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Steelmakers forge ahead on cleaning up their notoriously dirty industry

From miners to automakers, steel industry players are starting to come together to make green steel” the new norm.
By Ingrid Lobet

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(AFP via Getty Images)

Steel production pumps out an immense amount of climate pollution, and it’s one of the most difficult industries to clean up. But during the recent Climate Week NYC event, panel participants outlined several viable paths toward green steel.

The stakes are enormous. Steelmaking accounts for 7 to 8 percent of all carbon dioxide emissions from fossil fuel use. That’s largely because traditional steel production burns coal, both to heat the furnaces and to drive the reaction that frees pure iron from iron ore. There are alternatives, but they aren’t cheap or easy.

But more quickly than might have seemed possible, a group of companies and organizations has come together to tackle the constellation of challenges involved in decarbonizing the steel industry, and it’s already making tangible progress.

We are seeing a great shift happening in the steel industry,” said Anne-Claire Howard, CEO of ResponsibleSteel, who moderated part of a Climate Week panel on the topic. ResponsibleSteel, a nonprofit, brings together players in the steel supply chain that otherwise might not talk to each other, including ore miners, foundry owners and automakers. They’re now working together to figure out how best to wrestle down carbon emissions in their industry.

As companies are increasingly forced to account not only for their own emissions but also the emissions of their vendors and suppliers, more forums like this are hosting productive conversations between companies in different sectors. Howard said the effect is being felt throughout many industries but is particularly momentous with steel.”

Ralf Pfitzner, global lead for sustainability at Volkswagen, said the steel industry is now at a tipping point. For years, he said, VW, a major buyer of steel, watched and in some cases invested in small pilot projects that demonstrated cleaner steelmaking processes. But these small and piecemeal efforts were not really moving the needle.”

Now it’s different, he said. In Europe, all major steelmakers have announced plans to scale up an alternative to coal-fired production: using hydrogen fuel made via electrolysis to create green steel.” This term refers to steel that is manufactured using emerging and novel methods that dramatically reduce the carbon dioxide emissions from the production process.

Participants in this initiative in Europe include the continent’s mainline steelmakers, as well as groups such as H2 Green Steel in Sweden, backed by Vargas Holding and Spotify’s Daniel Ek. Volkswagen also invests in H2 Green Steel through Scania, part of its massive truck and bus division. Mercedes-Benz is an investor in the company as well and has said it will start to use fossil-free steel in 2025.

There was also buzz at Climate Week about another big development in Sweden: steelmaker SSAB’s success with a dramatically cleaner method of extracting iron from iron ore. Partnering with LKAB, Europe’s biggest ore producer, SSAB’s first batch of clean steel was delivered to the Volvo Group this summer.

Buyers, banks and governments put on the pressure

While ResponsibleSteel is bringing together supply-chain players to clean up the industry, SteelZero is convincing businesses to commit to buying green steel. An initiative of The Climate Group (the lead sponsor of this year’s Climate Week NYC), SteelZero is a buyers’ consortium whose members pledge to use at least 50 percent net-zero steel by 2030 and 100 percent by 2050. A new member of the coalition, steel ball-bearing maker SKF, was announced at the Climate Week panel.

Even companies that are not yet members of the SteelZero initiative are looking to buy more net-zero steel. Those that report their emissions through the Greenhouse Gas Protocol now must include Scope 3 emissions in their tallies — that is, emissions that are embodied in the goods they purchase. Because steel represents a lot of embodied carbon, they need to find cleaner sources.

Each car produced by Volkswagen contains roughly 1 ton of steel, representing 15 to 20 percent of the car’s embedded emissions, according to Pfitzner. This makes green steel an obvious choice, he said.

More steelmakers are starting to face pressure to make the large investments necessary to produce climate-friendly steel. Lucy Kessler, a manager at the Center for Climate-Aligned Finance at RMI, helped to convene some of the world’s largest banks to write a framework they can use with their steelmaking clients, allowing the banks to strike up a conversation and basically understand what their transition plan is,” she said. (Canary Media is an independent affiliate of RMI.)

The initiative began in May and includes Goldman Sachs, ING, Societe Generale, Standard Chartered and UniCredit. Thirteen more banks are on the review board.

The framework could encourage the banks to offer sustainability-linked loans, an increasingly common tool, Kessler said.

