How to green the steel industry? Start with steel buyers

As we push to decarbonize heavy industry, it helps to start with an industry’s customers.

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Jenny Chu is the head of energy productivity initiatives at nonprofit the Climate Group. This contributed content represents the views of the author, not those of Canary Media.

The 2020s are the Climate Decade. We have until 2030 to cut global carbon emissions in half. Heavy industry has a pivotal role to play in slashing CO2 — and so do buyers of heavy-industry products such as steel.

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Industry accounts for 30% of global greenhouse gas emissions. Without urgent action, the sector will be the largest global contributor to emissions by 2030. The steel industry alone is responsible for about 7% of the world’s annual greenhouse gas emissions. Deep decarbonization of steel manufacturing and other heavy industry needs to start now, with producers committing to net-zero targets and clear pathways to progress. The steel industry has investment timelines that require decisions in the next few years if it is to reduce emissions to zero by 2050.

But while the need for industry action is clear, less attention has been paid to the role and responsibility of big buyers of industrial products.

The transition to net zero will be difficult — but not impossible

Heavy industrial sectors are usually deemed harder to abate,” meaning that it is costly and difficult to introduce carbon-reducing technologies into the production process. But we at the Climate Group believe this categorization is misleading. In a 2018 report, the Mission Possible Partnership found that it is technically possible to decarbonize energy-intensive industrial processes, and at a total cost of less than 0.5% of global gross domestic product, with minimal impact on consumers.

The report highlights that we don’t need to wait for additional technological breakthroughs. Many technologies already exist, including several in the process of commercialization. Achieving net-zero emissions by 2050 is entirely possible with the right economic and governmental support.

However, the industrial sector still faces real challenges in the transition to net zero. Industrial infrastructure often has a long life span; steel plants can operate for 30 to 40 years or more. The option to adapt or retrofit is not always available. And retiring these plants and investing in new types of technologies is a big financial decision, with tangible and significant risks to be considered.

The bulk of heavy industry’s carbon emissions come from processes that must be carried out at very high temperatures. Generating these high temperatures using electricity is impractical and costly. Alternative fuels, such as biomass, aren’t readily available. The use of hydrogen to replace coal in steelmaking has not yet been developed to a fully industrial scale — though the early indicators are promising.

Most critically, factors including thin profit margins, highly competitive markets and lack of international government coordination on regulation can deter producers of industrial products from making big investments in new technologies, especially if there is no clear demand or global regulatory driver for net-zero materials.

Given the challenges of decarbonization, one could argue that there is little incentive for producers to move now. Yet time and again, businesses that have been slow to move on climate change have found themselves disrupted and outmaneuvered by competitors. The industrial sector is not immune to the forces now driving dramatic change in transport and energy, and heavy industry’s biggest customers are increasingly committed to net zero.

Where there’s a will, there’s a way

The Climate Group is bringing together leading organizations that are committed to using 100% net-zero steel by 2050 in partnership with ResponsibleSteel. By harnessing members’ collective purchasing power and influence, our SteelZero initiative sends a strong demand signal to shift global markets and policies toward responsible production and sourcing of steel.

In addition to a 2050 goal, SteelZero members commit to an interim target of using at least 50% net-zero steel by 2030. We ask our members to set the most ambitious, credible target that fits with their strategy. Members should use steel that meets at least one of the following criteria:

  • ResponsibleSteel-certified or the equivalent.
  • Produced at a site that has science-based greenhouse gas emission targets set by the corporate owner.
  • Produced using a low-emissions process that can incorporate the use of scrap steel.

It makes business sense for organizations across the steel supply chain to be prepared for the transition to a low-carbon world. Investors have already raised concerns that the steel industry needs to act now to safeguard its future. The nonprofit CDP has concluded that 14% of steel companies’ value is at risk if they prove unable or unwilling to decrease their environmental impact. Steel producers will need to respond or lose valuable customers who are committed to achieving their net-zero targets.

But it’s not just the responsibility of businesses. Governments and the right policy environment can motivate decarbonization of steel supply chains. Public procurement needs to support this by specifying net-zero steel as the standard. Carbon border adjustment mechanisms may be required in the future so that domestic suppliers that lead in this change effort are not unfairly outcompeted. The European Union is now considering just such a mechanism, which could affect imports of steel and other industrial products.

This is the power of the demand signal. We’re confident that this is the right approach because it has worked with other Climate Group initiatives. When we launched RE100, our global initiative that brings together influential businesses committed to 100% renewable electricity, the cost of renewable electricity was prohibitive. Today, RE100’s 300-plus members have a combined electricity demand greater than that of the U.K. or Italy, and their actions are fast-tracking the transition to zero-carbon grids. Renewable electricity is cheaper than it has ever been. Suppliers have increased production, which has further reduced the price. It has gone from impossible to being a no-brainer for business. We have the same ambition for SteelZero.

Through SteelZero, we are convening leaders in the renewable energy, automotive, construction and property sectors as part of three working groups to better understand the challenges that suppliers and users of steel face as they move to decarbonize. Sharing knowledge between unlikely allies across the steel supply chain is vital to support collective industry action, encourage clear policies and show intent to investors and consumers.

This collaboration will enable us to create a market for net-zero steel that’s available at scale and at a fair price, building momentum for global action to decarbonize the steel industry.

Steel isn’t the only industrial sector that needs to change. Other heavy industries must commit to curbing their carbon emissions to limit global warming to below 1.5 degrees Celsius. Later this year, the Climate Group will launch another global initiative in this area, so watch this space.

(Lead photo: Ricardo Gomez Angel/​Unsplash)

Jenny Chu is the head of energy productivity initiatives at the Climate Group. She leads an emerging portfolio of work with heavy industry sectors, which includes SteelZero.