Germany and its Western partners want to supply Ukraine with heavy weapons in the fight against Russian invading forces. On Tuesday, after a conference call with Western heads of state and government, German Chancellor Olaf Scholz announced that they would coordinate closely on the supply of military equipment. German solo efforts, on the other hand, would be a mistake, according to Scholz. Read the details of Scholz’s announcements in the News.
The German Supply Chain Act and the even stricter EU directive currently being negotiated in Brussels are designed to prevent forced labor, human rights violations, corruption, and environmental pollution. The photovoltaic industry, manufacturers of electrical components and cotton are particularly affected. These industries depend on supplies from the northwestern Chinese region of Xinjiang, where Muslim Uyghurs and other minorities suffer forced labor, according to the UN. Marcel Grzanna analyzes what impact the fair supply chain requirements actually have for companies in the three industries.
As very high emissions are concentrated in a few locations in the steel industry, the sector is seen as crucial in the green transformation of the economy. Hans Jürgen Kerkhoff, President of the German Steel Federation, speaks of a low-hanging fruit in significantly reducing CO2 pollution. In an interview with Manuel Berkel and Timo Landenberger, he calls for more support from policymakers to achieve this goal. The instruments envisaged by the EU are of little help in the changeover and pose a threat to international competitiveness, especially as the war in Ukraine is also presenting the sector with major challenges.
In the Profile of Benjamin Ledwon, you can read how the work of a lobbyist has changed from his perspective. He is Senior Expert for European Affairs at Telekom and thus responsible for representing the company’s interests in European legislation.
Pacifico Renewables Yield (PRY) has no illusions. The German company, based in Gruenwald near Munich, buys and operates solar and wind parks all over Europe. Any projects it invests in must meet high social and environmental standards. For financing, the company issues green bonds or obtains loans from sustainability banks with the strictest standards.
However, when it comes to China and sustainability, especially in the solar industry, CEO Martin Siddiqui knows very well that there are no guarantees. “The majority of components come from China, and there are suppliers who produce with fossil energy, or whose products are made through forced labor,” Siddiqui says. The company works as hard as it can to trace and audit companies further and more precisely along supply chains, the 37-year-old says. However, he cannot guarantee that all the modules installed in his company’s parks have been produced in a 100 percent sustainable manner.
Not even politicians want to force guarantees when the German Due Diligence Act comes into force next year. Commonly referred to as the Supply Chain Act, the law aims to make products and services from German companies more sustainable. Forced labor, human rights violations, corruption, environmental pollution – all of these are to be excluded from the value chain as far as possible from 2023 onwards wherever German companies are involved.
For companies, the introduction of the law offers a foretaste of the even stricter EU directive currently being negotiated in Brussels. Companies will then be threatened not only with fines, but also with millions of euros in damages claims from affected employees or their families. Companies may then have to dig deep into their pockets for labor law deficits at their suppliers if they do not take early and consistent action against risks of violations.
Now companies that source solar modules, electrical components, cotton, or tomatoes from Xinjiang wonder how they are going to manage to clean up their supply chains. The northwestern Chinese autonomous region is synonymous with human rights violations. The United Nations’ International Labor Organization (ILO) speaks of a “widespread and systematic” forced labor program. Primarily Uyghurs, but also Turkish and other Muslim minorities, are affected.
However, some industries are so dependent on supplies from Xinjiang that they can’t cover their demand from other sources within just a few years. A fifth of global cotton comes from Xinjiang, no other region in the world plants and harvests more tomatoes for the global market, and the photovoltaic industry also relies heavily on modules from China.
What now? “It is almost impossible to reliably prove that there is no forced labor in any of the high-risk products,” says Joachim Trebeck of the Cologne-based law firm Trebeck & von Broich. The labor lawyer nonetheless believes that the law makes sense because Germany, as an “interesting market, bundles its influence on other countries.” But Trebeck also says, “If a supplier wants to cheat, they will find ways and means.”
For PRY solar farm operators, that’s not yet a reason to get nervous. The Supply Chain Act will first only target the big players with 3,000 employees upwards. In 2024, its scope will be extended to all companies with 1,000 or more employees. Only when the European Union also implements a Europe-wide supply chain law will the legal framework advance to the SME sector. The proposal currently under discussion for the EU directive in the high-risk sectors of textiles, agriculture, and mining is 250 employees and €40 million in annual revenue. But it will probably take another four, perhaps five years before that happens.
