The path to decarbonisation of Romania`s industry

EnergyTechnical ArticlesSouth-East European INDUSTRIAL Мarket - issue 2/2024 • 04.06.2024

As an upper-middle-income industrial country in Central and Eastern Europe (CEE), the Romanian economy still reflects the legacy of its communist era. Industry (including construction) contributes 18,3% to national gross value added (GVA), 11% more than the EU average in 2021, Eurostat data shows. According to the World Bank however, the value added of industry to the Romanian economy has stagnated since 2000 and is now below average among middle-income countries as a percentage of GDP. 

 

The value added and competitiveness of specific manufacturing sectors have also changed. The manufacturing of steel, cement, and glass, which are products of medium technology intensity, has decreased in value added, as a proportion of national GVA, Industrial Analytics Platform (IAP) states. At the same time, some manufacturing sectors of higher technology intensity (such as automotive and machinery manufacturing), but also medium (rubber and plastics) and lower technological intensities (furniture) have increased, and today are the most important manufacturing contributors to the Romanian economy, aside from food and drink manufacturing.

The most drastic decrease in value added over the last decade is in basic metals manufacturing (70% decrease in value added, significantly higher than the EU average of 23,4% decrease), as well as in coke and refined petroleum products and fabricated metals manufacturing.

The decrease in value added of these sectors was generally accompanied by decreases in production, although production increased for some products such as alloyed steel produced in electric arc furnaces and hot-rolled bars and heavy sections, Eurostat data shows. Production of fertilizers also decreased; even before the recent energy price crisis, which has forced closures in Romanian fertilizer plants, production of ammonia and urea had declined by 20 – 30%.

In terms of industry competitiveness, Romanian exports have also seen a shift which broadly reflects the trends in GVA. In general, the share of Romania’s low- and middle technology intensity products in total manufactured exports has been decreasing year-on-year since 1995, being replaced by the high-tech manufacturing that made up 62% of manufacturing exports in 2020. Romania’s trade balance for manufactured goods is currently in deficit, whereas in 1995 the country was a net exporter of middle technology intensity products according to IAP data.

Romania’s industry employed nearly 1,2 million people in 2021, around a fifth of the total active workforce. The automotive, food and drink, textiles, rubber and plastics and fabricated metal products sectors are the most important industrial employers in Romania. Of the energy-intensive manufacturers of intermediate products, the largest employers are in the sectors of cement, lime, and glass (48 237 employees), metallurgy (29 131), and chemicals (24 414). The largest companies in terms of personnel in these sectors are Liberty Galati (4987 employees, nearly one-sixth of Romania’s metallurgical industry, in 2021), aluminium producer Alro (2479 employees in 2021), and Chimcomplex (1919 employees in 2021).

“While the total number of employees in Romania has increased slightly since 2008, the number of those employed in manufacturing industries declined by 12%. The steepest declines were in the mining sector, particularly in fossil fuel extraction, but some manufacturing industries also saw significant declines, mostly in line with GVA trends: coke and refined petroleum products manufacturing (73% decrease), metallurgy (41%) and chemicals manufacturing (34% decrease). On the other hand, the manufacturing of rubber, plastics, and paper products, and sectors of higher technology intensity, increased their workforce by 23% – 50% over the same period”, states Romania’s National Institute of Statistics.

 

Emission levels

Greenhouse gas (GHG) emissions from Romania’s industrial sector declined between 1990 and 2019, primarily due to the gradual closing or downscaling of extremely energy- and resource-intensive industrial facilities. According to IAP data, the CO2 intensity of manufacturing has also decreased since 2000 but remains above the EU average (0,28 kg CO2/constant 2015 US dollar, compared to 0,16). In 2020, emissions generated by Romania’s manufacturing and construction industries amounted to 25,4 Mt of CO2 emissions, or 34,2% of total CO2 emissions (excluding land-use, land-use change and forestry, LULUCF).

The share of national emissions contributed by emissions from fuel combustion in manufacturing and construction has decreased by a third since 1990. This is broadly in line with the decrease in Romania’s economy-wide emissions, and indicative of a general trend to switch away from carbon-intensive fuels. However, the share of industrial process and product use (IPPU) emissions, which are emitted during the manufacturing processes themselves, has stagnated.

