Skyscrapers and bridges, cars and cruise ships, guns and washing machines. All have one thing in common: steel.
As a key input for engineering and construction, it is the world’s most commonly used metal, providing the foundations of the modern industrial economy. Since a method for inexpensively mass producing the iron alloy was developed by English inventor Henry Bessemer in the 1850s, a sprawling industry has grown which today turns over $2.5tn and employs millions of people.
But just as the oil and coal sectors have faced intense pressure in recent years, steel’s role in the climate crisis is now under much closer scrutiny. From the American rustbelt to China’s manufacturing heartlands, the dominant way of smelting iron pumps into the atmosphere huge quantities of carbon dioxide, the main contributor to man-made global warming.
Outside of power generation, the iron and steel sector is the largest industrial producer of the gas. It accounts for 7-9 per cent of all direct fossil fuel emissions, according to the World Steel Association, greater than the total for India.
As climate change rises up the global political agenda and many governments commit to ambitious environmental targets, a race against time is on to develop low-carbon versions of this strong and versatile material.
“Steel is a very important material for modern society. It has been made since a long time back from iron ore, using coal,” says Martin Pei, chief technical officer at SSAB, a Swedish company at the forefront of these efforts.
“If we really want to contribute to realising the climate goals set in the Paris agreement, then there’s a quite widespread consensus that only doing further efficiency improvements in the blast furnace will not be enough. Breakthrough technologies are needed urgently.”
After the mass deployment of renewable energy over the past decade, as well as recent pledges by many of the world’s automakers to switch to electric motors, heavy industries such as steel, cement and petrochemicals that require extreme heat are one of the next frontiers in the decarbonisation of the economy.
To meet global climate and energy goals, steel industry emissions must fall by at least half by the middle of the century, according to the International Energy Agency, with declines to zero pursued thereafter.
Some of the world’s biggest steelmakers, including ArcelorMittal, Thyssenkrupp and China’s Baowu Group, are at various stages of turning laboratory concepts into an industrial reality. A number have even announced targets for so-called “net zero” emissions.
Faustine Delasalle, a partner at Systemiq, a sustainability consulting and investment company, says the level of technical development is encouraging. “We’re still not yet at the point of market readiness, but it’s progressing relatively fast and we can expect a first wave of close-to-zero production sites before 2030.”
The most ambitious plans involve moving away from a principle for turning rock into metal discovered in the iron age, with “clean” hydrogen gas as a new alternative energy source.
However, overhauling a monolithic and slow-moving smokestack industry that churns out 2bn tonnes a year of product will be an enormous task. Among the obstacles is the level of investment required, which could run into hundreds of billions of dollars — not easy in a business plagued by chronic oversupply and volatile swings in profitability.
ArcelorMittal, 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 will cost between €15bn and €40bn.
“These technologies will increase the cost of our steel. It is not cheap, and our customers should be ready to pay,” says executive chairman Lakshmi Mittal.
The reason why steel is so carbon-intensive comes down to the principal route for extracting iron from its ore. Towering blast furnaces heated to above 1,000C are loaded with the mineral, lime and coke, a fuel derived from metallurgical coal that removes the oxygen molecules from iron oxide. A byproduct of this chemical reaction is CO2.
“A significant amount of energy is required to heat the iron ore, to melt it and to actually separate the oxygen from the iron in the iron oxide molecule,” explains Ryan Smith, senior analyst at the consultancy CRU.
“The lowest-cost energy carrier is carbon-based. That combined with its high-temperature properties is what makes coke so important to iron and steelmaking and [it is] really hard to replace.”
While environmental policymakers dream of a “circular economy” where resource extraction and waste is minimised, recycling by itself cannot provide the answer for steel, which is already the most reused material on earth.
Electric arc furnaces that melt down scrap, rather than converting raw materials, are smaller, more flexible and emit a fraction of the CO2 of blast furnaces. Today they account for just under 30 per cent of global steel production. But scrap supplies are limited, and EAFs cannot always produce the quality required for certain applications, such as automotive.
Consequently, experts say there is always likely to be the need for “virgin” steel, just through a less polluting method. Recent geopolitical events have injected fresh impetus into that quest.
Along with promising to rejoin the Paris climate accord, which commits to limiting global temperature rises to well below 2C, US president Joe Biden has proposed creating a climate research agency with goals that include “decarbonising industrial heat needed to make steel, concrete, and chemicals”.
Another important statement of intent came last year when China unveiled a target to achieve “carbon neutrality” by 2060. That will require major upgrades to its steel mills, which are responsible for about one-third of the country’s industrial emissions. As the source of half the world’s steel, the Asian superpower exerts a pivotal influence on global market dynamics.
“China today generates about 2 tonnes of CO2 for each tonne of steel it produces, while in Europe you usually only generate one tonne,” says Michele Della Vigna, an investment analyst at Goldman Sachs. “Longer term, it becomes important for China to show that its exports are not more carbon intensive than the goods produced in other countries.”
For now, the most advanced initiatives to decarbonise steel production are in the EU — a reflection of its stricter environmental rules. One flagship policy allows companies to buy and sell certificates to cover their carbon pollution. Under this emissions trading scheme, the price of a tonne of CO2 has soared eightfold since 2016 to nearly €40. As a grace period granting a proportion of free allowances to some industries is gradually withdrawn, they will in effect face a financial penalty for polluting — or an incentive to change course.
