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France earmarks $6 bil for hydrogen, CCS, green steel industrial clusters

10 February 2022 Cristina Brooks

France unveiled a plan to ensure it has homegrown hydrogen production and technology in its industrial zones, starting with those of Luxembourg-based global steel and mining group ArcelorMittal.

On 4 February, France's French Environment and Energy Management Agency (ADEME) published a proposed strategy for Decarbonization of Industry and a Steel Plan.

Efforts for greening industry and building a domestic cleantech sector will receive €5.6 billion ($6.4 billion), secured from the €30 billion purse of funds France is using to reach its 2050 carbon neutrality goal, France 2030.

The billions in funding back "decarbonization roadmaps" for reaching new 2030 GHG reduction targets in key sectors: chemicals, cement, mining, and steel together with aluminum.

The roadmaps mostly look to slash emissions manufacturers or construction firms create when producing metal, cement, lime, or glass.

Supporting the market for such new technology, the government intends to set up Carbon Contracts for Difference (CCFD) for use in the sectors that have roadmaps.

"Mature" technologies in the form of low-carbon heat and energy efficiency for industrial decarbonization will get €1 billion, and "innovative" hydrogen or carbon capture technologies will receive €4 billion.

Last year, France updated its Hydrogen Strategy, raising domestic green and low-carbon hydrogen production targets to the equivalent of between 6.5 GW and 10 GW of electrolysis capacity, according to Brussels-based consultancy HINICIO.

Europe is set to outspend all other regions in setting up low-carbon hydrogen production, with approximately $196 billion by 2030, according to a recent IHS Markit forecast. Demand in Europe and globally is being driven by the industrial, chemicals, and transportation sectors, according to the forecast.

Green steel agenda

Since the steel roadmap was published last May, the sector has been tasked with slashing its CO2 emissions by 31% by 2030 in comparison with 2015 levels.

Via the Steel Plan, the government seeks to work with steelmakers and trade unions to create the strategies and subsidy frameworks to see this through.

In the first instance, the French government promised to spend €1.7 billion to decarbonize ArcelorMittal's French sites at Fos and Dunkirk.

The Dunkirk site will use a new Direct Reduced Iron (DRI) unit to transform iron ore using hydrogen instead of highly-polluting coal, and the Fos site will install an electric arc furnace to move away from coal and towards electrification.

The refits are set to have a green payoff: a 40% reduction of ArcelorMittal's CO2 emissions and 10% reduction in all industrial GHG emissions in France. In France, ArcelorMittal will use carbon capture and use (CCU) and carbon capture and storage (CCS) "to achieve carbon neutrality in France by 2050," according to the French government's industry advisory body, which wrote the Steel Plan.

ArcelorMittal insists the changes can't happen without the government funding. "This support makes possible the extremely high investments we need to make to decarbonize steelmaking on our Dunkirk site, Europe's largest steel-producing site," said Matthieu Jehl, CEO of ArcelorMittal France.

Steelmakers are set to use CCFD subsidies to build technologies that mitigate rising carbon market costs, as well as recycled scrap in steel production to further cut their carbon footprint.

In the future, the government must make sure the industry has access to cheap green electricity as energy makes up 40% of steel operating costs, and that it has access to "carbon-free hydrogen" which can be produced onsite. To that end, the plan calls the construction of electrolyzers near steelworks "essential to the roadmap."

Ahead of the announcement, ArcelorMittal had already started building in its own CCU technology project called Carbalyst, and invested in a technology company, LanzaTech, that aims to recycle carbon from steel production to create ethanol that can be used as fuel.

Hydrogen, CCS, energy efficiency, electrification projects

As part of the proposal, the government called for industry proposals for greening existing industrial zones using decarbonization plans and demonstrator projects.

It launched four calls for proposals that will develop technology projects and scale up domestic cleantech supply chains.

Two of the calls aim to make manufacturing zones greener with the help of existing technologies, but the other two will set up innovation projects.

Projects should cut carbon in various industrial processes, for example using ovens, cooling equipment, natural gas-fired electricity generation, heat exchangers, ventilation, or compressed air pumps.

Such processes could be made green using hydrogen alongside CCS or CCU, or carbon infrastructure. Funds for electrification using renewable energy, energy efficiency, and lower-carbon chemical inputs are also available.

The latest call for industrial greening projects builds on existing programs in 2020 and 2021 that funded industrial energy efficiency, electrification, and lower-carbon materials.

France's industry accounts for about 20% of its GHG emissions, and the chemicals, cement, and mining/metals sectors contribute 72% of those emissions. At the national level, France is pursing CCFDs to fulfill its own 2019 carbon neutrality pledge, as well as its 2020 National Low Carbon Strategy and a legal target of 20-40% of industrial hydrogen consumption sourced from green/low-carbon hydrogen by 2030.

Another reason it is headed for carbon cuts is because of forthcoming Paris Agreement-aligned carbon neutrality goal carbon policies at the EU level. The EU foresees a continued tightening the EU carbon market as well as new tariffs for importers in emissions-heavy sectors like steel, which are meant to raise the price of dirty steel and encourage the growth of green European industries.

Accordingly, France will rely on European funding tools such as the Innovation Fund and research investment fund Horizon for the Steel Plan.

CCFDs and hydrogen

At the same time, ADEME issued a consultation which focuses on the proposal for contracted subsidies encouraging businesses to invest in low-carbon tech—CCFDs.

Such contracts are intended to encourage investment in low-carbon technology meant to offset the expected rise in carbon prices. They have been proposed in both Germany and the UK, and are already in place in the Netherlands.

The consultation asks industry about the levels of support needed for CCFDs. "The responses from contributors will make it possible to develop and implement systems of support that best meet the needs of the actors and the expectations expressed by the stakeholders to secure the achievement of our climate and industrial objectives," the government said.

France has prior experience with this. France is one of the European countries that used non-carbon CFDs to grow its renewable energy industry.

It foresees the CCFDs as part of a longer-term support framework that extends Relaunch France, its €100-billion pandemic recovery plan, which earmarked the €30 billion for a green transition. In particular, it is hoped CCFDs will secure a market for French-made green and low-carbon hydrogen technology.

France plans on being careful with new EU guidelines on state aid so that a CCFD regime for steel can be set up "quickly," government officials said.

France is also banking on private capital investments that it expects will be plowed into industry as a result of new EU Taxonomy guidelines, which recently encouraged blending gas with hydrogen, the government's advisory body said.

The government framed the Steel Plan to fund green steel as a response to international "subsidies, dumping, protectionism," and the EU's carbon neutrality policy.

Likewise, the EU and US governments are aiming to restrict access to their markets as places to sell abundant Chinese steel, in the autumn announcing a trade deal on green steel, while lifting some of the "protectionist" tariffs that they levied against each other during the presidency of Donald Trump.

Posted 10 February 2022 by Cristina Brooks, Senior Journalist, Climate and Sustainability

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