Translating Climate Change Issues Into Operational Reality David Clarry March 5, 2008

2 Climate Change Why is the world paying more attention to climate change What is the operational / technical “target” for CO2 emissions reduction What are the mechanisms that put a cost on CO2 emissions, and what might that cost be What are the implications in steel production costs What can we do Climate Change

3 Why IPCC Summary Intergovernmental Panel on Climate Change – Climate Change 2007: Physical Science Basis, February 2007

4 GHG Emissions by Type and Source GHG GasCO 2 e Warming Impact (Relative to CO 2 ) Carbon Dioxide (CO 2 )1 Methane (CH 4 )21 Nitrous Oxide (N 2 O)296 HFCs120-12,000 PFCs8,600-10,000 SF 6 22,000 Why

5 Reduce by how much ?

6 From IPCC Fourth Report

7 Reduction requirement Recent article in Harvard Business Review, –“In order to halt the build-up of greenhouse gases in the earth’s atmosphere, global emissions would have to stop growing at all this decade and be reduced by an astonishing 60% from today’s levels by 2050”. Considering –global economic growth is in range of 5% annually, and –the overall economic aspirations of China, India and other developing countries, –more than halving today’s emissions likely requires reducing emissions per unit of economic output by at least 90% by How Much ?

8 A very rough reduction scenario … Canadian target of 20% below 2005 by 2020 Bali non-binding agreement to 25% to 40% reduction in Annex 1 countries by % intensity reduction by 2020 How Much ?

9 Some key jurisdictional actions Europe – ETS, system of hard caps on emissions United States – state initiatives aimed initially at energy sector Canada –Alberta – regulation in place as of July % intensity reduction target by December 31, 2007 Achieved by reductions, purchasing offsets, or paying $15/tonne –National - draft Clean Air Act 18% intensity reduction from 2006 levels by % annual intensity reduction every year thereafter Australia – state initiatives, potential for national initiative How Much ?

10 A world of opportunities and/or regulation Most of world is part of Kyoto Many of our project countries are eligible for credits Kyoto Annex 1 Countries (emissions targets) Kyoto Annex 1 but no mechanism in place Kyoto “Non-Annex 1” – credit opportunities Non-Kyoto reduction regulation How Much ?

11 Developing Country Credits are Real ~$2 Billion of CDM credits have been sold to date –~ $200 million of this revenue has gone to Iron & Steel projects How Much ? Ref: (January 26, 2008)

12 Carbon credits represent real projects Yangquan Coal Industry (Group) Co., Ltd. - Environmental Finance Magazine “Carbon Finance Transaction of the Year” –use of coal mine methane for power generation and alumina production projects –reduce emissions of CO2 by 17.8 million tons between 2007 and 2012 –Also reduces SOx, NOx Iron & Steel –Combined Cycle Power Plant to generate electricity from blast furnace and coke oven –6.6 MtCO 2 reduction over 10 years

13 Potential mitigation / trading costs EU credit value has ranged from less than 1 Euro to more than 20 Euros over the past year A longer term view can be gained from costs of abatement How Much ?

14 Industry impact: example for integrated steel A “typical” integrated steel mill could experience carbon costs in the range of $17/t to $55/t steel If CO2 credits were $40/t (McKinsey curve) this would be higher How Much ?

15 Industry impact: example for aluminum Cost of GHG emissions from “average” smelter is ~ $200/t From recent concept study of “BAT” plant using hydroelectric power –Smelter & anode emissions ~ 1,000 to 2,000 kg CO2e per 1,000 kg Al –Cost of emissions $25 to $50 at $25/t CO2e Actual cost of CO2e ? –Europe winter $40/t CO2e How Much ?

16 Impact on industry Regulatory changes and uncertainty –Regulation in Europe & Japan (and Alberta) –Pending regulation in many jurisdictions –Evolving global agreements will lead to more regulation within plant lifespans How to level playing field with developing countries Public scrutiny –Some EIA processes now require GHG analysis –Investors and stakeholders looking for GHG responses Financial opportunities –Some Jurisdictions (South America, Russia, China, …) offer projects the potential to sell GHG credits Impact

17 Impact on industry (cont.) A changing climate –Permafrost and ice roads less reliable –Anticipated trends in water availability, sea levels, …. –Warnings of more extreme weather variations Impact

18 Areas of response Abatement –Energy & GHG efficiency –Process technology (non-carbon reduction, biomass reductants) –Alternative energy sources –CO 2 capture and sequestration / fixation Adaptation –Design standards –ESIA considerations –Retrofit

19 Stages of response Planning / risk management Technology development / demonstration Operations / management action Capital investment

20 What is happening now - Hatch Project Examples GHG Inventories & lifecycle analysis GHG abatement planning Energy efficiency studies with GHG component Competitiveness studies Clean coal technologies – studies and demonstration plants –Coal Bed Methane liquefaction for transportation fuel CO 2 capture / sequestration / fixation –Boiler flue gas CO 2 capture for process use –Captured CO 2 for enhanced oil recovery –Reducing bauxite residue PH through CO2 fixation (Alcoa) Development of GHG credits for project financing Alternative Energy Adaptation - Australia Western Corridor water recycling Hatch

21 Thank You