In addition, the duty of care applies, which states that companies do not have to guarantee the prevention of violations. “However, they must do everything necessary to comply with their due diligence obligations. This is the only way they can avoid a fine,” says Christoph Schork of law firm Heuking Kühn Lüer Wojtek, who has been preparing clients for the introduction of the Supply Chain Act for the past two and a half years. “But it also means that a company may have to approach second-, third- or fourth-tier suppliers if there are concrete indications of forced labor,” Schork says.
A mammoth task. The larger a company, the broader its network. Several thousand direct suppliers are not the exception, but the rule for huge corporations with hundreds of thousands of employees. The painstaking work begins with a thorough risk analysis. Each risk must be evaluated internally and addressed based on its urgency. At the top of the list: suppliers from Xinjiang.
The law requires “substantiated knowledge” before the company’s responsibility also extends to the indirect supplier in the supply chain. In other words, there must be serious and verifiable indications of potential violations. “With the Uyghur issue, no one can say they were not aware of it,” says Schork. But there will be other cases where the suspicions are less obvious and companies may be tempted to feign ignorance.
Lawyer Schork, however, does not believe that feigning ignorance will pay off in the long run. “The fear of reputational damage that can result from such ignorance is likely to keep most companies from doing so.” In addition, companies have realized that they can benefit from true sustainability because they are following the social zeitgeist. Some are already making corresponding progress in their preparation.
For the time being, though, even experts are still at a loss as to what the specifics will be. “At the moment, we are all still looking into the black box. There is simply no best-practice solution,” says Schork. He also thinks the responsible Federal Office of Export Control and Economics “won’t set off a wave of sanctions” right after the law comes into effect. The authority, which is based in Niederlausitz, Germany, would first have to sort itself. However, if violations are found, it can impose fines of up to €8 million.
Politicians hope that whistleblowers will provide crucial support for companies. German companies must set up low-threshold channels through which complaints from all over the world about violations of labor or human rights can be submitted. Companies must also urge their suppliers to inform their own suppliers about the existence of these channels. “There are a variety of options when it comes to implementing due diligence. Questionnaires, audits, training courses are all possible – any appropriate measure will serve to fulfill the legal requirements and provide greater security,” says Schork.
Mr. Kerkhoff, war has been raging in Europe since the end of February. The German government is reacting very hesitantly to calls to extend the EU’s sanctions against Moscow to a full energy embargo, including gas. This would hit Russia hard, but also domestic industry. What is the steel industry’s position on such a step?
We all want the war in Ukraine to end as quickly as possible and Europe to become independent of raw materials from Russia for its supply security. But it is also our task as an industry to point out the consequences that a possible natural gas embargo would have. The steel industry is still dependent on natural gas until the switch to green hydrogen. We are doing everything we can to develop alternative sources of feedstock. But an immediate significant reduction in gas supply for steel through an embargo would have consequences for our plants. As we are a basic materials industry and are at the beginning of many value chains, there would be significant cascade effects.
Russia, too, could turn off the gas tap. How are you preparing for a possible gas supply freeze?
I believe that the German government sees very clearly that a supply freeze or embargo would have a massive impact on the industry and supply chains. There is no substitute for natural gas in the processes of the steel industry. We consume around 2.1 billion cubic meters of natural gas per year. That’s six percent of industrial demand and roughly as much as Berlin and Munich consume together. In addition, the gas supply is also important for plant safety. In some plants, technical damage occurs below a certain minimum demand.
So there is no contingency plan?
To shut down a blast furnace, you need a lead time of six months. This is an example of the complexity of our technical plants. We want to point out such interrelationships. And, of course, we have an interest in politicians deciding in such a way that our industrial power is not restricted.
A shutdown within six months would be just the right time to ease the gas supply next winter. Can’t the German steel industry shut down a blast furnace or two?
This should be avoided. The goal must be to maintain steel production and secure industrial supply chains. Strong basic industries are needed in Germany. Without them, the accelerated expansion of renewable energies, power grids, pipelines, or LNG ports, among other things, cannot be realized.
