51 minute read
FUTURE STEEL FORUM 2023
Locking horns with the WTO
The World Trade Organisation’s recent ruling claims that tariffs imposed by the USA in 2018 ‘violate’ global trade rules, which the US government has firmly rejected, despite previous criticism from its trading partners. By Manik Mehta*
THE ruling by the World Trade Organisation (WTO) that the tariffs imposed in 2018 by former US president Donald Trump against imports of foreign steel and aluminium violated global trade rules, did not seem to bother the administration of President Joe Biden, which had, by and large, continued with Trump’s tariffs. However, the Biden administration imposed tariff-free quotas, instead of tariffs, for certain countries with which it has special ties.
The tariffs of 25% and 10% on foreign steel and aluminium respectively had angered America’s allies, including the European Union and Japan, particularly because Trump had invoked a scarcelyused provision of US trade law, declaring imported steel and aluminium as a threat to US national security under Section 232 of the Trade Expansion Act of 1962.
China, the world’s largest steel-producing nation whose steel exports to the US were affected, had, along with other countries, challenged the tariffs at the WTO.
The WTO maintained, in its ruling, that it was ‘not persuaded’ that the US had faced ‘an emergency in international relations’ to justify the tariffs. The WTO rejected the USA’s argument of imposing the tariffs for national security reasons, saying the duties did not come ‘at a time of war or other emergency’.
But, the WTO’s ruling is unlikely to be of any impact at this point. Indeed, if the US does appeal against the WTO ruling, the matter will not be moved ahead, considering that the WTO’s Appellate Body has not functioned for three years since the US blocked the appointment of new judges in the body.
Also, the Biden administration has gained confidence after reaching agreements with its main trading partners – the European Union, Japan and the UK – to practically drop the tariffs and substitute them with import quotas, exempting them from the levies. The trading partners, in return, dropped their retaliatory tariffs against the US.
The Biden administration has in fact taken a jibe at the WTO. “The United States strongly rejects the flawed interpretation and conclusions,’’ said Adam Hodge, spokesman for the Office of the US Trade Representative. “The United States has held the clear and unequivocal position, for over 70 years, that issues of national security cannot be reviewed in WTO dispute settlement,’’ Hodge continued, adding that the WTO had no authority ‘to second guess the national security decisions of member countries’.
However, Hodge emphasized that the Biden administration was committed to preserving US national interest by ensuring the long-term viability of the US steel and aluminium industries, adding that the reports ‘only reinforce the need to fundamentally reform the WTO dispute settlement system’.
Experts believe that the Biden administration is trying to strike a balance between the US trading partners who were unhappy with Trump’s ‘America first’ trade policies, and retaining tariffs that are popular among many US steel and aluminium producers and their workers.
The WTO ruling against the tariffs, however, did not surprise some steelconsuming industries. There had been criticism from some quarters that the tariffs were protectionist and even though the US decision to impose tariffs for national security reasons was a sovereign one, the WTO did not agree with the logic behind the US decision.
Apparently, seeing its argument vindicated by the WTO ruling, China reacted in a statement saying that it hoped that the US would respect the ruling and correct its policies while Switzerland, which along with Norway had contested the tariffs, said that the WTO report only confirmed that countries enjoyed broad discretion to protect security interests – ‘provided they meet certain minimum requirements’. Norway had contended that it had contested the US tariffs at the WTO ‘to prevent protectionism … so that the rules-based, multi-lateral trading system is not undermined’.
The US trade representative’s office sent a proposal to the EU outlining a new plan to shape the global steel and aluminium market, with the goal of promoting trade in metals that are produced in ways that minimize carbon emissions and impose tariffs on metals that are deemed to cause
too much pollution. Details of enforcing such a plan were not publicized at the time of writing this update.
Reacting to the WTO ruling on US tariffs, which were widely supported by US steel producers, the American Iron and Steel Institute (AISI) president and CEO Kevin Dempsey, rejected the WTO dispute panel’s ruling, saying that it had ‘once again gone beyond its mandate’.
Dempsey said: “The tariffs and quotas on steel were instituted by the President following a determination by the Secretary of Commerce that high levels of steel imports and continuing global excess capacity in steel threatened to impair US national security as defined in section 232 of the Trade Expansion Act of 1962. The WTO has no authority to second guess the US government on matters of our national security. This decision highlights once again why significant and systemic reform of the WTO dispute settlement system is essential to ensure that all WTO members’ rights are fully protected.”
Dempsey further argued: “The Section 232 programme on steel has worked to reduce the repeated surges in imports that threatened the health of the American steel industry. It also has incentivized new capital spending by US steelmakers, with investments of more than $22 billion in new, expanded or restarted production since March 2018. Unfortunately, the global steel overcapacity crisis continues to plague steelmakers worldwide, with excess capacity estimated to exceed 562Mt in 2022, more than six times total steel production in the United States.”
Dempsey said that many countries continued to increase their steel capacity. For example, cross-border investments into Southeast Asia, including many incentivized through China’s Belt and Road Initiative, will add over 90Mt of new, export-oriented steelmaking capacity in that region alone over the next few years. “Given these facts, we believe the Section 232 measures on steel remain critically important for US national security. AISI strongly urges the Biden administration to maintain the Section 232 programme in steel and disregard this erroneous decision.”
