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Calif. steelmakers weigh benefits of cap-and-trade program

Keywords: Tags  environment, cap and trade, California, CSI, UPI, Frank Haflich

LOS ANGELES — California’s two flat-rolled steel producers have joined the state’s campaign to reduce emissions as California enters its own greenhouse gas cap-and-trade era.

The California Environmental Protection Agency’s Air Resources Board (ARB) has scheduled its next quarterly auction for greenhouse gas emissions for Feb. 19, with an auction reserve price of $10.71 per tonne. The first state auction, held in November, resulted in an average price of $10.09 per tonne, slightly more than the $10-per-tonne minimum set by the ARB, which administers the cap-and-trade program (, Nov. 26).

Companies whose annual carbon dioxide emissions exceed 25,000 tonnes qualify for the mandatory reporting requirements under the state’s cap-and-trade regulations. While most of these are in the utility or energy industries, the state’s two flat-rolled steel producers also qualify.

USS-Posco Industries Inc. decided to "sit out" the first auction in November as it waited to see how the program develops, the Pittsburg-based company said at the time. UPI, which produces cold-rolled and galvanized sheet as well as tinplate from hot coils it purchases, emphasized that, in the meantime, it would continue to work on projects that reduce both its energy consumption and greenhouse gas emissions.

However, California Steel Industries Inc. (CSI)—which converts purchased slabs into hot-rolled, cold-rolled and galvanized sheet, as well as pipe—did participate in the first auction.

"We were able to make a purchase" of credits, said Brett Guge, CSI’s executive vice president of finance and administration. He declined to give any further details but he pointed out that the Fontana, Calif.-based producer "just wanted to try the system" and "put a few credits in the bank."

At the start, the cap-and-trade program provides most of the credits at no charge, Guge said. But the cap declines over a period of years, raising the incentive to reduce emissions, he said.

CSI’s greenhouse gas emissions are largely tied to its use of natural gas. That’s where its most recent major capital project—a $70-million Tenova Core Inc. reheat furnace—comes in. Guge noted that while the furnace formally started up in 2010, the economic downturn and resulting drop in steel demand has made it "difficult" in the past few years to run it at peak efficiency. However, as demand improves and the furnace operates in "a more consistent pattern," CSI expects to achieve a payoff in greater efficiency, he said.

Although the California cap-and-trade program is relatively new, CSI has plenty of experience working under stringent state and local air-quality regulations that are separate from greenhouse gas legislation, Guge said. CSI has had "several preliminary meetings" on its participation with the ARB, which has a reputation as a tough enforcer, he added.

"They listened to us, which we appreciate, and they worked with us," he said, describing CSI’s working relationship with the agency as "cordial and productive."

He observed, though, that cap-and-trade requirements still represent a cost that not all of CSI’s rivals face.

"Certainly it’s an additional cost that out-of-state competitors do not bear," said Guge, although he declined to quantify that disadvantage.

Greenhouse gas regulations have been cited by some in the steel business as another factor in a growing list of the state’s entry barriers to industry.

"Fortunately, we’re already here and plan to be here for the long haul," Guge said, "which means we will comply with the regulations."

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