By Miyoung Kim
POHANG, South Korea (Reuters) - A wall of heat and sulfur from a towering furnace stoked to 1,500 degrees Celsius hits onlookers at POSCO's Pohang plant in South Korea amid the din of coal and iron ore rattling into vats of molten metal.
Pohang's oldest furnace, with a 35-year history, helped POSCO grow into the world's No.4 steel giant.
But it could soon become a thing of the past as POSCO, which alone produces around 10 percent of South Korea's total carbon dioxide emissions, moves to new technology to cope with stricter emission rules.
Carbon dioxide, the main greenhouse gas, is produced from burning fossil fuels to run industry and big emitters such as steelmakers are now rushing to improve energy efficiency as South Korea prepares to join a global move in tackling climate change.
The wealthy country, Asia's fourth-ranked economy, is coming under pressure from poorer nations who say rich states must do more to rein in their growing greenhouse gas emissions.
South Korea, the world's 10th largest CO2 emitter, plans to announce its target for greenhouse gas reduction next year, as world nations try to agree on a replacement for the U.N.'s Kyoto Protocol that will bind all nations to emissions curbs.
Kyoto's current phase, which ends in 2012, binds only 37 rich countries to curbs and excludes big developing states.
South Korea is not among those 37 because it was deemed to be a developing nation when the protocol was negotiated in the mid-1990s.
"Given that Korea's economy is based on energy-intensive industries such as petrochemical, steel and manufacturing, it is difficult to lower carbon emission levels dramatically," said Hwang Byung-so, a manager in charge of climate change policy in the prime minister's office.
"But we'll prepare measures that are in line with our economic status in the world and will contribute to global moves toward cutting greenhouse gas emissions."
LOWER COSTS
POSCO's strategy centers on a new technology called FINEX, which is jointly developed with German firm Siemens as an alternative form of iron making to the decades-old blast furnace.
FINEX reduces greenhouse gas emissions and allows producers to use cheaper raw materials such as ore fines and non-coking coal, a strategy that pays off at a time when coking coal and iron ore prices almost tripled and doubled respectively.
"There are not many things we can do about soaring raw materials other than raising product competitiveness with new technology," Hwang Eun-yeon, POSCO's senior vice president of marketing strategy said.
"New technology is helping us offset cost pressure as seen in FINEX, which lowers input costs by 10 percent on average. Behind our high profitability over the past three years was such cost-saving efforts worth more than 3 trillion won ($2.6 billion)."
POSCO, which is growing margins faster than its peers thanks to its cost advantage, wants to cut the carbon dioxide emitted in producing every tonne of steel by 4 percent over the next four years and plans to use FINEX technology when it builds a $12 billion plant in India and $5 billion project in Vietnam.
Citigroup estimates FINEX saves POSCO about 8 percent on raw materials and 18 percent on capacity expansion, compared with blast furnace peers in China and Japan.
A cap-and-trade emissions system, similar to the one in Europe, is another way to lure companies to cut greenhouse gas output.
South Korea is likely to promote trading of U.N.-managed certified emission reductions (CERs) and expand its own version called KCERs to encourage companies to cut greenhouse gas pollution.
Cap-and-trade systems offer incentives to companies to cut emissions. Firms that overshoot targets have to buy emission rights from those who have kept within their targets.
In the $13 billion Clean Development Mechanism (CDM) market, a trading scheme under the Kyoto Protocol, companies from rich nations can invest in clean-energy projects in developing countries. In exchange, they receive offset credits, called CERs, which they can use toward their emissions targets or sell for profit.
GLOBAL ACTION
The need for emission cuts is urgent for many steel firms because the sector accounts for about 4 percent of total world greenhouse gas emissions. Environmentalists are also urging greater efficiencies in the sector.
More than 90 percent of the sector's emissions come from 27 European Union members and eight iron-producing countries including China, India and South Korea, according to the International Iron and Steel Institute (IISI).
IISI backs a global sectoral approach in tackling emissions instead of cap-and-trade systems.
POSCO's move is in line with IISI's position, which highlights the need for new technology to reduce carbon emission and raising energy efficiency.
"Imposing mandatory cap-and-trade limits will virtually make it impossible for steel makers to increase output and only reduce their competitiveness," said An Yun-ki, a research fellow at POSRI, an independent steel research firm.
"The world may have to come up with measures that balance industrial demand with national binding targets."
(Reporting by Miyoung Kim; Editing by Keiron Henderson and David Fogarty)
($1 = 1,214 won)
