Steelmakers grapple with how to cut carbon emissions

Cleaning up one of the world’s dirtiest industries is key to hitting global climate goals, but the process is costly for companies.

Big steelmakers in Europe and the US are intensifying efforts to curb carbon emissions, hoping to woo customers and fend off growing pressure from investors and governments. Picture: Bloomberg

A recent shipment of 24 tonnes of Swedish steel could mark the beginning of what the steel industry hopes is a new era: the clean-up of one of the world’s dirtiest industries.

Big steelmakers in Europe and the US, like ArcelorMittal and Cleveland-Cliffs, are intensifying efforts to curb carbon emissions, hoping to woo customers and fend off growing pressure from investors and governments. On Thursday, Sweden’s SSAB shipped what it said was the world’s first commercial shipment of steel made without fossil fuels to truck maker Volvo.

But progress is slower in the developing world, where the majority of steel is made, and that means the sector will likely remain a big emitter for years to come, analysts say. Greening the industry is also costly, and that is expected to make the steel used in cars, buildings and householder appliances more expensive.

The challenge facing the steel industry epitomises the difficulty of decarbonising the wider economy, as governments and investors put greater emphasis on curbing climate change. Steel generates 7 per cent of global carbon-dioxide emissions related to energy consumption, more than any other industrial sector, according to the International Energy Agency. With demand for steel projected to rise, the IEA says the industry’s emissions need to halve by 2050 for the world to hit global climate goals.

“I do accept that in the short term, this transition is difficult,” ArcelorMittal Chief Executive Aditya Mittal said in an interview.

Steel is a big carbon emitter because of the way it is made. The World Steel Association says over 70 per cent of steel is still produced using the more-than-a-century-old blast furnace process, in which coal is burned at high temperatures to reduce the oxygen in iron ore, turning it into steel.

To reduce emissions, some companies are melting more scrap metal to make new steel, or employing so-called direct reduced iron, where oxygen is taken out without it being melted in a furnace, and exploring techniques like replacing coal with hydrogen — which is how SSAB made the metal it sold to Volvo.

ArcelorMittal has pledged to invest $US10bn in its decarbonisation program this decade, targeting a 25 per cent reduction in carbon emissions per dollar of sales by 2030. Last month it said one of its sites in Spain would become the world’s first large-scale zero-carbon emissions steel plant. It expects to be minting metal, made using hydrogen and renewable power, by 2025.

Such initiatives can be costly. In 2018, SSAB estimated that its fossil-free steel would be 20 per cent to 30 per cent more expensive than its production at the time, though it predicted costs would fall. It declined to say how much the shipment to Volvo cost or was sold for. Earlier this year, ArcelorMittal told analysts that making steel using hydrogen at a plant in Germany would be 60 per cent higher than the current cost.

To help fund investments, companies have sought public support. ArcelorMittal recently signed an agreement in Spain that could see the government cover some of the 1 billion euros, equivalent to about $US1.17bn, in costs for new investments there. SSAB partnered with two government-owned companies for its green steel, and the government directly invested early in the project.

In the US, 70 per cent of steel production is already made using electric arc furnaces to melt scrap metal, a process that the IEA says uses only about an eighth of the energy used in steel produced from iron ore. The US recycles enough steel scrap to build 25 Eiffel Towers every day, according to the American Iron and Steel Institute.

America’s largest steel producer, Nucor, uses only scrap steel. In July, the company said it wanted to reduce its carbon footprint by using more renewable energy and capturing carbon. United States Steel Corp has also said it wants to deploy carbon-capture technology, and use more scrap, to achieve net zero emissions by 2050. US Steel declined to comment on costs, while Nucor didn’t respond to requests for comment.

Cleveland-Cliffs said it had already spent some $US1.37bn toward hitting its target of a 25 per cent reduction in emissions by 2030 as compared with 2017 levels. That includes through a recently opened $US1bn direct reduction iron plant in Toledo, Ohio, carbon capture technology and other means.

If steel is more expensive to make, it is likely to become more expensive to buy, analysts said, suggesting prices will rise for products that include the metal.

“Things are going to be more expensive, and green steel products will command a premium,” said Alan Spence, a steel company analyst at Jefferies.

Consultants at McKinsey estimate that if European steelmakers meet their commitments, around 30 per cent of capacity would be carbon neutral by 2030 and 100 per cent by 2050. The US could get to 30 per cent of capacity sooner than Europe given the higher share of electric arc furnace production in the country.

Still, only around 13 per cent of global steel production last year came from the European Union, the UK and North America, according to the World Steel Association.

China produces about 57 per cent of the world’s steel, and of that about 90 per cent is made using blast furnaces, according to BHP, a global coal supplier. China’s furnaces are also relatively new, with an average age of 12 years, compared with 53 and 45 years in North America and Europe, respectively, BHP’s data shows.

Steel analysts say there are fewer plans to decarbonise steel in China than in the West. China sees carbon emissions peaking in 2030 and trending toward net-zero emissions by 2060, though officials in the country recently limited the scope of a national carbon-trading system.

In the first half of 2021 alone, a total of 18 new blast furnace projects were announced in China, according to the Centre for Research on Energy and Clean Air, an advocacy group.

“It is not an easy fix to decarbonise the steel industry,” said Christian Hoffmann, a consultant at McKinsey.

The Wall Street Journal