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Feature: Green steel: who's paying?

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Feature: Green steel: who's paying?

Highlights

Mills, customers consider government backing essential

EU mills leading decarbonization push, others following

London — For steelmakers, steel is inherently "green." Marketeers say it's infinitely recyclable in a market hungry for recycled products including steel scrap. The truth is, however, that the steel industry accounts for some 9% of global CO2 emissions, largely from blast furnace-based steelmaking. Carbon neutrality -- ideally via the use of hydrogen-based technologies -- may add 50-80% to current steel production costs by 2050, much to be borne by the consumer.

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Mills and consumers alike expect governments to foot a substantial part of the bill. Until recently, state aid to steelmakers was prohibited in locations including the EU. Today, decarbonization is in the interest of the governments which have enshrined it in the Paris Climate Agreement: high carbon emissions may cost them even more dearly. EU steelmakers are taking advantage of this to seek funds for their transformation.

Leading steelmaker ArcelorMittal Europe estimates the cost of carbon-neutralizing its own footprint by its target date of 2050 at Eur15 billion-25 billion ($18 billion-30 billion) for its Smart Carbon production route initially using Carbon Capture & Storage and later hydrogen, and Eur30 billion-40 billion using hydrogen in a direct reduced iron-electric arc furnace route. But that's not all: the clean energy infrastructure needed to power these routes in a carbon-neutral manner could cost up to Eur200 billion more.

To date ArcelorMittal has invested some Eur300 million in carbon-neutral technology; a further Eur75 million has been put up in European Investment Bank loans and project funds applied for from the EU Innovation Fund.

Climate logic, not economic logic

Germany's thyssenkrupp Steel puts its "entire climate transformation" at around Eur10 billion. It plans two decarbonization routes: Carbon Direct Avoidance (CDA) -- injecting hydrogen into an existing Duisburg blast furnace -- and Carbon Capture & Utilization, in a project funded by the German federal government with Eur75 million.

"The decision to transform production towards climate-neutrality is not driven by economic logic, but by climate logic," thyssenkrupp said. "Barely any steelmaker will be able to finance the transformation without public funding." It added that mechanisms such as Carbon Contracts for Difference could help finance change.

Tata Steel, recently in talks with the UK government over a financial package understood to involve green improvements at its Port Talbot works, in December unveiled a Eur300 million environmental roadmap to reduce emissions at its Ijmuiden, Netherlands, plant. Platemaker Dillinger France this month received state subsidies of Eur1.8 million from the French government to speed a current Eur10 million decarbonization program.

Sweden's SSAB, which aims to offer the first fossil-free steel to the market in 2026, plans "large investments" with its partners, miner LKAB and energy company Vattenfall, and will also seek public funding. Its HYBRIT pilot phase and hydrogen-based plant costs about SEK 1.5 billion-2.0 billion ($180million-$240 million), split between the three owner companies and the Swedish energy agency, while the demo plant planned may cost almost 10 times as much.

This will benefit the governments concerned: the project will cut about 10% of the total CO2 emissions in Sweden and around 7% in Finland.

"Making steel using the HYBRIT technology that we are developing is more expensive. We believe there will be a demand for fossil-free steel, also with a premium price on the market," an SSAB spokeswoman said. "But we also see that public support is needed in the beginning before a market for fossil-free steel is completely developed."

Policies and standards essential

Steel prices have been on a roll in recent weeks, with some products leaping to 12-year highs on escalating raw material prices and the impetus of government stimulus-backed infrastructure projects. But it's not only funding or income that's needed -- policy frameworks and standards are also essential.

ArcelorMittal said it "cannot commit to invest until we know that policy enables us to make those investments viable." The definition and policing of green steel standards is a "minefield and we need to work on it," Alan Knight, the company's head of sustainable development, said in a webinar this week.

For Liberty Group, which since 2015 has acquired some former ArcelorMittal works in Europe, and others in the UK, France, US, Australia and India, further consolidation may build scale and reduce costs in Europe's decarbonization. In October it made a non-binding offer to acquire the steelmaking assets of thyssenkrupp.

"Greater collaboration [is needed] to share technology development costs, and crucially a supportive policy framework that encourages investment in low carbon technologies and protects the industry's competitiveness," Liberty said.

Using a mix of funding, Liberty is striving to lead the industry by achieving carbon neutrality throughout its operations by 2030: including by installing DRI facilities at its integrated steelworks in Australia and Romania, initially to be fed by gas before transitioning to hydrogen, and producing rails based largely on recycled steel.

Pricing in carbon

Markets will need to absorb the cost of carbon border taxes in the EU and eyed by the Biden administration in the US. The EU's expected definition in June of its Carbon Border Adjustment Mechanism may set a global standard for green steel. As carbon inevitably comes to cost more, the price of hydrogen -- currently considered prohibitively high by steelmakers -- is set to fall, potentially making green steel cheaper. Hydrogen costs may reach a "tipping point" in terms of steel industry viability within 10 years, according to both Liberty and members of SteelZero, an industry grouping aiming to drive demand for net carbon-zero steel.

Scaling up the EU's hydrogen sector by 2030 would cost around Eur430 billion including around Eur145 billion of public support, trade body Hydrogen Europe said in June. Of this, Eur8 billion is seen necessary to support 20 million mt/year of green steel production -- around 15% of the EU's current production.

Russian advances

While the EU has been a prime mover in global steel decarbonization, building on steelmakers' obligations to participate in the regional carbon market, initiatives are also occurring elsewhere.

Competitive Russian mills are investing to reduce their carbon emissions worldwide, trusting that the European carbon border tax won't become another protectionist hurdle in global steel trade. Decarbonization costs won't be passed on to customers, the Russian mills say.

EVRAZ Rocky Mountain Steel (EVRAZ Pueblo) will this year launch a $285 million 240 MW solar power plant in partnership with Lightsource BP and Xcel Energy. The largest single-customer solar power plant in the US, this will make Evraz Pueblo the first solar-powered steel mill in North America.

NLMK, which owns mills in Russia, the US, Denmark and part-owns in Belgium, France and Italy, will reduce emissions while increasing steel production. It envisages its specific emissions at 1.91 mt of CO2 per mt of steel by 2023, down from 2 mt in 2018.

It is currently investing around $600 million of its own funds on environmental projects, and foresees no significant impact on steelmaking costs.

Severstal has committed to reduce greenhouse gas emissions intensity by 3% by 2023 versus 2020. This followed a 2019 spend of Rb750 million ($10.2 million at today's exchange rate) and of Rb1.34 billion in H2 2020 on environmental projects, all from its own funds.

The company said it will not pass any of the potential add-ons onto customers, relying on equipment and process modernizations to cut costs and become more resource-efficient.