Big Steel starts prepping for a net-zero world

Adam Aston is chief storyteller at RMI, of which Canary Media is an independent affiliate. Here he shares highlights from the recent Clean Energy Ministerial in Pittsburgh, where the global shift toward green steel was a topic of discussion and new pledges.

PITTSBURGH, Penn. — Pittsburgh is synonymous with the U.S. steel industry’s heyday and its troubled decline. And while substantial steel production survives, the region is reckoning with a new challenge: how big steel, its allied suppliers and its customers — all heavy greenhouse gas emitters — can adapt to a low-carbon world.

Representatives from the region’s steel and energy industries joined global players in Pittsburgh at last month’s Clean Energy Ministerial. The event, headlined by a who’s who of Biden-cabinet energy officials, featured Energy Secretary Jennifer Granholm unveiling funding and terms to seed an archipelago of six to 10 Regional Clean Hydrogen Hubs nationwide.

Green hydrogen is the front-runner in the race to decarbonize steel — along with other hard-to-abate sectors including cement, aviation fuel and petrochemicals — thanks to a confluence of policy, funding and technology.

The urgency is pressing. The steel industry today accounts for around 7 percent of global greenhouse gas emissions. And with demand for steel projected to grow by 30 percent by 2050, emissions will balloon as well, absent a quick shift to low emissions and green steel.

In Pittsburgh, the discussion around steel offered a microcosm of the difficulty that hard-to-abate industries will face in transitioning to a net-zero world. While much of the focus has been on perfecting recipes to decarbonize steel, challenges related to financing, regulation and end-user demand must be resolved too.

Conversations at the Clean Energy Ministerial highlighted how the industry must find ways to finance the transition while synchronizing a transformation across supply chains that span the globe, in jurisdictions with varying climate policies — from coking coal mines in Queensland, Australia and West Virginia to appliance makers in Frankfurt and Guangzhou.

Financing greener steel

The steel industry’s steady growth is feeding a huge appetite for capital. Industrywide, hundreds of billions in investment must be mobilized to upgrade and build new steel facilities in coming years.

The need for funding opens a window for big banks to help push the industry toward lower-carbon options, and in so doing, cut the carbon-intensity of their loan portfolios. 

As part of Climate Week NYC, a half dozen of the largest lenders — Citi, Crédit Agricole CIB, ING, Société Générale, Standard Chartered and UniCredit — unveiled steps to begin measuring and disclosing the emissions associated with their steel-related loans.

These signatories to the Sustainable STEEL Principles represent a combined bank loan portfolio of approximately $23 billion in lending commitments to the steel sector, for a market share of over 11 percent of total private-sector steel lending, according to RMI research.

As pressure grows for banks to achieve net-zero emissions in their portfolios, the agreement creates a set of common rules to simplify and encourage competition among banks to fund zero-carbon projects. The virtuous race increases capital availability and lowers capital costs for innovators in this space.

This voluntary agreement is modeled after a similar agreement that is transforming global shipping. The Poseidon Principles, launched in 2019, now include 28 banks as signatories, representing over half of all global shipping finance. Similar frameworks for aviation and aluminum are also in development.

Asia: Epicenter of steel’s future 

So far, the headline-grabbing successes in green steel have been centered in Northern Europe, a region where policy, technology, renewables and demand are converging to jump-start the shift. In 2021, Volvo booked one of the first major commercial purchases of green steel produced by a Swedish steel plant run by Hybrit in partnership with SSAB.

Yet the world’s steel industry is centered in Asia. China and India rank as the world’s top two producers, and the more mature economies of Japan and South Korea are likewise major global players. Australia is the world’s top exporter of iron ore and coal (both thermal and metallurgical), so it’s the dominant supplier to Asian steel markets.

That’s why for the industry to go green, the revolution must take root in Asia, too. ​“There is no more important region than Asia when it comes to steel decarbonization,” Jen Carson, head of industry at the Climate Group, said at a roundtable that brought together industry leaders from India, South Korea, Indonesia and Australia.

But the region’s mills face different challenges than those in the West. In India, the second-largest producer and consumer of steel in the world, more than a third of the nation’s industrial greenhouse gas emissions come from steel production due to its reliance on coal.

Yet the industry in India is highly fragmented, comprising many small plants, which limits their ability to fund new technologies such as direct reduced iron fueled by green hydrogen. And while falling costs for renewable electricity in India make green production increasingly competitive, reaching net zero will require a large technology shift and substantial financing, which in turn relies on developing demand for green steel.

Priming demand with green public procurement

That’s where green public procurement standards are emerging as a vital source of demand to spur investment. In sync with this meeting, the United Nations released a Green Public Procurement Pledge, to which India is a signatory, committing governments to buy low-carbon steel, cement and other building materials.

“With the Indian government’s $1.3 trillion infrastructure plan, steel demand is going to go up rapidly. Green public procurement is very much essential,” said Prabodha Acharya, group chief sustainability officer of Indian steelmaker JSW Steel.

The Biden administration, earlier in September announced a similar commitment to buy low-carbon steel, cement and other green building materials for the U.S. government’s existing and new facilities, the world’s largest portfolio of buildings. RMI estimates that by 2050, this procurement of green building materials in the U.S. will directly reduce emissions by up to a cumulative total of 15 million metric tons.

Coordinating across geographies… 

Asia’s steelmakers are highly dependent on imports of raw materials. Without coordination between suppliers, producers and buyers of these materials, the shift to low-carbon steel could stall.

Consider iron ore, which must be chemically compatible with new hydrogen-based production methods. ​“We need the right grades of iron ore to do the green steel pathways,” said Peta Olesen from Australia’s Department of Climate Change, Energy, the Environment and Water. She estimates that today, only 7 percent of global iron-ore production reaches the quality necessary for green steel production.

For the raw materials that go into steel, as for many industries, shifting both supply and demand toward green alternatives poses a chicken-and-egg problem. Without proven demand, producers can’t afford to fund the new technology needed to supply green steel production. But buyers won’t commit to purchase new low-carbon goods without confidence that producers can provide supplies.

“We need greater collaboration up and down the value chain and across countries,” said an Australian representative. ​“It may be that the market would solve for green steel in the long term, but we need greater collaboration between iron-ore producers and steelmakers” for the shift to happen quickly.

Australia, the world’s largest exporter of iron ore, is also blessed with some of the lowest-cost renewable energy sources and is positioning itself to become a low-cost exporter of green hydrogen. The Australian government has partnered with Japan, Korea and others to develop green hydrogen exports for steel production as well as green ammonia for use in co-firing in steel plants.

…and between industries

Collaboration between governments is now turning into coordination between industries. To speed this shift, the Net-Zero Industries Mission, part of the Mission Innovation initiative, was launched at the Clean Energy Ministerial. Led by the governments of Austria and Australia, its goal is to speed up demonstration projects of low-carbon technology in heavy industry.

“We are not building renewables fast enough to power industrial decarbonization,” said Matt Rogers, outgoing CEO of the Mission Possible Partnership, a global alliance of public and private climate leaders focused on decarbonizing the world’s highest-emitting industries. The cost of building out renewable energy infrastructure represents 70 percent of the total capital needed to make the switch to green steel production, Rogers estimates.

By 2030, the world needs 70 new green steel plants in order to stay on a trajectory to net zero by 2050, according to a study by MPP released last month. For now, ​“we’re talking about a handful of projects,” said Rogers. ​“But we need to see major capital investments in the next 18 months” to ramp up from demonstration-scale facilities to commercial production.

“We simply don’t have the luxury of time,” said Rana Ghoneim from the United Nations Industrial Development Organization. ​“We need to act.”