2021.02.018
Muslemani, H., Liang, X., Kaesehage, K., Ascui, F., & Wilson, J. (2021). Opportunities and challenges for decarbonizing steel production by creating markets for ‘green steel’ products. Journal of Cleaner Production, 315, 128127. doi:10.1016/j.jclepro.2021.128127
Conejo, A. N., Birat, J.-P., & Dutta, A. (2020). A review of the current environmental challenges of the steel industry and its value chain. Journal of Environmental Management, 259, 109782. doi:10.1016/j.jenvman.2019.109782
Mandova, H., Gale, W. F., Williams, A., Heyes, A. L., Hodgson, P., & Miah, K. H. (2018). Global assessment of biomass suitability for ironmaking – opportunities for co-location of sustainable biomass, iron and steel production and supportive policies. Sustainable Energy Technologies and Assessments, 27, 23–39. doi:10.1016/j.seta.2018.03.001
Exploring the role of Green Externalities Accounting in ensuring a sustainable Present and Future
Abstract
Accounting, as a critical language of finance, plays a pivotal role in shaping modern economies. This research article delves into the multifaceted accounting world, specifically focusing on Green Externalities Accounting in India. It explores the impact of green accounting toolkits and standards on economic development, state relations, and businesses. The article concludes with a call to action for a more sustainable future.
Introduction to Green Externalities
Anthropogenic climate change poses a significant threat, capable of engulfing us in one fell swoop, and its impacts extend far beyond a sudden wipeout. The cumulative acts of degradation have prompted various organisations to develop action plans and indices, such as the Climate Risk Index [1] aimed at addressing the threats of climate change. As determining forces, how can human-run organisations position themselves within the shell of nature’s resources and contribute to a more sustainable narrative?
While there is plenty we can do to keep our activities in check, accounting remains at the forefront in offering a structured process of recording, summarising, and analysing financial transactions among and across leading organisations, businesses, and states. It provides stakeholders with essential information to make informed decisions, influencing business strategies and socio-economic landscapes. Highlighting the pivotal role of finance in climate policy, Article 2 of the Paris Agreement emphasises the necessity of aligning financial flows with a trajectory aimed at reducing greenhouse gas emissions and enhancing resilience to climate change.
India’s adoption of International Financial Reporting Standards (IFRS) was initially announced by the Securities and Exchange Board of India (SEBI) in 2010. The convergence and adoption, however, were optimal and only applied to a few companies voluntarily. [2] Although limited, we can not discount the role that accounting standards such as the IFRS and the like play in determining GDP standards and broader economic analysis; much of which has come to stand synonymous with progress and development. Amidst the towering skyscrapers and bustling city streets, the relentless pursuit of economic growth often takes centre stage. However, as we marvel at the soaring GDP figures, it’s time to ask a pivotal question: Does GDP capture the true growth of the nation? A World Bank report from a few years ago revealed that India incurred a staggering cost of $550 billion, equivalent to approximately 8.5% of its GDP, as a consequence of air pollution alone. Furthermore, the expenses related to external factors like water pollution and land degradation were potentially even more substantial. India’s practice of exporting commodities effectively results in the depletion of its natural resources, which in turn escalates the risk of desertification and significant land degradation. If these alarming trends persist, it is plausible that India’s food production could experience a decline of 10-40% within a century. Therefore, when celebrating GDP growth, it is imperative that we also take into account the depletion of our nation’s natural capital in our economic assessments. [3]
Taking into account green externalities aims to quantify the environmental impacts of economic activities, such as pollution or resource depletion, makes them visible in economic assessments. It considers factors including but not limited to greenhouse gas emissions, water usage, and land degradation. In the pursuit of development through multidisciplinary approaches encompassing socio-economic concerns and environmental sustainability, it becomes imperative to ensure enduring progress for the future. This is particularly relevant for developing economies like India, where a shift from agriculture to manufacturing and services sectors is underway. The inadequacy of the traditional System of National Accounts (SNA), which measures Gross Domestic Product (GDP) and Gross National Product (GNP), lies in its inability to capture the true essence of a nation’s wealth, income, and performance. It fails to account for the environmental impact via externalities, be it positive or negative. Additionally, the conventional SNA disregards the value of natural resources that remain untransformed into marketable goods or services. The concept of ecosystem services, which denotes the environment’s free services to humanity, remains absent from current national accounting methods. These services, often termed as the ‘GDP of the poor,’ are especially critical for impoverished communities. The absence of ecosystem services in national accounting overlooks their significant contribution. The evolution of Green Externalities accounting has gained substantial urgency in recent years due to the significant losses nations have suffered from neglecting this crucial aspect of economic analysis. Severity has unearthed consequences including habitat destruction, resource depletion, and climate change. These issues have led to ecological crises, natural disasters, and adverse health effects, all of which have imposed substantial economic costs.