Russia is not only an important supplier of gas but also of raw materials for the steel industry. How is the shortage felt, and can it be compensated for better than that of gas?
A whole range of alloying metals is essential for stainless steel production. One example is pure nickel, 80 percent of which the EU imports from Russia. Here, however, companies are quite capable of compensating for the shortfalls caused by the war and finding other sources of supply, even if this entails considerable additional costs.
Concerns about a possible supply shortage are compounded by high energy prices. On the other hand, the price of steel has also really skyrocketed, not least due to the failure of Ukrainian and Russian producers. Which weighs more heavily?
We have around €2.7 billion in additional annual costs arising in the energy sector from the price increase for gas and electricity. This is a significant problem for the international competitiveness of companies. But it also raises the question of what this means for the green transformation. The steel industry intends to continue on its path. In terms of CO2 reduction, the steel sector is a low-hanging fruit as there are high emissions at a few locations. Now the costs are increasing to get this transformation process on track. Natural gas has so far been an important bridge for us on the road to hydrogen. If this path is now to be taken even faster, then greater momentum is also needed in politics to create the conditions for the industrial transformation to succeed.
The EU Commission and the German government are making efforts to make hydrogen available more quickly. On the other hand, desires are growing. The new energy carrier could perhaps also be used in heat generation, says economist Veronika Grimm. Does the steel industry now have to take a back seat when it comes to hydrogen?
The industrial turnaround will not succeed without hydrogen. I believe the German government has recognized that the steel industry is a litmus test for this. It has adopted a steel action plan, according to which the German steel industry would need a total of 2.2 million tons of hydrogen per year to achieve climate neutrality. There is no CO2-neutral alternative for our industry, and green hydrogen will remain a scarce commodity in the medium term. I also see that many are now saying they need hydrogen. We should conduct the discussion on a fact-based basis and ask where the use of one ton of green hydrogen reduces CO2 the most.
So no hydrogen for heating?
As the steel industry, we advocate that hydrogen should go where politics and society can achieve their CO2 targets most quickly and effectively.
Hydrogen comes not only from green energies. Economic Affairs Minister Robert Habeck has initiated partnerships in the Gulf for climate-neutral blue hydrogen from natural gas. France would like to sell pink hydrogen from nuclear power. They would like to produce green steel. Doesn’t the “green steel” label face the same debacle as the “green taxonomy”?
We have one goal and that is climate neutrality. 30 percent of steel comes not from blast furnaces but from scrap recycling in electric furnaces. If renewable electricity were secured for this, this steel share would already be largely climate-neutral. With the blast furnace route, completely new plants have to be built. For this transformation, we need hydrogen on the one hand, but we also need a whole box of instruments to shape the transformation in the midst of international competition – climate protection agreements, for example.
But what hydrogen will you use to make green steel – even blue?
The goal is to produce green steel based on green hydrogen, but in the next few years, we must first make use of the available gases. In the end, it’s a matter of getting the CO2 bill right. First, we need to replace our blast furnaces with direct reduction plants. They’ll be able to run on natural gas, but they’ll also be hydrogen-ready. Natural gas and climate-neutral hydrogen of a different color would then be a bridge to climate neutrality.
Some economists see an avalanche of subsidies rolling in from the climate treaties you advocate.
The production of green steel has higher operating costs than traditional production methods, and these must be offset by climate protection contracts. However, we do not want to become a permanent subsidy recipient with contracts for differences; the state cannot permanently compensate the steel industry for operating costs. At a certain point, green steel will have to find its markets on its own, including in international competition. That’s why, in addition to climate protection contracts, work must be done on ramping up markets for green steel.
According to economists Veronika Grimm and Ottmar Edenhofer, the contracts for differences are also incompatible with the existing emissions trading system. Subsidized industries would need fewer certificates, which would cause their price to fall, and other industries would only emit more. Would it be a fair deal for you if climate protection contracts cut the number of certificates?
The allocation of allowances is closely linked to the Brussels climate protection package Fit for 55 and the tightening of EU emissions trading contained therein, as well as the introduction of a CO2 limit offset. Unfortunately, the instruments we are discussing in Germany do not match what is being worked on at EU level. In Brussels, there are plans for a dynamic reduction in free allocations that will burden companies’ international competitiveness and deprive them of the investment power they need for transformation. We continue to believe that the free allocation of emission allowances is urgently needed.