Despite this decline in emissions, Romania’s industry still contributes a higher overall share of total national emissions compared to the EU average. CO2 emissions from fuel combustion for manufacturing industries and construction made up nearly 20% of national emissions, compared to 15,2% at EU level, mainly driven by cement, lime and glass (4,9% of all CO2 emissions in 2020) and chemicals (4,9% of all CO2 emissions). IPPU emissions in Romania also contribute more to national CO2 emissions than the EU average (14,4% in 2020, compared to 8,3%), driven by cement, iron and steel, and ammonia production. IPPU emissions from ammonia production make up 99% of IPPU emissions in Romania’s chemicals industry, compared to 45% at EU level.

Romania’s industrial landscape has changed fundamentally in the last 30 years, primarily on a trend of progressive deindustrialisation, but maintaining a higher-than-EU-average contribution of industrial manufacturing to the economy and to national emissions. This is broadly similar to other countries in the CEE region; for example, the production of non-metallic mineral products (which includes cement, lime, and glass) makes up a higher-than-average share of emissions in most CEE countries, Eurostat data shows.

There are some differences in the carbon footprint of industry within the region: Hungary and the Czech Republic both have lower CO2 emissions per unit value added from their industries than Romania, while Bulgaria’s are significantly higher. However, the situation of industry in Romania and CEE is dynamic, and the trend of deindustrialisation may be partially reversed with the reopening of facilities and investments in new technologies.

 

On the way to a decarbonised future

The landscape of steel, cement and chemicals manufacturing in Romania has changed substantially over the last three decades. Although on a progressive trend of deindustrialisation, the Romanian manufacturing industry is still a major contributor to the national economy, employment and emissions. The steel, cement and chemicals manufacturing sectors each exhibit their own characteristics and challenges, but the common challenges of heavy dependence on energy and key natural resources place technological transformation, demand management, and new processes at the head of Romania’s industrial future, states a 2023 Energy Policy Group (EPG) report.

“Romania’s industry needs to undergo a deep transformation for the national economy to reach net zero emissions by 2050 and meet EU targets. In a balanced scenario, the penetration of technologies such as hydrogen-based direct reduction of iron (DRI) in steelmaking, the use of alternative fuels (including electrification and zero-carbon hydrogen and biomass use), material efficiency and substitution (particularly in the cement and construction industries, respectively) and the use of carbon capture must all play a significant role in Romania’s industry”, conclude EPG experts.

This would lead to a drastic decrease in emissions from the cement, ceramics and steel industries, coupled with an increased demand for wood as a material substitute, and hence higher emissions from wood production. Implementation of these measures would bring the total energy demand of Romania’s industry to half of 2015 values by 2050 and reduce its GHG emissions to 2,67 Mt CO2-eq per year, equivalent to just over half of the current emissions of Liberty Steel Galati.

“This transformation of Romania’s industry is beginning to emerge in the investment plans of major industrial producers. Some have submitted applications for funding renewable energy projects, committed to investing in carbon capture and storage or utilization, and elaborated plans for transitioning to low-carbon processes. These plans align on three major directions for deep industrial decarbonisation: electrification and the use of renewable electricity, the use of hydrogen, and carbon capture. Demand management will also play a role in reducing resource consumption and encouraging low-carbon production”, EPG’s report says.

However, while investments in these directions could shift the resource consumption landscape and generate new value chains, their planning is fragmented as Romania currently has no roadmap for industrial decarbonisation. This is particularly challenging given the declining number of new investment cycles before 2050 and the scale of the transformation that must be achieved. Reaching net zero emissions by 2050 in the balanced scenario requires a massive reduction in natural gas consumption by industry, driven by the electrification of low-temperature industrial heat production, and the use of clean hydrogen and biomethane. At the same time, under this scenario industry must capture and store 1,16 Mt of its CO2 emissions yearly by 2030, reaching 3 Mt CO2 per year by 2050. Today, however, most hydrogen produced in Romania is through the emissions-intensive steam methane reforming process, and there are no large-scale carbon capture and storage projects.