As per the United Nations Environment Programme Report, 1997 [4], greening the GDP is one of our major pathways towards a Green Economy. The integration of Green Accounts into traditional accounting systems will not only enable policymakers to analyse the interconnections between a nation’s economic activities and its environmental costs but also quantify these costs at various stages of production processes. This will empower relevant agencies to access precise data for amending industrial practices that surpass established environmental limits. Beyond accounting and assessment, parameters associated with Green Accounting provide a more accurate representation of economic growth by considering environmental costs and holding businesses accountable for their environmental footprint. Finally, it enables governments to tailor policies for regional variations in environmental impact, promoting balanced development.
Tools for Green Externalities Accounting
Creating an effective toolkit for Green Externalities Accounting involves defining clear metrics, establishing data collection protocols, and developing standardised reporting guidelines. It requires encompassing both qualitative and quantitative data to assess environmental impacts comprehensively. To facilitate the development of Environmental Accounts, key international organisations, including the United Nations, European Commission, International Monetary Fund, Organisation for Economic Cooperation and Development, and the World Bank, jointly issued the System of Environmental and Economic Accounts (SEEA-2003) handbook in 2003. Two primary approaches to Green Accounting have been proposed: one involves creating separate ‘satellite’ accounts dedicated to valuing natural resources, while the other advocates for a comprehensive modification of the traditional SNA to fully incorporate environmental accounts. In India, the Green Indian States Trust (GIST) took a significant step by creating environmentally adjusted accounts in 2003 under the Green Accounting for Indian States Project. Nevertheless, Green Accounting in India is in its infancy. The former Minister of Environment and Forests, Government of India, Mr. Jairam Ramesh, advocated for a transition towards incorporating environmental factors into national accounts by 2015. The TEEB India (The Economics of Ecosystem and Biodiversity) Project, initiated in 2011, conducted some standalone studies in this regard but hasn’t sufficiently contributed to the development of a Green GDP due to a fragmented approach.
Among the list of prominent reporting and decision-making tools that businesses and organisations are adopting, this article briefly discusses four of the following: Environmental Impact Assessment (EIA), Life Cycle Assessment (LCA), Carbon Pricing, and Sustainability and ESG Reports.
Environmental Impact Assessment (EIA) happens to be one of the many successful policy innovations of the 20th Century for environmental conservation. In India, it took off in the late 1970s and was first ordered during the early 1980s, on the Silent River Valley hydroelectric project. Since its induction in countries undergoing rapid industrialisation and economic growth-such as India- EIA has served as a vital toolkit in helping entities account for the environmental impact of their operations and decision-making and ensure that progress is aligned with environmental protection.
As for its contemporary, the Life Cycle Assessment (LCA). LCA helps pinpoint environmental “hotspots” and offers insights into reducing the substantial energy and material inputs, emissions, and waste, influencing decision-making at various project stages for improved environmental performance. [5] Energy audits generally encompass a thorough examination of an entity’s energy consumption patterns, encompassing the operation of energy-demanding equipment like HVAC systems, lighting, and industrial machinery. Organisations commonly utilise Life Cycle Assessment (LCA) to pinpoint instances of energy inefficiency and devise conservation-focused approaches. [6] However, LCAs demand a substantial amount of data since they require the inclusion of all inputs and outputs related to the environment across every step of supply chains and throughout the entire life cycle of a product or service. Therefore, the establishment of a comprehensive national LCA database is essential for advancing more comprehensive and scientifically grounded approaches to address sustainability challenges at the national level.
