MMK to trade ERUs

UrBC, Magnitogorsk, Chelyabinsk Region, January 20, 2011. Russia’s Ministry for Economic Development approved of a program for the introduction of electric steel-smelting technologies at Magnitogorsk Iron & Steel Works (MMK) as a JI project run in accordance with the Kyoto Protocol and the United Nations Framework Convention on Climate Change regulations. The result is that MMK is now the joint implementation project’s investor with a granted right to sell its emission reduction units (ERUs) in accordance with the Kyoto Protocol mechanisms.

The JI project mechanism described in Article 6 of the Kyoto Protocol makes it possible for the Russian companies to engage in various projects that, in addition to their other economic and environmental effects, result in reduced greenhouse gas emissions. Once the projects have been approved by the participant states’ authorized bodies, the so-called ERUs are issued for the emission cuts that actually took place and were documented that can be traded on the international carbon market. Therefore the project’s investor makes some extra profit, which enhances the project’s economic efficiency and partially makes up for the implementation costs.

In 2004 to 2006, MMK launched a large-scale reconstruction of its steelmaking facilities: the company switched to continuous casting and replaced its open-hearth process with the electric steel-smelting one. This greatly improved on Russia’s largest metallurgical enterprise’s production capacity, as it started making up to 4 million tons of high quality steels of both the section and the slab kind rather than only 2 million tons it used to make using the obsolete open-hearth technology.

‘The emissions of carbon dioxide – the major culprit to blame for the greenhouse effect – will drop by 7 million tons in 2008-2012, which is the best result among all the other projects run by Russian metallurgical enterprises under Article 6 of the Kyoto Protocol,’ MMK reports.

According to the company, the implementation of this project has been an important event for the Russian metallurgical industry, since it made its products more competitive on both the home and the foreign markets. What’s more, the steelmaking process grew much more energy efficient, while the harmful emissions dropped considerably; given the company’s production output, this is No.1 project for the Russian metallurgical industry in terms of impact.

MMK is cooperating with Carbon Trade & Finance (a JV run by Gazprombank and Commerzbank) on this project; the latter will be buying all the ERUs and facilitate the entire process.

MMK is expected to make about ?70m worth of profits from selling the units in 2011-2013. The money will be directed to paying off loans taken to finance the project implementation and will also be spent on the company’s investment program, the company reports.

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