This is in stark contrast to climate protectionists, who would like to see the allocation of free certificates scaled back even more quickly than previously planned. After all, they say, there are too many of them in circulation, which has made good business for the companies. Isn’t the industry ducking its obligation a little?
We do not expect the transformation to be financed by public funds alone. But from today’s perspective, we have a certificate shortfall of €5.7 billion in the period from 2026 to 2030. If the EU Commission’s planned reduction in free allocation takes place, the burden on the industry will amount to €16 billion in this period. We will no longer be internationally competitive and will no longer be able to meet the transformation costs.
Border adjustment is actually intended to mitigate the problem of competitive distortion and protect against carbon leakage.
We are not fundamentally opposed to border adjustment. However, as the Commission envisages it, it will be a burden on us because, firstly, exports are not taken into account at all. Secondly, this instrument is still completely untested, and its effectiveness risks being impaired by circumvention effects. It, therefore, needs to be tested first. ETS and CBAM must be thought of together and designed to fit the gradual transformation of the industry. We cannot convert all blast furnaces at once, and the planned linear meltdown of allowances and, what’s more, the introduction of benchmarks in which the new technologies are already to be factored in do not fit in with the gradual transformation of the steel industry. And, of course, we need effective carbon leakage protection. But what is currently being discussed in Brussels as part of the overall concept cannot provide this.
Would the climate club brought into play by Chancellor Olaf Scholz be a solution?
In principle, we welcome a climate club. As an industry, we do everything we can to exchange information with politicians: What situation are other countries in, what are the production structures. But I notice that the CO2 pricing systems or even ambitions that exist worldwide differ considerably. So a climate club is not a substitute for carbon leakage protection, but it is part of the overall package. Ultimately, the aim is to ensure that the industrial transformation succeeds, that we move towards climate neutrality, and that we can continue to compete internationally in the process.
At home, Benjamin Ledwon speaks English. With the people he meets on the street and in the stores in his Belgian homeland, he mostly communicates in French. And his working language is German. Born in Berlin, he studied in France and England and now lives in Brussels, where he already worked as a community service volunteer for a European NGO after graduating from high school. The 32-year-old is therefore a true European in the heart of Europe.
In his job, too, everything revolves around the political action of the association of states. After studying EU politics, Benjamin Ledwon first worked as an intern at the European Commission, then at the European Parliament, and then at the industry association Bitkom. For the past six months, he has been involved in European legislative processes as an employee of a major corporation. At present, new legislative proposals affecting his employer are coming from the Commission every week. Ledwon discusses them with his internal colleagues and then presents the results to the political decision-makers.
One topic that is currently of particular concern to Benjamin Ledwon is the green economy. “With the right to repair, for example, the Commission wants to ensure that electronic end devices can be used for longer. As a retailer, we are campaigning for manufacturers to be held responsible here because they have the know-how in terms of product design and produce the spare parts,” he explains.
Another important topic is the proposed legislation on the Digital Markets Act (DMA) and the Digital Services Act (DSA), which are intended to create new rules for digital markets and platforms. “As Telekom, we are a customer on the one hand, but also a competitor of gatekeeper platforms on the other, and we believe that clear dos and don’ts are necessary to keep digital markets open,” says Benjamin Ledwon.
The telecommunications industry, in particular, is highly regulated, so representing interests vis-à-vis politicians plays a particularly important role. This is precisely why the young policy expert chose Telekom as his employer. “In other companies, this tends to be something of a distant memory; here, it really is part of the core business, and the department reports directly to the CEO,” he says. What is called “Public & Regulatory Affairs” at Telekom is also commonly known as lobbying and is subject to some prejudices. “As a company, we present our concerns to the business community, just as NGOs do for civil society. That is an important and legitimate part of the political process,” says Ledwon.
Common clichés of lobbyists cultivating their networks in backroom conversations with a whiskey in one hand and a cigar in the other have little to do with his day-to-day work, says Ledwon: “Today, it’s no longer enough to be the best buddy; as a lobbyist, you have to be convincing above all through your arguments. That’s exactly why the former politics student feels quite at home in his position as Senior Expert European Affairs at Telekom. Janna Degener-Storr
Germany and its Western partners want to supply Ukraine with heavy weapons in the fight against Russian invading forces. On Tuesday, after a conference call with Western heads of state and government, German Chancellor Olaf Scholz announced that they would coordinate closely on the supply of military equipment. German solo efforts, on the other hand, would be a mistake, according to Scholz. Read the details of Scholz’s announcements in the News.
