The Brazilian iron industry is divided into three main groups: (A) independent small pig iron producers; (B) large integrated steel mills using charcoal or coal coke; and (C) integrated coke-based steel mills. The total production of pig iron in 2000 was 27.7 million tons, of which 14 per cent were exported and the rest consumed in Brazil (IBS 2001). Table 14.1 shows the pig iron production in Brazil by producer.

The first group, small independent pig iron producers, in which the sponsor of the Plantar project operates, is the most numerous. There are about 40 independent firms producing pig iron in the State of Minas Gerais alone, with approximately 80 blast furnaces. These companies are mainly focused on the supply of iron to foundries and mini-mills in the international market and replacement of scrap used in electric arc furnaces of large steel producers in the domestic market (Group C as shown in Tables 14.1 and 14.2).

The plants of small independent producers usually have established capacity between 60 and 400 thousand tons per year, which is much smaller than those of the producers in the other two groups. Technological and economic constraints render unfeasible the conversion of small blast furnaces to use coke as has been the case among large producers. As a consequence, this sector remains dependent on charcoal as the main source of raw material for iron reduction.

The second group comprises four large private companies that originally produce steel mainly from charcoal: Acesita and Belgo-Mineira, which previously used both coke and charcoal as a reducing agent; and Mannesmann (now V&M do Brazil) and

Gerdau, both still reliant on charcoal. This type of enterprise, charcoal-based steel making, is only found in Brazil. Because of their production volumes (which range from 600000 to 4.1 million tons of steel per year), they can make the conversion from charcoal to coke, which indeed has been accomplished by some companies. This group is, thus, the most responsive one to market factors in relation to the reducing agent (charcoal or coke) used.

The third group, integrated coke-based mills, currently account for 74 per cent of total pig-iron production in Brazil. This group comprises five large-scale enterprises (CST, Usiminas, A5ominas, Cosipa, and CSN), previously parastatals that have been privatized since the early 1990s. The current trend has been towards an increasing concentration of the industry in integrated mills. These companies produce most of the pig iron produced in Brazil to supply their own steel mills (see Tables 14.1 and 14.2).

The forest legislation has forbidden the use of charcoal from native forests after 1992 (Forest Law of the State of Minas Gerais number 10.561 on 27.12.1991 and Decree 33.944 on 18.09.1992)[18]. Since then, the industries began to reduce the use of

charcoal from native forests and increase the consumption of charcoal from forest plantations. However, such charcoal was mostly produced from eucalyptus forests that were planted with tax incentives from the Federal Government between 1966 and 1986. Table 14.3 depicts the total decrease in charcoal utilization between 1988 and 1997, as well as the balance change between charcoal from indigenous forest vis-a-vis planted forests. Nonetheless, in spite of current legal and policy provisions, Brazil still faces great lack of fuelwood plantations and law enforcement in what concerns native wood usage. Even though local and state authorities have improved inspection and surveillance, charcoal manufacturing is often based on deforestation which also leads to intensive methane emissions.

According to statistics from IBAMA (Brazilian Institute for the Environment and Renewable Natural Resources), the stocks of existing forests can supply the market demand for charcoal for the next seven years. On the other hand, a recent study from BDMG (Development Bank of State of Minas Gerais) indicated demand for 110000 ha of forests in 2007 while no forests are being planted to supply charcoal markets. In fact, regulatory, operational and economic barriers are leading to the decline of wood-plantations which contrasts with the effective demand for charcoal, and increases pressure on native wood sources.

Eucalyptus forest plantations in Brazil need approximately seven years to mature. Thus there is the need to plan in advance to guarantee the survival of the charcoal producers on a sustainable basis. Forest plantations with selected clones and high productivity, aimed at re-establishing the stocks of charcoal can have a positive effect in changing current trends and foster a larger use of charcoal in pig iron industries. This can be done following the environmental sustainability principles while also guaranteeing employment for many charcoal producers.

14.2. BASELINES

The Plantar project is based on three distinct but inter-linked baselines, and an additional pilot project of rehabilitation of native vegetation as follows:

• The forestry component, which involves the establishment of new Eucalyptus plantations;

• The carbonization process component, which involves altering the design of carbonization kilns and/or the carbonization process to reduce the emissions of methane;

• The industrial component, which consists of the avoidance of coke in the production of pig iron by using charcoal from sustainable forests;

• The pilot project on rehabilitation of native vegetation in the Brazilian cerrado.

The baseline scenario for the project is based on what would have happened in the absence of the project activities. In this case, the baseline scenario would be the gradual death of the charcoal-based independent pig iron producers, giving place to increasing production based on coal in large mills. The latter would gradually take over the market share controlled by small pig iron producers. In addition, the existing planted forests will not be replanted after the third cycle of rotation and, most probably, the land will be used for pasture, which is the most common activity in the region.

The Plantar project scenario allows for the use of sustainably produced charcoal as the reduction agent in the production of pig iron, avoids the absorption of the charcoal-based market share by the coke-based pig iron production, and also avoids GHG emissions. The CDM framework allows the project activity to be cofinanced through the sales of carbon credits, protecting from the potential loss of the industry and market shares of small charcoal-based pig iron producers. Moreover, the forestry activities to supply charcoal to Plantar’s mills are based on new high yielding plantings.

Figure 14.1 shows a comparison of two routes to produce pig iron and demonstrate the main steps of the production process utilising coke and charcoal. In both cases, there are greenhouse gas emissions in the carbonization process. The types of kilns used by Plantar (currently approximately 2000 kilns) and other charcoal manufacturers in Brazil produce emissions of methane. Plantar will invest in the refurbishment of its kilns, and in the improvement of the carbonization process to reduce the emissions of methane to the atmosphere.

Finally, Plantar will initiate a pilot project to manage some of its lands to enable the regeneration of the cerrado and other native vegetation in lands that were previously planted with Eucalyptus or were used as pasture. If successful,

Plantar intends to expand this component of the project to other lands elsewhere. The balance of emissions reductions expected from the whole project is shown in Table 14.4.