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Reports of CDM/JI Feasibility Studies: FY2008

Title of Feasibility Study (FS)CDM Feasibility Study on Direct Reduction Iron Production by Utilizing Coke Oven Gas in Hebei Province, China
FYFY 2008
Main Implementing EntityMizuho Information & Research Institute, Inc.
FS Partner(s)Kyushu Electric Power Co.; and Beris Engineering & Research Corporation
Location of Project ActivityChina (Hebei Province)
Summary of FS ReportPDF (439KB)
Description of Project ActivityBeris Engineering & Research Corporation has conducted technological development to utilize unused coke oven gas (COG), with governmental policies to promote energy efficiency and environment protection in China. Specifically, COG is used as reducing agent instead of coke for integrated blast furnace-converter (BF-C) steelmaking, the most common production approach in China's iron & steel industry. Direct reduction iron (DRI), the iron produced with COG as reducing agent, and also called as sponge iron, is used as raw material for crude steel production in electric furnace. This project is conducted in a new DRI plant with 170,000 tons of annual production capacity, in cooperation with a local company in Tangshan City, Hebei Province, whose coke production is 120Mt/yr. Sponge iron produced in the plant is transported to an electric furnace to be used as raw material for crude steel production.
This technology, in addition to replacing reducing agent from coke to COG, transforms steelmaking approach itself from the conventional integrated BF-C method to a more energy efficient one using direct reduction furnace and electric furnace (DRF-EF). CO2 emissions from BF-C and DRF-EF are 1,818kgCO2/t-crude steel and 1,099kgCO2/t-crude steel, respectively, which reduces emissions by 719kgCO2/t-crude steel, cutting more than 50%. The DRI plant in this project is capable to produce approx. 150 kt-crude steel, therefore, annual emission reduction is estimated at approx. 110 kt-CO2/yr. This project is planned to start for January 2010, taking into account construction phase of the DRF.
This project is to produce crude steel from energy efficient DRF-EF steelmaking approach by utilizing COG. It will contribute to save coke resources and to reduce energy consumption and pollutants emissions in crude steel production processes, as well as for China’s sustainable development.
Targeted GHGCO2
Category of Project ActivityOthers (Waste Gas Utilisation)
Duration of Project Activity/ Crediting Period2010 - 2030 / 2010 - 2019
Baseline Scenario (including Methodology to be applied)A new methodology is applied to this project. The project is for CO2 emission reduction through replacement of conventional integrated steelmaking with blast furnace and converter (BF-C), the common approach for crude steel production in the area where this project is implemented, to direct reduction steelmaking with direct reduction furnace and electric furnace.
Baseline emission is determined by calculating CO2 emission intensity (per ton of crude steel production) from integrated BF-C steelmaking which is multiplied by crude steel production in the project case. For obtaining the emission intensity, divide crude steel production into processes of (1) coke oven, (2) sintering furnace, (3) pellet production, (4) blast furnace, and (5) converter; each of them multiplied by CO2 emission per ton of crude steel production; and then summed up.
Demonstration of AdditionalityStep 1: Identification of alternatives to the project activity consistent with current laws and regulations
There is no approved methodology applicable to this project. Alternative scenarios are prepared by following the new methodology “Methodology for Project of Producing Crude Steel through direct reduction approach using coke gas oven”. Most realistic and plausible alternative scenario regarding COG utilization is utilization of COG for energy purpose which is not included in the project boundary. Meanwhile, the most realistic and plausible alternative scenario for steelmaking is BF-C steelmaking using coke. Both scenarios satisfy the current laws and regulations.
Step 2: Investment analysis
In iron & steel industry in the host country, a threshold for investment decision-making is either investment recovery period within six years or IRR at 20% or above, which is considered as a benchmark. In this project, investment recovery period is 8.6 years and IRR is 10.2 % if no profit is generated from selling CER, not satisfying the benchmark. On the other hand, considering profit from selling CER, investment recovery is for 2.9 years and IRR at 33.5 %, improving conditions for investment decision-making.
Step 3: Barrier analysis
No barrier analysis to be conducted, since Step 2 is implemented.
Step 4: Common practice analysis
In the past or on-going cases, no activity similar to the proposing project activity has been conducted.
Estimation of GHG Emission ReductionsBaseline emissions: 280,938tCO2/yr
Project case emissions: 169,824tCO2/yr
GHG emission reductions: 111,114tCO2/yr
Monitoring Plan (including Methodology to be applied)For calculation of the baseline emission, all value is determined before the project starts (ex-ante). Therefore, there is no monitoring item and variable for baseline case.
For project case, items to be monitored are (a) direct reduction furnace in which pellet is directly reduced, (b) variable regarding emission intensity in electric furnace in which crude steel is produced with sponge iron supplied from DRF, and (c) crude steel production. These data are supposed to be monitored by project operators.
Environmental Impact AnalysisEnvironmental impact analysis is essential for project implementation, and relevant measures are required to be implemented for air environment, water environment and noise. Among those, air environment is placed an importance: SO2, NO2 and TSP is subject to satisfy national standards in terms of outlet concentration or air concentration within a certain area from emission source. As long as satisfying such standards, environmental impact of this project is at a level not causing problems.
Issues and Tasks for Project MaterialisationAs described in investment analysis, this project is less attractive for investors if not registered as CDM. In contrast, due to its scale of emission reduction, considerable benefit will be generated from CDM registration. However, several issues were pointed out for CDM registration and project implementation, while impacts from recent economic crisis wouldn't be neglected.
  • For CDM registration: this project needs a new methodology: it consumes certain time and money until registration. Moreover, an issue remains if the evidence would be enough strong to demonstrate technology, the direct reduction approach using COG, as there is no commercial example for this case.
  • For project implementation: This project includes construction of a new DRF. Related departments gave verbal responses that there would be no problem in regulations. However, other risks still remain including delays in construction, etc.
  • Impacts of economic crisis: Fall of demand is concerned in iron & steel and then in coke. Attention should be paid if the COG provider would keep stable operation with their coke oven or if constant sales of product from this project, crude steel, could be maintained.
Co-benefits EffectsPollution prevention effect of this project is to eliminate COG emission from coke production as in the baseline, which leads to mitigate environmental impacts. If assuming mitigation of external environmental cost as co-benefit index, the mitigation effect is estimated at approx. 343,000 yen/yr at maximum. This result seems somewhat small in absolute value, however, it should be in mind that this value reflects the willingness-to-pay (WTP) in Japan for damage avoidance of environmental burden. The effects to mitigate air pollution in China should be more highly evaluated.

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