The German Supply Chain Act and the even stricter EU directive currently being negotiated in Brussels are designed to prevent forced labor, human rights violations, corruption, and environmental pollution. The photovoltaic industry, manufacturers of electrical components and cotton are particularly affected. These industries depend on supplies from the northwestern Chinese region of Xinjiang, where Muslim Uyghurs and other minorities suffer forced labor, according to the UN. Marcel Grzanna analyzes what impact the fair supply chain requirements actually have for companies in the three industries.
As very high emissions are concentrated in a few locations in the steel industry, the sector is seen as crucial in the green transformation of the economy. Hans Jürgen Kerkhoff, President of the German Steel Federation, speaks of a low-hanging fruit in significantly reducing CO2 pollution. In an interview with Manuel Berkel and Timo Landenberger, he calls for more support from policymakers to achieve this goal. The instruments envisaged by the EU are of little help in the changeover and pose a threat to international competitiveness, especially as the war in Ukraine is also presenting the sector with major challenges.
In the Profile of Benjamin Ledwon, you can read how the work of a lobbyist has changed from his perspective. He is Senior Expert for European Affairs at Telekom and thus responsible for representing the company’s interests in European legislation.
Pacifico Renewables Yield (PRY) has no illusions. The German company, based in Gruenwald near Munich, buys and operates solar and wind parks all over Europe. Any projects it invests in must meet high social and environmental standards. For financing, the company issues green bonds or obtains loans from sustainability banks with the strictest standards.
However, when it comes to China and sustainability, especially in the solar industry, CEO Martin Siddiqui knows very well that there are no guarantees. “The majority of components come from China, and there are suppliers who produce with fossil energy, or whose products are made through forced labor,” Siddiqui says. The company works as hard as it can to trace and audit companies further and more precisely along supply chains, the 37-year-old says. However, he cannot guarantee that all the modules installed in his company’s parks have been produced in a 100 percent sustainable manner.
Not even politicians want to force guarantees when the German Due Diligence Act comes into force next year. Commonly referred to as the Supply Chain Act, the law aims to make products and services from German companies more sustainable. Forced labor, human rights violations, corruption, environmental pollution – all of these are to be excluded from the value chain as far as possible from 2023 onwards wherever German companies are involved.
For companies, the introduction of the law offers a foretaste of the even stricter EU directive currently being negotiated in Brussels. Companies will then be threatened not only with fines, but also with millions of euros in damages claims from affected employees or their families. Companies may then have to dig deep into their pockets for labor law deficits at their suppliers if they do not take early and consistent action against risks of violations.
Now companies that source solar modules, electrical components, cotton, or tomatoes from Xinjiang wonder how they are going to manage to clean up their supply chains. The northwestern Chinese autonomous region is synonymous with human rights violations. The United Nations’ International Labor Organization (ILO) speaks of a “widespread and systematic” forced labor program. Primarily Uyghurs, but also Turkish and other Muslim minorities, are affected.
However, some industries are so dependent on supplies from Xinjiang that they can’t cover their demand from other sources within just a few years. A fifth of global cotton comes from Xinjiang, no other region in the world plants and harvests more tomatoes for the global market, and the photovoltaic industry also relies heavily on modules from China.
What now? “It is almost impossible to reliably prove that there is no forced labor in any of the high-risk products,” says Joachim Trebeck of the Cologne-based law firm Trebeck & von Broich. The labor lawyer nonetheless believes that the law makes sense because Germany, as an “interesting market, bundles its influence on other countries.” But Trebeck also says, “If a supplier wants to cheat, they will find ways and means.”
For PRY solar farm operators, that’s not yet a reason to get nervous. The Supply Chain Act will first only target the big players with 3,000 employees upwards. In 2024, its scope will be extended to all companies with 1,000 or more employees. Only when the European Union also implements a Europe-wide supply chain law will the legal framework advance to the SME sector. The proposal currently under discussion for the EU directive in the high-risk sectors of textiles, agriculture, and mining is 250 employees and €40 million in annual revenue. But it will probably take another four, perhaps five years before that happens.
