Environmentally Sustainable Dioxin Abatement in the Iron and Steel Industry

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China’s rapid growth and significant poverty decline has been accompanied by challenges with pollution, deterioration of the environment, and greenhouse gas emissions. The iron and steel sector is the largest industrial source of unintentionally produced persistent organic pollutants (UPOPs) such as dioxins and furans. It also accounts for a large share of the total industry-related CO2 emissions and is a significant source of emission of conventional pollutants. Persistent organic pollutants (POPs) are toxic chemicals that adversely affect human health and the environment around the world, and can lead to serious health effects, including certain cancers, birth defects, and dysfunctional immune and reproductive systems. The Stockholm convention (SC) was adopted by governments to protect human health and the environment from POPs. Under the SC, China is required to take actions to reduce UPOPs releases, and specifically to promote the use of best available techniques (BAT) and best environmental practices (BEP) for certain industrial sources, including iron ore sintering and electric arc furnaces (EAFs) in the iron and steel industry.This project is therefore proposed with the objective to demonstrate and promote BAT and BEP and to strengthen the regulatory framework and capacity to reduce and avoid UPOPs in the Chinese iron and steel industry in a sustainable way. The project will be implemented by the Foreign Environmental Cooperation Center of the Ministry of Ecology and Environment (FECO) that leads the implementation of the SC. It will build on the opportunity offered by the government’s push for the industry to adopt “ultra-low” emission standards (that would not normally take into account UPOPs), to demonstrate what complementary measures the industry should implement to achieve BAT/BEP while maximizing co-benefits with particulate matter and other pollutants reduction and balancing greenhouse gas reduction imperatives. The project, supported by the Global Environment Facility (GEF), is aligned with the focus on the delivery of global environmental public goods and country-wide environment reform and institutions building that underpin the World Bank Group Country Partnership Framework for China for the period FY20-FY25, in particular objective 2.2: Reducing Air, Soil, Water, and Marine Plastic Pollution. The project consists of three components:Component 1. BAT/BEP Demonstration in Select Enterprises (total cost US$57.36 m, of which GEF US$16 m)This component will provide technical assistance and investment support (goods and civil works) to at least two sintering lines and at least one EAF line to demonstrate BAT/BEP. The project will finance eligible incremental expenditures, including: (i) consulting services to develop a BAT/BEP implementation plan and engineering design, cleaner production and resource efficiency audit, environmental and social documents and other permitting documents, oversight and evaluation of the implementation of BAT/BEP, and an enterprise-specific BAT/BEP application manual; (ii) pollution control equipment and practices, including raw material selection, recirculation of off-gas, and dedicated dioxin prevention or removal equipment; (iii) installation of equipment and disposal of old equipment; (iv) training; (v) trial production; (vi) monitoring, verification, and monitoring equipment; and (vii) incremental costs of new raw materials, utilities, waste management. The participating enterprises will contribute their own funds toward these activities (at a ratio of US$2.6 for US$1 from the project for the first selected enterprise, in addition to the costs of meeting ultra-low pollution standards), and toward baseline activities that bring dioxin reduction co-benefits such as ensuring stable operation of the sinter plant.The pilots would be selected to cover different steel production methods to inform the development and adoption of country-wide policies, standards and regulations for dioxin abatement in the iron and steel industry. Sintering and EAF are the two main approaches to steelmaking, and each has a significantly different dioxin profile. Thus, there is a need to generate information and capacity to manage dioxin production under each. Selection of specific pilots will be made against the following criteria: representativeness of typical production processes; commitment to implement technological renovations in line with Stockholm Convention BAT/BEP guidance; willingness to accept additional monitoring and sharing of lessons learned; level of cofinancing commitment and competitiveness; and operation in a manner fully consistent with national environmental and social requirements, with no major environmental or social violations in the last three years. At the time of appraisal, one demonstration production line for sintering, in Shanxi province, has been identified following a transparent and open call for expressions of interest open to all enterprises, state-owned and private. The other demonstration enterprises will be selected during the first year of implementation, including from the four that have applied to participate as of November 10, 2022. An element of competition was introduced through the criteria and scoring system that reward the level of co-financing committed by an enterprise, as well as the alignment with BAT/BEP requirements (a proxy for the level of dioxin emission reduction expected to be achieved). The level of co-financing and competitiveness also tend to encourage the participation of the larger and more financially sound companies. In order to maximize the potential for demonstration, participating enterprises will be preferentially selected from provinces with top steel production that are concentrated in central and eastern China (for sintering/blast furnace) and the southwest (for EAF), and in the key regions targeted for rollout of ultra-low emissions (Jing-Jin-Ji, Yangtze River delta, and Fenwei Plain). BAT/BEP measures would include a combination of feed material selection and preparation, better management of sinter operations for more stable and consistent conditions, recirculation of off-gases, selective catalytic reduction, activated carbon adsorption, and other secondary measures. Lessons learned will be recorded and collated and will serve as the basis for the formulation of a BAT/BEP application manual specific to the enterprise, as well as being made publicly available and serving as the basis to revise BAT/BEP guidelines under Component 2. Support provided will not increase or have other impacts on the production capacities or footprints of the participating enterprises; rather it will contribute directly to pollution reduction.Component 2. Capacity Strengthening for Promotion of BAT/BEP (total cost US$9.31 million, of which GEF US$7.81 million)This component will finance technical assistance for ensuring the sector-wide sustainable adoption of dioxin reduction measures beyond the enterprises directly supported through Component 1. The project will finance the costs of (i) technical studies; (ii) dissemination material in various media; (iii) communication and outreach; (iv) consultations; (v) training, workshops and other knowledge exchange; (vi) monitoring, verification, and monitoring equipment; and (vii) national and international experts. This effort is expected to facilitate the acceleration of dioxin reduction industry-wide, with at least 20 further production lines meeting BAT/BEP emission levels by the end of the project. EAF processes will be a focus of the project as they have been relatively less studied, and given their expected growing importance in the industry due to their lower carbon intensity. In-kind contributions from local and central government departments will co-finance activities related to environmental enforcement and updating of regulations. Support will focus on the following aspects:• Regulations, standards, and technical guideline