Steel is everywhere: cars, ships, skyscrapers, bridges, washing machines, it is a main input for engineering and construction.Steel is the world’s most commonly used metal, thus forming the foundations of the modern industrial economy.
Since a method for inexpensively mass producing was developed in the 1850s, the industry has grown and today turns over $2.5tn and employs millions of people. However, steel’s role in the climate crisis is now under much closer scrutiny as well as the oil and coal sectors. The main method of smelting iron pumps huge amounts of carbon dioxide - the key contributor to global warming. Indeed, the iron and steel sector is the largest industrial producer of gas, just after the power generation industry, with 7-9% of all direct fossil fuel emissions. As climate change looms high on the global political agenda and many governments pledge to meet ambitious environmental goals, there is a race against time with the aim to develop low-carbon versions of this strong and adaptable material.
The experts say that steel is a very important material for modern society and if we want to contribute to achieving the climate goals set in the Paris agreement, then only doing further efficiency improvements in the blast furnace will not be enough: breakthrough technologies are urgently needed. Heavy industries such as steel, which require extreme heat are one of the next challenges of decarbonizing the economy, following the massive deployment of renewables energy and recent promises from many global car makers to switch to electric motors. Therefore, in order to meet global climate and energy goals, steel industry emissions must decrease by at least half by 2050. Nowadays, some of the world’s biggest steelmakers, including for example China’s Baowu Group, are at different stages of making laboratory concepts an industrial reality, targeting for “net zero” emissions.
Systemiq - a sustainability consulting and investment company says the level of technical development is at a good level. According to them, we can expect a first wave of close-to-zero production sites before 2030. The idea is changing the method for turning rock into metal with “clean” hydrogen gas as a new alternative energy source. But doing so in such a huge industry with an output of 2bn tonnes a year is a huge challenge. One of the obstacles is the amount of investment, which could run into hundreds of billions of dollars. Europe’s biggest steelmaker, has estimated that decarbonising its facilities on the continent in line with the EU’s drive to eliminate net greenhouse gas emissions by 2050 would cost between €15bn and €40bn.
Extracting iron from its ore is very carbon-intensive. CO2 is actually a byproduct of the chemical reaction. That is why it is so important to iron and steelmaking and therefore very hard to replace. Moreover, steel is the most reused material on earth, so it already is a part of a “circular economy”.Electric arc furnaces that melt down scrap, rather than converting raw materials, are smaller, more flexible and emit only a fraction of the CO2 of blast furnaces. Nowadays they make little less than 30% of global steel production. However, their supplies are limited, and they cannot always produce the quality required for certain applications, i.e for the car industry. Thus, specialists think there will probably be the need for “virgin” steel, but using a less polluting method. After rejoining the Paris climate agreement, US president Joe Biden has proposed creating a climate research agency with aims that include “decarbonising industrial heat needed to make steel, concrete, and chemicals”. Another important pledge was when China unveiled in 2020 a target to achieve “carbon neutrality” by 2060. This means that major upgrades will be needed to its steel mills responsible for about 1/3 of the country’s industrial emissions. China produces half the world’s steel and generates about 2 tonnes of CO2 for each tonne of steel it produces. On the contrary, Europe only generates one tonne. Therefore, it is important for China to show that its exports are not more carbon intensive than the goods produced in other countries.
So far, the most advanced initiatives to decarbonise steel production are in the EU. One local policy allows companies to buy and sell certificates to cover their carbon pollution. Thus, the price of a tonne of CO2 has climbed eight times since 2016 to nearly €40. Some industries will also face a financial penalty for polluting, or an incentive to change. With countries already starting to launch their own carbon markets, there are warnings that shareholder money may be at risk from failure by steelmakers to act on their emissions. According to CDP, a non-profit climate assessment group, it's impossible to have steel production continuing at the same pace and achieve net zero. Shareholders really need to start making the investments now to be able to shift. According to ShareAction, an NGO that promotes responsible investment, there is less of a clear understanding among investors on the problems and possible solutions for heavy manufacturing industries. “With oil and coal, you know it needs to go away. With combustion vehicles, they need to go away. With steel it’s more complicated.”
