European steel 'will burn emissions 15 years ahead of time'
Steeling for Net Zero found that the European steel industry has less than 26% of its carbon budget remaining and companies must rapidly shift their business models to reach net zero.
This means the industry’s existing assets could release 2.3 billion tonnes of CO2 in their lifetime, compared to a 2050 budget of just over 3 billion based on the IEA’s Net Zero Emissions scenario.
The report provides an in-depth assessment of 10 of the largest and most impactful steel companies, that account for 68% of primary steel production in Europe, including ArcelorMittal, Tata Steel, Thyssenkrupp and SSAB. The research analyses how these companies are positioned to action transition plans and achieve net zero, based on their targets and existing asset portfolios. The report found:
- Only a quarter of these companies’ carbon budget remains, and current trajectories would see the industry exceed its budget in 2035
- Companies have between now and 2033 to stop using current production methods and invest in new steelmaking technologies
- The cost of transitioning is estimated at between US$4 and 34 billion for these companies, so they will need to rely on public funding and partnerships
- SSAB and ArcelorMittal rank highest on their readiness for the transition, while Severstal, Metinvest and Erdemir are identified as being least prepared
Emissions from steel now account for 7-9% of all global emissions, and demand is rising, estimated to increase 22.7 million metric tons in 2024.
The biggest contributor to emissions from the steelmaking process comes from the blast furnace. This is the dominant method of making primary steel and has been in use since the 14th century.
With this carbon intensive method, there is no way of achieving the required reduction in emissions to meet the EU’s 2050 net zero target. Reductions from efficiency improvements have all but plateaued – over the last two decades, the companies analysed have only reduced their emissions intensity by an average of 1% per year.
Blast furnaces have a long life cycle of about 15-20 years before they need upgrading. This is an expensive process, costing on average US$175 million, meaning these furnaces cannot be shut down prematurely without incurring write-offs. This risks companies getting locked in to carbon intensive methods unless they start investing in new technologies and timing their transition correctly.
Industry Tracker’s analysis finds that these companies will need to stop renewing blast furnaces before 2030 and have between now and 2033 to begin investing in new technologies, including green hydrogen steelmaking.
The analysis does show that some of the leading European steel companies – such as SSAB, ArcelorMittal and Tata Steel - are starting to develop the low-carbon innovations required to significantly reduce their footprint. This includes hydrogen-based steel production which can reduce emissions to near zero, as well as CCUS which could cut emissions from traditional steelmaking routes in the mid-term.
It found 70% of companies are involved in projects developing “blue” or “green” hydrogen production, including ArcelorMittal, Thyssenkrupp and SSAB. This is encouraging as it indicates they are not just investing in hydrogen-based steel production technologies, but are also getting involved in developing supply chains to ensure they have access to the large volumes of hydrogen needed to scale up this type of sustainable steelmaking.
For the most part, however, these technologies are still early stage, and they must be rapidly scaled and commercialised to meet global climate targets.
The current balance sheets and cash flows of these steel companies are not sufficient to support the cost of the transition, the report states. This means companies must leverage partnership opportunities, whilst subsidies, direct public funding and investment capital must be made available.
Carole Ferguson, Managing Director of Industry Tracker, said steel is used across many products and sectors that are integral to the way we live. However, with a large carbon footprint and a growing emissions profile, steel remains a 'problem child' in the path to net zero.
"With momentum starting to build for new technologies, particularly green hydrogen, steel companies have the opportunity to break out of their current capital intensive business models. I am optimistic that with public support, cross sector partnerships and investment capital seeking to solve the climate crisis, steel companies have the potential to lead the way in the transition and drive the green hydrogen economy."
Industry adopts new technologies and partnerships
In July, SSAB's headquarters in Sweden rolled out the first steel produced using HYBRIT technology - a partnership involving SSAB, LKAB and Vattenfall - using 100% fossil-free hydrogen instead of coal and coke. The steel is now being delivered to its first customer, the Volvo Group. SSAB said it is "confident" it can make completely fossil-free steel by 2045.
SSAB's steel such as Hardox wear plates have inherent properties that promote sustainability, the company claims.
The Climate Finance Leadership Initiative (CFLI) convenes leading companies to mobilise and scale private capital for climate solutions.
It was recently announced CFLI India will be co-chaired by Shemara Wikramanayake, Managing Director and Chief Executive Officer of Macquarie Group, and Natarajan Chandrasekaran, Chairman of Tata Group, and comprises major private sector Indian and multi-national corporates and financial institutions. The partnership will be supported by the UK Government, Government of India, the City of London Corporation, the Global Infrastructure Facility, and Bloomberg LP.
"This partnership is a great example of how the public and private sectors can work together to speed the transition to clean energy and make possible the deep emissions cuts we need to reach the goals of the Paris Agreement and beyond," said Michael R. Bloomberg, UN Special Envoy on Climate Ambition and Solutions, Chair, CFLI.
"The Climate Finance Leadership Initiative is working to eliminate barriers to investment and create market conditions to drive more capital to green projects – and this collaboration between India and the UK, two of the world's largest and most dynamic economies, can create a model for counties around the world to learn from."