According to a recent study by the Potsdam Institute for Climate, countries that have limited potential for renewable energy could reduce their costs for green steel by up to 20 percent and green chemicals from green hydrogen by up to 40 percent. This could be achieved by relocating their energy-intensive production to countries where renewable energy is more affordable and then importing the finished products.The Potsdam Institute for Climate Impact Research (PIK) has found that a “renewables pull” could lead to strong incentives for businesses to invest in low-emission production facilities in countries rich in renewable resources. This would allow renewable-scarce countries to focus on down-stream production and refinement as a way to secure industrial competitiveness. “Our new study indicates that renewable-scarce countries such as parts of the EU, Japan, and South Korea could save between 18 to 38 percent in production costs,” said Philipp Verpoort, a scientist at PIK and the lead author of the study published in Na.Future Energy. “One solution is for countries to move their production of industrial raw materials, such as green steel and chemicals based on green hydrogen, to nations with inexpensive renewable energy.” The utilization of renewable electricity and green hydrogen is a vital method for reducing greenhouse gas emissions during the manufacturing of steel and chemicals. Nonetheless, not all developed nations may be capable of producing these materials in large enough quantities and at competitive prices in the long run due to their geographical conditions. “If these nations focus on producing green hydrogen within their borders or importing it, it will be expensive for both the industry and the society.”It could also lead to a dead-end by causing a lack of long-term competitiveness in global markets. Bringing in industrial intermediate goods like iron sponge, ammonia, or methanol and prioritizing downstream production and refinement may be a more cost-effective and resilient strategy for ensuring competitiveness,” Verpoort stated.
Importing hydrogen by ship could impede the long-term competitiveness of hydrogen-based value chains
In order to reach these findings, the researchers examined the green value chains of three key raw materials: steel, urea, and ethylene. They assert that a difference in electricity prices of4ct/kWh is projected to be the cost of transferring renewable energy between countries with limited resources (such as Germany, Japan, or South Korea) and more advantageous locations (like Australia, Chile, or South Africa) by the year 2040. The study also evaluated the cost efficiency of various decarbonization tactics by comparing different trade options, including importing industrial and intermediate products, hydrogen, or opting for full domestic production. The findings suggest that significant cost savings could be achieved through relocation, and importing hydrogen may not be a financially viable strategy.
Especially when imports occur via ship.
The research also examines other factors that will impact companies’ investment choices, such as the advantages of short and integrated value chains, the reliability of supply chains, quality requirements, and government subsidies for low-emission production. However, the authors believe that these factors alone are unlikely to prevent a partial ‘green relocation’ of production, considering the significant cost savings identified in the study.
Green relocation: transforming trade patterns can be a global win-win scenario
“We anticipate a global reconfiguration of trade patterns…Change in energy-intensive industry sectors’ trade and production is expected. Production is likely to move to countries with abundant renewable resources and away from regions with limitations in this area. Supporters of expensive, permanent industrial policies aimed at protecting national production often label this shift as ‘deindustrialization.’ However, Falko Ueckerdt, Senior Scientist at PIK and co-author of the study, argues that this term is inaccurate and misleading. He explains that only the initial stages of the long value chains of energy-intensive basic materials are likely to be relocated. This shift presents a potential opportunity.This situation is a win-win for both importing and exporting countries. Developing countries with affordable access to renewable energy sources have the opportunity to become exporters and benefit from industrialization. Meanwhile, industrialized countries can concentrate on their economic strengths by specializing in industrial activities that generate the most economic value from scarce and costly green energy, such as producing green steel from sponge iron and further processing it.”
Journal Reference:
- Philipp C. Verpoort, Lukas Gast, Anke Hofmann, Falko Ueckerdt. Impact of globalThe impact of diverse renewable energy sources on heavy industrial production and environmentally-friendly supply chains. This study was published in Nature Energy in 2024 and can be accessed at DOI: 10.1038/s41560-024-01492-z.