In the steel industry, the possibilities of achieving an optimal balance between production, discharges, and energy use have been difficult to explore because of poor data on pollutants, production processes, costs, and their interrelationships. RFF's Clifford S. Russell and William I. Vaughan have identified and linked the data for each process over a range of, input alternatives for the industry, and have used this information base to construct a methodology—a linear programming model—which allows them to investigate the potential effect of proposed changes. The result is a comprehensive look at the industry, Steel Production: Processes, Products, and Residuals.
This new book specifically examines the implications for industrial costs and resource use of alternative public policies, such as those regulating sulfur dioxide emissions and waste-water discharges, or encouraging the use of more automotive scrap. The following article, adapted from Steel Production, explores some of the constraints and opportunities involved in increasing the use of auto scrap by the industry.
From an environmental standpoint, the iron and steel scrap problem generally refers to the ability or willingness of steelmakers to absorb postconsumer scrap such as auto hulks and refrigerators offered by scrap processors in the form of no. 2 bundles or shredded scrap. Particular emphasis is most often placed on automotive scrap as representing a major portion of the scrap which historically has accumulated in junkyards or scarred the urban and rural landscape as abandoned hulks. In fact, between 1958 and 1970, the cumulative addition to the backlog of unprocessed vehicles built up in auto wreckers' inventories has been conservatively estimated at 9.9 million units, with an additional 2.9 million abandoned, uncollected automobiles littering the countryside, mostly in rural areas. This buildup in stocks of abandoned automobiles over time may decelerate if new processes (such as the scrap shredder) succeed in upgrading the ultimate product and result in lowering the percentage of retired vehicles which are not recycled—currently about 15 percent. However, even if a 100 percent recycling rate for annually retired vehicles is attained in the near future, currently existing stocks will not be drawn down except by natural decay, unless the demand for such scrap becomes sufficient to encourage it. Thus, the magnitude of the abandoned auto problem appears to be steadily increasing, and there is a good deal of feeling that some action is indicated both to reduce the abandonment rate and collect the backlog. At the same time there exists a growing concern that we are running down our stocks of nonrenewable resources, such as iron ore, at too fast a rate, leading many persons to advocate the policy position that more recycling of obsolete scrap would be better.
It is not surprising, therefore, that some environmentalists have been battling in the relatively esoteric field of materials use, aiming particularly at the incentives and disincentives for recycling postconsumer goods. A principal venue for this battle has been the legal challenge to the rate-making procedures of the Interstate Commerce Commission (ICC) raised by the group known as SCRAP. Their most important argument for our purposes is one claiming that if railroad freight rates did not discriminate against steel scrap, significantly more scrap would be used. In the eyes of environmentalists, then, a reduction in rate discrimination would have two principal benefits: discouraging use of nonrenewable resources especially coal and iron ore—and reducing the aesthetic costs of dispersed auto hulks and of auto scrapyards.
The first point we must make here is that there are many grades of scrap traded in markets and available to steelmakers. These are distinguished on several different bases, but, for us, the most important of these is the degree to which the steel is contaminated with other metallic elements (called "tramp alloy elements" or "tramps"). In the model, we represent the range of purchased-scrap qualities available to the steel mill by four grades, ranging from one consisting of compressed (bundled) auto hulks with relatively high tramp contamination, to one consisting principally of processing scrap from steel fabricating plants having very much lower tramp contamination.
A second major point which can be made is that because steel scrap is a substitute for hot iron in the production of new steel, its greater use implies smaller generation of waterborne residuals at steel mills. This effect results, because decreased production of hot iron allows decreased use of the coking units, which are the major source of the organic and toxic water pollutants at the integrated mill. Thus, if lower scrap freight rates will encourage significantly greater use of scrap, they will not only save iron ore (and avoid attendant environmental disruption at the mine), but will tend to reduce the overall water pollution problem attributable to the steel industry, and the visual pollution of dispersed auto hulks and auto graveyards.
What, then, does the model have to say about the fundamental contention that lower freight rates will affect scrap use? It suggests that, depending on where current demand and supply curves intersect in the several regional markets, a reduction in scrap price to steel mills through the reduction in freight rates may or may not have any effect on the use of such scrap in the short run.
The derived demand curves for purchased scrap have a peculiar shape—a shape which is most pronounced for the more heavily tramp-contaminated obsolete scraps. Thus, because of the tramp metallics which at present cannot be removed in the steel furnace, and because of the upper limits on allowable tramp content in the finished steels, there is, for any steel quality, quantity, and furnace type, a technological upper limit on the amount of such scrap that can be charged. On the other hand, the steel industry is very sensitive to increases in scrap price beyond some upper limit for each grade, depending primarily on the percentage of iron in the scrap and on the prices of other scraps. According to the model, the net result of these two sensitivities in the short run, would not lead us to expect any immediate increase in the use of scrap as a result of reduction in freight rates.
The long run may be quite a different story, however, for the relation between the price of purchased scrap and the marginal cost of hot iron affects the investment choice between the Electric Arc (EA) furnace and the Basic Oxygen Furnace (BOF). Thus, if in the future the price of scrap was expected to equal or exceed the marginal cost of hot iron, the company choosing its future plant type would opt for the BOF only. On the other hand, for expected ratios in the neighborhood of 75 percent, the investment decision would be tilted toward the EA furnace.
Our analysis indicates that the EA Process is about two and one-half times as energy efficient as the BOF. This is one of the factors leading to an increase in water pollution problems attending the increased reliance on the BOF at the upper end of the scrap price scale. (There is a reduction in sulfur dioxide discharges attending the growth in BOF capacity relative to the EA. The size of this effect depends on the assumptions in the model about fuel oils available for use in electrical generation and might be greater or less as exogenous conditions dictate different fuel oil standards or availabilities.) Thus, over the long run, if changes in scrap freight rates can effect even a 10 percent reduction in scrap price at the steel mill, they may have a large effect on the makeup of the steel industry's capacity as well as on environmental problems in the vicinity of steel mills.
A version of this article appeared in print in the October 1976 issue of Resources magazine.