Carbon pricing is a policy mechanism aimed at reducing greenhouse gas emissions by assigning a cost to carbon emissions. It can be implemented through carbon taxes or cap-and-trade systems. Carbon taxes impose a direct fee on carbon emissions, while cap-and-trade systems set a cap on emissions and allow trading of emission permits. The idea is to incentivize companies and individuals to reduce their carbon emissions by making it financially advantageous to do so. This mechanism is crucial in mitigating climate change and transitioning to a low-carbon economy. However, currently, India does not levy an explicit carbon price. In 2021, fuel excise taxes, functioning as an indirect method of carbon pricing, accounted for 54.7% of greenhouse gas (GHG) emissions, maintaining the same level as in 2018. Conversely, fossil fuel subsidies, which remained at 2.5% of GHG emissions in 2021 as they were in 2018, worked in opposition to the advancements made in reducing emissions.”[7]
ESG sustainability reports are documents produced by companies and organisations to communicate their performance and commitment to environmental, social, and governance factors. ESG factors cover a wide range of issues, including environmental impact, and social ESG reporting is essential for transparency, accountability, and assessing a company’s sustainability and ethical practices. It is increasingly important in today’s business world as investors and consumers prioritise socially responsible and sustainable investments and products.
Obstacles and Requisites for Incorporating Green Externalities in India
India is currently positioned as the fifth most susceptible country to the repercussions of climate change, potentially endangering 2.5% to 4.5% of its GDP annually. To address this vulnerability, India has committed to reducing the carbon intensity of its GDP by 33-35% by 2030 compared to its 2005 levels. Nevertheless, achieving this ambitious target requires a substantial investment of $2.5 trillion between 2016 and 2030, as highlighted in a report by the Ministry of Environment, Forest and Climate Change (MoEFCC) in 2015.
Despite the urgency of the situation, there remains a significant shortfall in climate-related investments, stemming from both public and private sources. A forthcoming study conducted by the Climate Policy Initiative (CPI) indicates that India is currently mobilising less than a quarter of the necessary investment to meet this crucial target, as reported in 2020. [8] This includes regulatory changes, data infrastructure enhancement, and capacity building for businesses and government agencies. A robust framework for valuing environmental externalities is crucial for accurate accounting. Stakeholders in this transition include governments, businesses, environmental organisations, and accounting bodies. Governmental responsibility entails enacting policies to incentivise green practices. Businesses need to invest in sustainability initiatives and report their environmental impacts accurately. Environmental organisations can provide expertise and advocacy while accounting bodies must adapt standards to include green externalities. However, the process of such assessment in India faces several deficiencies which include but are not limited to its exclusive application to project-specific issues, and its focus on data presentation over analysis.
To enhance the process, accounting and assessment must aim to encompass private sector projects influenced by economic policy changes. Specific criteria for evaluating environmental impacts must be tailored to each project and its local environmental conditions. Furthermore, public participation, beginning early in project development is crucial, necessitating informal channels and financial support for affected communities. Associated departments must meticulously review projects, recording decisions publicly along with post-project monitoring. In India, the potential exists to implement these improvements with existing scientific resources. [9]
In-store
The research article has attempted to delve into the crucial importance of implementing Green Externalities Accounting, highlighting its pivotal role in reshaping modern economies towards sustainability. It underscores stakeholders’ need to prioritise transparency throughout their operations and be held responsible for the repercussions thereof. Often, minor externalities represent a significant grey area where communities are enduring global environmental impacts that are often overlooked or insufficiently quantified, even when occurring in plain sight. Until we take responsibility for our actions and incorporate them into our accounting practices, we cannot effectively assess or mitigate the consequences these actions have on communities, whether they are directly or indirectly connected to us. Beyond accounting, there will arise a need to assess climate-induced fiscal risks, and changes in the structure of the economy. Now is the moment for action. Connect with Carbon Mandal today to lead your organisation into this essential accounting revolution. Take a bold step with us now to shape a future that’s truly sustainable.
UNEP. Governing Council (19th sess.: 1997: Nairobi). (1997). United Nations Environment Programme:: report of the Governing Council on the work of its 19th session, 27 January- 7 February 1997, 3-4 April 1997. United Nations Digital Library System. https://digitallibrary.un.org/record/243368?ln=en
Rahman, Md. M., & Islam, M.E. (2023). The Impact of Green Accounting on Environmental Performance: Mediating Effects of Energy Efficiency. https://doi.org/10.21203/rs.3.rs-2604713/v1