In addition, the duty of care applies, which states that companies do not have to guarantee the prevention of violations. “However, they must do everything necessary to comply with their due diligence obligations. This is the only way they can avoid a fine,” says Christoph Schork of law firm Heuking Kühn Lüer Wojtek, who has been preparing clients for the introduction of the Supply Chain Act for the past two and a half years. “But it also means that a company may have to approach second-, third- or fourth-tier suppliers if there are concrete indications of forced labor,” Schork says.
A mammoth task. The larger a company, the broader its network. Several thousand direct suppliers are not the exception, but the rule for huge corporations with hundreds of thousands of employees. The painstaking work begins with a thorough risk analysis. Each risk must be evaluated internally and addressed based on its urgency. At the top of the list: suppliers from Xinjiang.
The law requires “substantiated knowledge” before the company’s responsibility also extends to the indirect supplier in the supply chain. In other words, there must be serious and verifiable indications of potential violations. “With the Uyghur issue, no one can say they were not aware of it,” says Schork. But there will be other cases where the suspicions are less obvious and companies may be tempted to feign ignorance.
Lawyer Schork, however, does not believe that feigning ignorance will pay off in the long run. “The fear of reputational damage that can result from such ignorance is likely to keep most companies from doing so.” In addition, companies have realized that they can benefit from true sustainability because they are following the social zeitgeist. Some are already making corresponding progress in their preparation.
For the time being, though, even experts are still at a loss as to what the specifics will be. “At the moment, we are all still looking into the black box. There is simply no best-practice solution,” says Schork. He also thinks the responsible Federal Office of Export Control and Economics “won’t set off a wave of sanctions” right after the law comes into effect. The authority, which is based in Niederlausitz, Germany, would first have to sort itself. However, if violations are found, it can impose fines of up to €8 million.
Politicians hope that whistleblowers will provide crucial support for companies. German companies must set up low-threshold channels through which complaints from all over the world about violations of labor or human rights can be submitted. Companies must also urge their suppliers to inform their own suppliers about the existence of these channels. “There are a variety of options when it comes to implementing due diligence. Questionnaires, audits, training courses are all possible – any appropriate measure will serve to fulfill the legal requirements and provide greater security,” says Schork.
Mr. Kerkhoff, war has been raging in Europe since the end of February. The German government is reacting very hesitantly to calls to extend the EU’s sanctions against Moscow to a full energy embargo, including gas. This would hit Russia hard, but also domestic industry. What is the steel industry’s position on such a step?
We all want the war in Ukraine to end as quickly as possible and Europe to become independent of raw materials from Russia for its supply security. But it is also our task as an industry to point out the consequences that a possible natural gas embargo would have. The steel industry is still dependent on natural gas until the switch to green hydrogen. We are doing everything we can to develop alternative sources of feedstock. But an immediate significant reduction in gas supply for steel through an embargo would have consequences for our plants. As we are a basic materials industry and are at the beginning of many value chains, there would be significant cascade effects.
Russia, too, could turn off the gas tap. How are you preparing for a possible gas supply freeze?
I believe that the German government sees very clearly that a supply freeze or embargo would have a massive impact on the industry and supply chains. There is no substitute for natural gas in the processes of the steel industry. We consume around 2.1 billion cubic meters of natural gas per year. That’s six percent of industrial demand and roughly as much as Berlin and Munich consume together. In addition, the gas supply is also important for plant safety. In some plants, technical damage occurs below a certain minimum demand.
So there is no contingency plan?
To shut down a blast furnace, you need a lead time of six months. This is an example of the complexity of our technical plants. We want to point out such interrelationships. And, of course, we have an interest in politicians deciding in such a way that our industrial power is not restricted.
A shutdown within six months would be just the right time to ease the gas supply next winter. Can’t the German steel industry shut down a blast furnace or two?
This should be avoided. The goal must be to maintain steel production and secure industrial supply chains. Strong basic industries are needed in Germany. Without them, the accelerated expansion of renewable energies, power grids, pipelines, or LNG ports, among other things, cannot be realized.