There is an experiment that aims to overturn centuries of established metallurgy by harnessing the most abundant element in the universe. SSAB will soon begin trials using hydrogen gas to reduce iron ore at a pilot plant in Lulea in Sweden. This should result in virtually no CO2 emissions, with water vapour as the only byproduct. If proven at an industrial level, this would be revolutionary. SSAB will use clean hydrogen gas instead of natural, produced in a facility called an electrolyser powered by renewable electricity. The output will be a solid intermediate, called sponge iron, which goes into an electric arc furnace, where it is mixed with scrap and refined into steel. SSAB's rivals like Voestalpine and ArcelorMittal are developing similar projects: “From the laboratory, we know that in principle H2 is capable under the right conditions of reducing iron ore to metallic iron. But so far nobody has ever done it on an industrial scale,” says Lutz Bandusch from ArcelorMittal.
Another possibility for hydrogen use is replacing coal in blast furnaces. But this is not yet the complete solution to clean steelmaking. According to SSAB, “Scaling up the electrolyser production capability and making the overall cost of H2 from electricity more affordable — this will be extremely important for the steel industry to decide to convert at a large scale away from the blast furnace process,”. The Swedish group estimated that metal from its hydrogen-based route will be at least 20-30% more expensive.
“We believe H2 is most likely to be the solution to get to zero emissions. The key issue is cost,” says Goldman Sachs’ Della Vigna, who admits that it will become economically viable at a carbon price of around $220 a tonne. However, for mills to change massively to clean hydrogen, a massive expansion in renewable energy infrastructure is needed. For example, to convert its steel sector to DRI based on green hydrogen, Germany would need additional renewable power equating to about 20% of its current electricity consumption. This shows how enormous move is required within the steel industry.
Other initiatives target preventing gases escaping or envisage intermediary solutions that could lower emissions over time. In Belgium, ArcelorMittal is building a facility that will turn toxic waste wood into “bio-coal” with a lower CO2 footprint, to replace a portion of the regular variety in blast furnaces. The company invested €165m on equipment to capture waste gases. Microbes will then convert these into ethanol, which can be recycled into carbon-containing chemical products, such as plastics or fuels. Nevertheless, environmentalists argue they are expensive, unproven at scale and distract from the root cause of emissions.
Carbon Tracker, a think-tank, says that CCUS does have a role to play in heavy industry. While industry giants battle with an almost existential dilemma, the challenge is attracting new entrants hoping to shake up the sector. US-based start-up Boston Metals, spun out of the MIT and backed by Bill Gates, says it has a technology for making brand-new steel without emissions using electricity. In a method similar to aluminium production, current is passed through a cell. This consists of a steel shell, which inside contains what the company calls a “soup of molten oxides” including iron ore. Boston Metal shall supply small modular units to production sites that can be scaled up in line with demand. It works as the inverse of a battery, as they inject electricity, the cell spits out a very pure iron, where you can add the other elements to get your high-quality steel.The 9 years old company received investments from mining companies BHP Group and Vale, so the total funding is more than $100m. Boston Metals is aiming for large-scale commercialisation by 2025. “If we have the cost of electricity at the same level that the aluminium manufacturers have today, we will be competitive without a carbon tax,” says Chief executive Tadeu Carneiro. “This really will change the world.”
If green steel can really have an impact against climate change, the industry cannot take it as a niche, premium product. The European government allowed tax to be levied so that it could support the growth of renewable energy. According to Mittal. "There should be some kind of similar policy mechanism or framework and support for the steel industry so that we invest in developing the projects into fully-fledged commercial projects.”
Funding for sustainable projects under its “European Green Deal”, Brussels is now drawing up plans for a “carbon border adjustment mechanism” which would impose a CO2 charge on certain goods entering the bloc. The aim is to prevent cheap foreign products with a large environmental impact undermining domestic companies investing in expensive green technologies. Although, some wonder if this is enough to encourage widespread adoption of clean technologies. “From a cost perspective and an economic analysis, we just don’t see the right conditions yet to facilitate a wholesale shift across the industry,” says CRU’s Smith. But Greenpeace UK’s chief scientist sees reason for optimism: “The momentum seems to be greater than in, say, the cement or chemicals industry. It could well be a test case of how an industry goes about it.”
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