The scale of Romania’s industrial decarbonisation challenge is therefore significant, but certain characteristics of the Romanian industrial sector may create or enhance existing opportunities for meeting this challenge. Firstly, as shown in EPG’s report, industrial manufacturing sectors are important contributors to the Romanian economy, and as such benefit from public and institutional buy-in to modernising industrial production, particularly if the alternative is the closure of facilities. Secondly, six counties in Romania will benefit from funding under the Just Transition Mechanism, including those which are home to Liberty Steel Galati, Azomures, and the OMV Petrom Petrobrazi refinery. While this funding is likely to be mostly directed towards social safeguards for employees of carbon-intensive industries, they are an important driver for rethinking local economies and developing new businesses, including in industrial hubs.

Thirdly, the significant potential of Romania for renewable energy (including offshore wind in the Black Sea, hydrogen production and natural gas production can propel large-scale fuel switching to support industry decarbonisation. Large-scale wind and solar energy projects can reduce the carbon intensity of Romania’s grid, propagate the benefits of reduced scope 2 emissions to industrial facilities looking to electrify, and enable the production of green hydrogen.

Hydrogen production can help not only decarbonise Romanian industry, but also generate new business opportunities for existing and future industrial facilities, EPG claims. Finally, Romania has potentially significant geological CO2 storage capacities: 514 Mt in onshore hydrocarbon deposits only, and likely more in deep saline aquifers. Both types of storage sites are often times situated close to heavy industry facilities. A market could also be developed for utilizing captured CO2 – however, a thorough life-cycle assessment must be performed on the envisaged utilisation pathways.

To make the most of these opportunities and drive industrial decarbonisation at scale and at pace, several actions must be taken at national level. Firstly, Romania must implement a national strategy for industrial decarbonisation. Deep emissions reductions in industry are currently not discussed in an integrated manner and are not the concrete responsibility of any public institution. In some cases, the approach to funding industrial decarbonisation technologies is unclear – for example, financing from the EU Modernization Fund has been directed towards energy efficiency in industry, including enabling carbon capture (despite carbon capture incurring an energy penalty, and not contributing to energy efficiency).

The revision of the National Energy and Climate Plan (NECP) and publication of its Long-Term Strategy for climate neutrality (both expected in 2023) can act as a launchpad for establishing a national industrial decarbonisation strategy for Romania.

A national strategy for industrial decarbonisation must be accompanied by a comprehensive framework for financing, including more proactivity on supporting applications for large-scale EU funding, such as the Innovation Fund, 50 and an analysis of the potential for using EU ETS revenues to fund industrial decarbonisation.
“Financing frameworks should also seek to stimulate private finance, tapping into the potential of products such as loan guarantees or models such as public-private partnerships for driving large-scale industrial decarbonisation. Following an economy-wide approach to industrial decarbonisation, sector-specific decarbonisation strategies can help address the inherent differences in decarbonisation pathways between major industrial sectors. These should incentivize the deployment of solutions on a “ladder” basis, providing support based on emissions reduction potential, states EPG’s report.

Strategies for the deployment of specific technologies, such as hydrogen or CCS, can further support R&D, funding, and infrastructure for deploying these capital-intensive solutions. Clarifying institutional responsibility for implementing industrial decarbonisation strategies will also be key, with the Ministry of Economy likely playing a central role, and coordinating with the Ministries of Energy and Environment.

Other enablers of industrial decarbonisation are R&D, stakeholder cooperation and enabling infrastructure. Fostering R&D by financing pilot and demonstration projects can help to propel industrial decarbonisation, benefitting from Romania’s numerous research institutions and universities with specialization in science and engineering.

However, funding for R&D must be significantly boosted to enable this. Stakeholder cooperation, particularly in the case of pursuing low-carbon industrial hubs, is key to exchange knowledge, build resilient partnerships, and aggregate demand for relevant resources and infrastructure. Finally, investments in reinforcement of the power grid and in major infrastructure for hydrogen and CO2 transport and storage are key to accelerate the implementation of decarbonisation technologies, but also to ensure that industrial emitters who are more “isolated” from industrial hubs are able to access solutions such as hydrogen and CCS in a cost-effective way.

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