With other countries already running or planning 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.
“You can’t have steel going along at its current pace and then hope to achieve net zero,” says Carole Ferguson, head of investor research at CDP, a non-profit climate assessment group. “I think it’s not happening fast enough frankly. You really need to start making the investments now to be able to shift.”
Yet whereas fossil fuel companies have begun to come under pressure from shareholders, there is less of a clear understanding among investors on the problems and possible solutions for heavy manufacturing industries, says Wolfgang Kuhn, director of financial sector strategies at ShareAction, an NGO that promotes responsible investment.
“With oil and coal, you know it needs to go away. With combustion vehicles, they need to go away,” he says. “With steel it’s more complicated.”
One hundred miles south of the Arctic Circle, an experiment is taking place that aims to overturn centuries of established metallurgy by harnessing the most abundant element in the universe.
At a pilot plant in Lulea, northern Sweden, SSAB will soon begin trials using hydrogen gas to reduce iron ore. It says this will result in virtually no CO2 emissions, with water vapour the only byproduct.
If proven at an industrial level, this would rank as nothing short of revolutionary. However, the blueprint centres on repurposing an existing system called direct reduced iron, which accounts for a small percentage of steel output worldwide.
The DRI furnaces are normally injected with natural gas. SSAB will instead use clean hydrogen gas, produced in a facility called an electrolyser powered by Sweden’s abundant 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.
Working alongside a power utility and iron ore miner, SSAB is up against rivals including Austria’s Voestalpine, and ArcelorMittal, which 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, a senior executive at ArcelorMittal, which already runs Europe’s only DRI-EAF facility.
Another possible role for hydrogen is replacing coal in blast furnaces. But it is not yet the complete solution to clean steelmaking. For a start, H2-centred DRI may rely on higher-grade ores, according to some analysts. Then there is the question of availability.
“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,” says SSAB’s Martin Pei.
The Swedish group, which is seeking to remove fossil fuels from every stage of the steelmaking process, has estimated that metal from its hydrogen-based route will initially be at least 20 to 30 per cent more expensive.
“We believe H2 is most likely to be the solution to get to zero emissions. The key issue is cost,” says Michele Della Vigna at Goldman Sachs, who reckons that it will become economically viable at a carbon price of around $220 a tonne.
Yet for mills to switch en masse to clean hydrogen, there would need to be a massive expansion in renewable energy infrastructure. Germany, for instance, would require additional renewable power equating to about 20 per cent of its current electricity consumption to convert its steel sector to DRI based on green hydrogen, according to the International Renewable Energy Agency. This demonstrates how only so much scope for change is within the steel’s industry gift.
If eliminating CO2 entirely lies at one end of the spectrum, other initiatives aim to prevent gases escaping or envisage intermediary solutions that could step down emissions over time.
At its Ghent plant 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.
On the same site, ArcelorMittal is spending €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.
However, environmentalists critical of so-called carbon capture, usage and storage systems argue they are expensive, largely unproven at scale and distract from the root cause of emissions.
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Kingsmill Bond, an energy strategist at Carbon Tracker, a think-tank, believes that CCUS does have a role to play in heavy industry. “But it’s the last 10 per cent . . . It will be needed, but it will be the last piece, not the first piece.”
While industry heavyweights wrestle with what has become an almost existential dilemma, the challenge is attracting new entrants hoping to shake up a sector where disruption is rare.
US-based start-up Boston Metals, spun out of the Massachusetts Institute of Technology and backed by Bill Gates, says it has devised a technology for making brand-new steel without emissions using electricity.
In a method not dissimilar to aluminium production, current is passed through a cell. This consists of a steel shell with 2m edges, which inside contains what the company calls a “soup of molten oxides” including iron ore.
A far cry from the blast furnaces of up to 35m high that can be seen at vast steelworks, the idea is that Boston Metal will supply small modular units to production sites that can be scaled up in line with demand. Chief executive Tadeu Carneiro describes it as “the inverse of a battery”.
“We inject electricity,” he says. “The cell will spit out a very pure iron, where you can add the other elements to get your high-quality steel.”
The nine-year-old company recently received investments from mining companies BHP Group and Vale, taking its total funding to more than $100m, and 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, which is $15 to $35 dollars per megawatt-hour, we will be competitive without a carbon tax,” says Carneiro. “This really will change the world.”
If green steel is to truly have an impact in the fight against climate change, the industry cannot treat it as a niche, premium product. In a commodity business where cost is king, taxpayer support is likely to be needed during the transition as legacy companies work on making new production processes more efficient and competitive.
“The European government allowed tax to be levied so that it could support the growth of renewable energy,” says Mittal.
“We are saying that similarly there should be some kind of policy mechanism or framework [and] support for the steel industry so that we invest in developing the projects into fully-fledged commercial projects.”
Another important consideration for policymakers is trade, given that steel is one of the most internationally traded commodities, with frequent accusations of dumping at low prices.
As well as 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 idea is to prevent cheap foreign products with a large environmental impact undermining domestic companies investing in expensive green technologies.
Yet even if this sets an implied carbon price floor across international markets, some wonder whether the numbers are there to encourage widespread take-up 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 Doug Parr, 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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