Russia is not only an important supplier of gas but also of raw materials for the steel industry. How is the shortage felt, and can it be compensated for better than that of gas?
A whole range of alloying metals is essential for stainless steel production. One example is pure nickel, 80 percent of which the EU imports from Russia. Here, however, companies are quite capable of compensating for the shortfalls caused by the war and finding other sources of supply, even if this entails considerable additional costs.
Concerns about a possible supply shortage are compounded by high energy prices. On the other hand, the price of steel has also really skyrocketed, not least due to the failure of Ukrainian and Russian producers. Which weighs more heavily?
We have around €2.7 billion in additional annual costs arising in the energy sector from the price increase for gas and electricity. This is a significant problem for the international competitiveness of companies. But it also raises the question of what this means for the green transformation. The steel industry intends to continue on its path. In terms of CO2 reduction, the steel sector is a low-hanging fruit as there are high emissions at a few locations. Now the costs are increasing to get this transformation process on track. Natural gas has so far been an important bridge for us on the road to hydrogen. If this path is now to be taken even faster, then greater momentum is also needed in politics to create the conditions for the industrial transformation to succeed.
The EU Commission and the German government are making efforts to make hydrogen available more quickly. On the other hand, desires are growing. The new energy carrier could perhaps also be used in heat generation, says economist Veronika Grimm. Does the steel industry now have to take a back seat when it comes to hydrogen?
The industrial turnaround will not succeed without hydrogen. I believe the German government has recognized that the steel industry is a litmus test for this. It has adopted a steel action plan, according to which the German steel industry would need a total of 2.2 million tons of hydrogen per year to achieve climate neutrality. There is no CO2-neutral alternative for our industry, and green hydrogen will remain a scarce commodity in the medium term. I also see that many are now saying they need hydrogen. We should conduct the discussion on a fact-based basis and ask where the use of one ton of green hydrogen reduces CO2 the most.
So no hydrogen for heating?
As the steel industry, we advocate that hydrogen should go where politics and society can achieve their CO2 targets most quickly and effectively.
Hydrogen comes not only from green energies. Economic Affairs Minister Robert Habeck has initiated partnerships in the Gulf for climate-neutral blue hydrogen from natural gas. France would like to sell pink hydrogen from nuclear power. They would like to produce green steel. Doesn’t the “green steel” label face the same debacle as the “green taxonomy”?
We have one goal and that is climate neutrality. 30 percent of steel comes not from blast furnaces but from scrap recycling in electric furnaces. If renewable electricity were secured for this, this steel share would already be largely climate-neutral. With the blast furnace route, completely new plants have to be built. For this transformation, we need hydrogen on the one hand, but we also need a whole box of instruments to shape the transformation in the midst of international competition – climate protection agreements, for example.
But what hydrogen will you use to make green steel – even blue?
The goal is to produce green steel based on green hydrogen, but in the next few years, we must first make use of the available gases. In the end, it’s a matter of getting the CO2 bill right. First, we need to replace our blast furnaces with direct reduction plants. They’ll be able to run on natural gas, but they’ll also be hydrogen-ready. Natural gas and climate-neutral hydrogen of a different color would then be a bridge to climate neutrality.
Some economists see an avalanche of subsidies rolling in from the climate treaties you advocate.
The production of green steel has higher operating costs than traditional production methods, and these must be offset by climate protection contracts. However, we do not want to become a permanent subsidy recipient with contracts for differences; the state cannot permanently compensate the steel industry for operating costs. At a certain point, green steel will have to find its markets on its own, including in international competition. That’s why, in addition to climate protection contracts, work must be done on ramping up markets for green steel.
According to economists Veronika Grimm and Ottmar Edenhofer, the contracts for differences are also incompatible with the existing emissions trading system. Subsidized industries would need fewer certificates, which would cause their price to fall, and other industries would only emit more. Would it be a fair deal for you if climate protection contracts cut the number of certificates?
The allocation of allowances is closely linked to the Brussels climate protection package Fit for 55 and the tightening of EU emissions trading contained therein, as well as the introduction of a CO2 limit offset. Unfortunately, the instruments we are discussing in Germany do not match what is being worked on at EU level. In Brussels, there are plans for a dynamic reduction in free allocations that will burden companies’ international competitiveness and deprive them of the investment power they need for transformation. We continue to believe that the free allocation of emission allowances is urgently needed.
