Fortescue Metals doubles down on bet it can make hydrogen a key export commodity

Fortescue Metals has staked ambitious plans to decarbonise its iron ore operations on its bet it can make hydrogen a major export commodity.

Fortescue Metals, led by Elizabeth Gaines, has doubled down on its bet it can make hydrogen a key export commodity. Picture: Jane Dempster/The Australian.

Fortescue Metals Group has doubled down on its bet it can make hydrogen a key export commodity, staking ambitious plans to decarbonise its iron ore operations on the technology.

On Tuesday the iron ore major released a promised target to reduce its so-called scope 3 emissions – those attributable to customers for its products, such as major steel mills – saying it wanted to achieve net zero scope 3 emissions by 2040.

The steelmakers that buy Fortescue’s Pilbara iron ore emit about 98 per cent of the company’s scope 3 carbon emissions, at about 246.1 million tonnes of carbon dioxide equivalent last financial year.

The figure dwarfs the 2.2 million tonnes in direct emissions from Fortescue’s own operations last year, which are also smaller than the 3.5 million tonnes of carbon dioxide equivalent released into the atmosphere as it is shipped to customers in China.

Fortescue’s target is well ahead of any of its competitors, and the plans rest on Fortescue’s multi-billion plans to establish itself as a leading player in the hydrogen industry – and will involve using the hydrogen it produces to decarbonise the broader crude steel industry.

The target also makes bolder assumptions about the pace of change in the global steel industry, given other iron ore majors – also working with steelmaking customers on ways to reduce carbon emissions in the sector – have said they don’t expect wholesale change in the steel industry until at least 2050.

BHP’s outlook for the sector suggests that blast furnaces – which kick off the steel production process by using coal to convert iron ore to metallic iron, and are the biggest emitters of carbon dioxide in the process – will still make up about half of global steel production by 2050.

Fortescue’s competitors, including BHP, have limited their own scope 3 ambitions because they believe the multi-billion cost of replacing blast furnaces with alternative technologies will be a major handbrake on the pace of decarbonisation within the steel industry.

Fortescue boss Elizabeth Gaines said on Thursday the company believed the pace of change in the steel sector would be more rapid than others assumed, however, as major global economies looked to avoid the consequences of climate change.

“Eighty per cent of global GDP is now located in countries that have net zero ambitions. And I think we will find that there will be further acceleration of a target to reduce emissions – as we’ve seen more recently with Japan, increasing its commitment from 26 per cent reduction by 2030, to 47 per cent. The US has followed suit at the same time from 25 per cent to 50 per cent reduction by 2030,” she said.

“So, more broadly, we’re seeing a rapid acceleration of goals and targets to reduce emissions significantly.”

Ms Gaines pointed to recent moves by Chinese authorities to curtail production of steel in some parts of the country to reduce carbon emissions as a sign the industrial major was serious about climate change, along with moves to introduce carbon charges at the border in Europe to drive change in more carbon intensive and developing economies.

“So there’s a real imperative, not only for improving, emissions performance but also protecting profitability and margins moving forward to those steel mills to actually achieve emission neutrality,” she said.

Fortescue says it will also prioritise the decarbonisation of its own fleet of eight ore carriers and engage with shipping partners to reduce, and eventually eliminate, emissions from shipping.

The iron ore major says it wants to reduce emissions intensity from its shipping services by 50 per cent by 2030, and a reduction in emissions intensity from its steelmaking customers by 7.5 per cent by 2030 – when it wants to be producing 15 million tonnes a year of green hydrogen.

Fortescue has already set a goal of reducing carbon emissions from its own operations to net zero levels by 2030, and is conducting a feasibility study on the potential to produce so-called “green iron” from its Pilbara mines by pioneering a novel process to turn iron ore into metallic iron without the use of coal as a reluctant.

Green groups welcomed Fortescue’s ambitious new scope 3 targets on Tuesday, saying they should be matched by other Australian iron ore majors like BHP and Rio Tinto.

Climate and Environment director at the Australasian Centre for Corporate Responsibility (ACCR), Dan Gocher, said the pair should move beyond promised to work with their customers to decarbonise the steel sector, and set new hard targets of their own.

“Fortescue’s bold target overshadows the lack of ambition by BHP and Rio Tinto, whose absence of firm targets for steelmaking is looking increasingly lacklustre,” he said.

“BHP and Rio Tinto should be embarrassed by being outdone by a company they once referred to as a ‘junior miner’. It’s time for BHP and Rio Tinto to set binding targets for their Scope 3 emissions, rather than simply funding research and working with their customers.”

Fortescue shares closed down 18c, or 1.3 per cent on Tuesday at $14.22.

Originally published as Fortescue Metals doubles down on bet it can make hydrogen a key export commodity