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'Green' steel label may end up on coal-made products, complicating climate goals


According to Market Intelligence, December 2022


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'Green' steel label may end up on coal-made products, complicating climate goals

SNL Image

A worker walking toward the U.S. Steel Clairton Works on March 11, 2018, in Clairton, Pennsylvania. U.S. Steel is one of the steel companies backing the ResponsibleSteel initiative, an ESG certification program seeking to help the steel sector decarbonize.
Source: Drew Angerer /Getty Images News via Getty Images

The world's first label for certified "green" steel may wind up on products made with coal, because technologies to remove the fossil fuel from the steelmaking process are still in development.

ResponsibleSteel is a certification program focused on environmental, social and governance issues. The initiative aims to help the steel sector decarbonize in line with the Paris Agreement on climate change, and it is backed by titans of the steel industry and civil society groups. It plans to launch a product certification standard in 2022, after launching a site certification standard in 2019.

The initiative will likely be forced to reckon with the steel industry's dependence on coal. The main two steelmaking processes use it for fuel and the most popular, blast furnace, method also uses coal as a reductant. This chain of production emits greenhouse gas through both the mining and burning of the coal. The steel markets in China, Japan, Luxembourg, India and South Korea produced an aggregate 1.96 billion tonnes of carbon dioxide equivalent in 2019, according to Trucost data.

ResponsibleSteel has taken the position that steel can be considered "green" based on the total ESG footprint of the steelmaking process, not just the greenhouse gas emissions released. The organization weighs a range of environmental factors when assessing a certification, including companies' handling of mine tailings and water quality.

One of the initiative's civil society partner organizations, advocacy group Mighty Earth, took issue with labeling steel made with coal as environmentally friendly.

"I don't think using coal can be climate friendly, period. Our goal is to eliminate coal from the steelmaking process and switch to more sustainable materials," CEO Glenn Hurowitz said in an interview.

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ResponsibleSteel is open to certifying steelmakers that use blast furnaces, as well as steelmakers that use coal-fired power as an energy source, it confirmed in an Aug. 23 email. The group's standards require steelmakers to measure and disclose their greenhouse gas emissions and are designed to "reward reductions in [greenhouse gas] emissions for all types of steelmaking … irrespective of any particular technology or steelmaking route," the email stated.

Labeling steel made with coal as environmentally friendly could be misleading to consumers because available methods for curbing the coal-based emissions from steelmaking are insufficient, Caitlin Swalec, an energy and climate researcher with Global Energy Monitor, said in an interview. Global Energy Monitor is a think tank that tracks emissions from the steel industry.

"I don't think there is any valid argument for increasing or even sustaining the level of steel production with coal right now," Swalec said. "Any argument looking at how to make coal production more sustainable is just trying to extend a lifeline to the coal industry."

Steel should only be considered "green" if it is produced with electricity generated with renewables and through a process that gets close to zero greenhouse gas emissions, Swalec said.

Nascent technologies

Technologies such as hydrogen-based steelmaking or the carbon capture and sequestration process are still in the nascent stages. Alternative furnace technology such as electric arc furnaces rely primarily on scrap steel and release far fewer carbon emissions, but would only satisfy roughly 45% of steel demand as of 2050 due to limited availability of scrap material, according to an industry report released in July.

ResponsibleSteel has also welcomed pure-play coal companies into the initiative, including U.S.-based coal producer Arch Resources Inc. and Canadian coal miner North Coal Ltd., which is led by Ian Maxwell, the former head of BHP Group's coal unit.

Including coal companies in the discussion will provide valuable input, ResponsibleSteel CEO Anne-Claire Howard said in a recent interview with S&P Global Market Intelligence.

Mighty Earth has been calling on automakers and other manufacturers to stop purchasing steel produced using coal in any way, either as a power source or through blast furnace-based steelmaking, Hurowitz said.

Achieving this goal will take time because more steel capacity will need to come online to satisfy demand. Mighty Earth has been pushing for manufacturers to only buy steel from companies with a "credible commitment" to removing coal from the process.

Most investors are aware that decarbonizing the steel sector is going to take time and a coordinated effort, Moody's Investors Service lead coal analyst Ben Nelson said in an interview. Current technology will make it impossible for steelmakers to reach net-zero carbon emissions without removing coal from their processes, though methane reductions and carbon capture can make steel less carbon intensive, Nelson said.

Nelson compared the inclusion of coal-made steel in the ResponsibleSteel certification process to the Obama administration calling natural gas a "transition fuel."

"That's a much longer runway. If you look at thermal coal for power generation, depending on your region of the world, there are a lot of opportunities to switch to natural gas or renewables," Nelson said. "In the steel industry, it's going to be a lot more challenging."

Trucost is part of S&P Global Market Intelligence.