This is in stark contrast to climate protectionists, who would like to see the allocation of free certificates scaled back even more quickly than previously planned. After all, they say, there are too many of them in circulation, which has made good business for the companies. Isn’t the industry ducking its obligation a little?
We do not expect the transformation to be financed by public funds alone. But from today’s perspective, we have a certificate shortfall of €5.7 billion in the period from 2026 to 2030. If the EU Commission’s planned reduction in free allocation takes place, the burden on the industry will amount to €16 billion in this period. We will no longer be internationally competitive and will no longer be able to meet the transformation costs.
Border adjustment is actually intended to mitigate the problem of competitive distortion and protect against carbon leakage.
We are not fundamentally opposed to border adjustment. However, as the Commission envisages it, it will be a burden on us because, firstly, exports are not taken into account at all. Secondly, this instrument is still completely untested, and its effectiveness risks being impaired by circumvention effects. It, therefore, needs to be tested first. ETS and CBAM must be thought of together and designed to fit the gradual transformation of the industry. We cannot convert all blast furnaces at once, and the planned linear meltdown of allowances and, what’s more, the introduction of benchmarks in which the new technologies are already to be factored in do not fit in with the gradual transformation of the steel industry. And, of course, we need effective carbon leakage protection. But what is currently being discussed in Brussels as part of the overall concept cannot provide this.
Would the climate club brought into play by Chancellor Olaf Scholz be a solution?
In principle, we welcome a climate club. As an industry, we do everything we can to exchange information with politicians: What situation are other countries in, what are the production structures. But I notice that the CO2 pricing systems or even ambitions that exist worldwide differ considerably. So a climate club is not a substitute for carbon leakage protection, but it is part of the overall package. Ultimately, the aim is to ensure that the industrial transformation succeeds, that we move towards climate neutrality, and that we can continue to compete internationally in the process.
At home, Benjamin Ledwon speaks English. With the people he meets on the street and in the stores in his Belgian homeland, he mostly communicates in French. And his working language is German. Born in Berlin, he studied in France and England and now lives in Brussels, where he already worked as a community service volunteer for a European NGO after graduating from high school. The 32-year-old is therefore a true European in the heart of Europe.
In his job, too, everything revolves around the political action of the association of states. After studying EU politics, Benjamin Ledwon first worked as an intern at the European Commission, then at the European Parliament, and then at the industry association Bitkom. For the past six months, he has been involved in European legislative processes as an employee of a major corporation. At present, new legislative proposals affecting his employer are coming from the Commission every week. Ledwon discusses them with his internal colleagues and then presents the results to the political decision-makers.
One topic that is currently of particular concern to Benjamin Ledwon is the green economy. “With the right to repair, for example, the Commission wants to ensure that electronic end devices can be used for longer. As a retailer, we are campaigning for manufacturers to be held responsible here because they have the know-how in terms of product design and produce the spare parts,” he explains.
Another important topic is the proposed legislation on the Digital Markets Act (DMA) and the Digital Services Act (DSA), which are intended to create new rules for digital markets and platforms. “As Telekom, we are a customer on the one hand, but also a competitor of gatekeeper platforms on the other, and we believe that clear dos and don’ts are necessary to keep digital markets open,” says Benjamin Ledwon.
The telecommunications industry, in particular, is highly regulated, so representing interests vis-à-vis politicians plays a particularly important role. This is precisely why the young policy expert chose Telekom as his employer. “In other companies, this tends to be something of a distant memory; here, it really is part of the core business, and the department reports directly to the CEO,” he says. What is called “Public & Regulatory Affairs” at Telekom is also commonly known as lobbying and is subject to some prejudices. “As a company, we present our concerns to the business community, just as NGOs do for civil society. That is an important and legitimate part of the political process,” says Ledwon.
Common clichés of lobbyists cultivating their networks in backroom conversations with a whiskey in one hand and a cigar in the other have little to do with his day-to-day work, says Ledwon: “Today, it’s no longer enough to be the best buddy; as a lobbyist, you have to be convincing above all through your arguments. That’s exactly why the former politics student feels quite at home in his position as Senior Expert European Affairs at Telekom. Janna Degener-Storr