The bank may say, We aren’t going to provide funding or capital for a blast furnace, but we could provide capital for an electric arc furnace,’” she said. Another example along these lines could be a bank willing to provide capital for hydrogen infrastructure once it becomes more cost-effective. The goal is to have the majority of global financiers that lend funds to the steel industry sign the framework when it’s complete.

Asian lenders are underrepresented in the effort so far, Kessler said. But Asian steelmakers are paying attention to the broader decarbonization trend, and some are starting to act.

Howard of ResponsibleSteel said she was contacted by a Chinese steel manufacturer this summer as news circulated of the European Union’s plan for a border carbon tax on steel produced in traditional blast furnaces, among other things. Is this really going to happen?” the manufacturer asked her.

More than half of all steel on the planet is made in China, which last year set a goal to reach economywide carbon-neutrality by 2060. Steel production is responsible for about 15 percent of China’s total carbon emissions, and its industry is under pressure to reduce production to meet government emissions targets.

Major Chinese steelmaker Hebei Iron and Steel has pledged to invest in hydrogen-fueled blast furnaces and direct-reduction technologies as part of a goal to reach net-zero carbon emissions by 2050. China Baowu Steel Group, the world’s top steel producer, reported this summer that it’s piloting a low-carbon process using hydrogen.

Getting to zero

Even in Europe, where policy is relatively consistent, demand signals are increasingly clear, and zero-carbon steel is beginning to be available, the clean steel challenge remains a formidable target.

Producing a ton of steel creates 2.3 tons of carbon dioxide emissions on average globally, according to Chris Bataille, a researcher at think tank IDDRI. The most efficient traditional steel furnaces emit about 1.8 tons of CO2 per ton of steel. In many cases, cleaning up the industry will mean replacing coal furnaces with technology that uses hydrogen from electrolyzers that are powered by clean electricity. This will add significant new costs for steelmakers, as well as substantial sources of new demand on the power grid.

Currently, the easiest ways to reduce carbon emissions from steelmaking are either to produce and use less steel or to recycle old steel. In the United States, scrap steel makes up about 70 percent of the source material for new steel, which is why U.S. steel has a lower carbon footprint than steel from more recently industrialized countries.

Recycled steel can be melted down in an electric furnace, so it can be produced with less than half the carbon emissions of steel made in blast furnaces. The process gets even cleaner if the electric arc furnace is fed with clean power.

China, India and many other countries don’t have the same option to use recycled steel because there is simply not yet enough scrap steel available in those countries, according to RMI’s Kessler.

The challenge in India

India, which ranks third after China and the European Union in steel production, has yet to institute mandates or incentives that would push steelmakers toward low- or no-carbon production.

The Indian multinational JSW Steel has nevertheless committed to cut its emissions by 23 percent below 2020 levels by 2030.

But Tata Steel, India’s largest steelmaker, which has major operations in the country and around the world, has not made such a commitment in its home country, although it is setting emissions-reduction targets for some of its European operations. In remarks at the Climate Week event, Madhulika Sharma, Tata Steel’s chief of corporate sustainability, pointed to the absence of any comprehensive national policy that would push the company toward decarbonization. In fact, the Indian government is one of the company’s major buyers; most large industrial projects in India are funded by the government.

Without strong climate policy or a financial incentive to replace existing machinery, making sizable investments in cleaner equipment would only put Tata at a competitive disadvantage, she said. As of now, there will not be a return” on that investment. How do you communicate to [shareholders] on why you are doing this? Where is the clarity on policy?”

The near-zero technologies are not yet mature,” Sharma said. For example, if you want to use hydrogen, the infrastructure for all the green energy required…is not there.”

The need for a global approach

A massive construction boom is expected in the Global South over the coming decades, making it all the more critical to reduce the emissions associated with steel production. The world will be building the equivalent of all the structures in New York City every month for the next 40 years, said Mic Patterson of the Facade Tectonics Institute, speaking in September at the Net Zero Conference convened by the Verdical Group.

Steel decarbonization experts are aware of this reality and hope the issue will be addressed at November’s international COP26 climate meeting in Glasgow, Scotland. National governments’ action pledges could include commitments to procure green steel. A lot of steel goes into highways and bridges, and most commonly it’s governments that build them.

The COP26 gathering could also prompt multinational efforts to encourage more private-sector steel buyers to set targets for using green steel.

The bottom line? You still can’t walk into an auto dealership and see cars made with low- or zero-carbon steel. But the world has changed fast enough that it’s no longer a ridiculous proposition.

Ingrid Lobet currently divides her time between reporting on climate solutions and investigative work on climate, energy and environmental health.