An issue which is raising the American consciousness is climate change and the need to reduce pollutants in the environment to improve the quality of life.
The Biden administration recently proposed that the EU establish an international consortium dedicated to promoting trade in metals produced with less carbon emissions while imposing tariffs on steel and aluminium supplied by China and other polluting countries.
The proposal, drafted in a document prepared by the Office of the US Trade Representative, provides an unprecedented model of trade co-operation which the US sees as a focal point of its approach to trade policy. The concept of such a consortium, which the Americans see as a Global Arrangement on Sustainable Steel and Aluminium (GASSA), would have the weight of the huge American and European markets aimed at strengthening domestic industries, reducing stress on the environment and minimizing climate change impact. Tariffs would be used by the participating countries against metals whose production causes environmental harm. Experts say that the tariffs would be imposed against metals exported by China and other countries which are not in the group, while those in the group would have favourable trade terms for metals – particularly steel and aluminium.
Indeed, to become part of the arrangement, countries would have to ensure that their steel and aluminium industries comply with certain emission standards. Governments wanting to join would also have to commit to not engaging in over-production of steel and aluminium which have pushed down global metal prices and limiting activity by state-owned enterprises through which subsidies are passed. The US and European Union have been negotiating a climate-specific deal for the steel and aluminium industries since 2021.
Meanwhile, Nucor Corp has made an equity investment in a start-up company developing a process that can produce iron from low-grade ores and renewable electricity. Without giving details about the investment, Nucor said that the process being developed by the Colorado-based Electra had the ‘potential to be a gamechanger’. Indeed, Nucor chairman/CEO Leon Topalian said that ‘we are excited to partner with Electra and its revolutionary process to produce emission-free iron’. The transformative technology ‘… could change the steel industry as we know it’, he claimed. �
Brazil and decarbonization
Wieland Gurlit, senior partner at McKinsey’s office in São Paulo, delivered an interesting presentation entitled: ‘Brazil: a potential leader in the decarbonisation of the iron and steel industry’ at ABM Week, a conference organised by the Brazilian Metallurgical Association (ABM) that was held in June 2022. This article is a recapitulation of the aforementioned presentation. By Germano Mendes de Paula*
GURLIT’S approach was divided into three parts: a) Why is decarbonisation of the steel industry important? b) Which are the fundamental decarbonisation alternatives? c) How can Brazil become a leader in decarbonising the steel industry? Regarding the last question, he paid attention to two issues – biocarbon and green pig iron; green H2 to green HBI – which are also the focus of this article.
Biocarbon in Brazil
Considering specifically the Brazilian industry, McKinsey stated that biocarbon of the future will be very different from the charcoal of the guseiros (the independent pig iron producers, which rely upon charcoal blast furnaces and consumption of mini-lump iron ore). Fig 1 shows that the guseiros’ model is dependent on eucalyptus of sometimes non-traceable and uncertified origins. In addition, this business format has four disadvantages: a) it generates significant greenhouse gas (GHG) emissions in the form of methane in the carbonisation process; b) it has low yield and no by-products; c) it consumes poor-quality charcoal; d) it does not allow for appropriating economies of scale, as the typical blast furnace varies from 50 to 150kt/yr nominal capacity.
The second option regarding biocarbon in the Brazilian steel industry, analysed by McKinsey, was called the ‘optimised charcoal blast furnace model’, which refers to charcoal integrated mills, such as Vallourec and Aperam. In this system, 100% of the eucalyptus comes from replanted and certified forests. In contrast to guseiros, it consumes high-quality charcoal and pellet. Charcoal production can generate valuable by-products and no GHG emissions, while the blast furnaces generate a comparatively higher yield. The blast furnace’s size is around 300-500kt/yr installed capacity. The consultancy firm believes that it is a feasible solution for Brazil in the age of steel decarbonisation.
The third and final alternative concerning Brazilian steel based on biocarbon was described as the ‘scalable metallurgic biocarbon model’. Biomass feedstock will utilise replanted and certified eucalyptus, agricultural and forestry residuals. This model will employ emerging technologies such as Tecnored or Perpetual Next horizontal kilns. It might offer two advantages: a) the fabrication of valuable by-products; b) the production of charcoal fines, to be briquetted into a product with higher strength and density rather than charcoal. Such inputs can be consumed both in the Tecnored (or similar plant) ironmaking equipment and as a PCI substitute in a coke integrated mill. In Gurlit’s opinion, this third model has potential to be a global solution.
Fig 1
McKinsey also considers that the combination of biocarbon and carbon capture, utilisation and storage (CCUS) could lead to steel production even with a negative carbon footprint. The use of biocarbon in the sintering plant and in the blast furnace (by maximising fine injection up to 180 kt/ton and by substituting PCI) could reduce by 0.75t GHG/t crude steel, or roughly 35% of the specific generation of emissions from coke integrated mills. As CCUS could capture 1.68t GHG/t crude steel, the outcome would reach a negative 0.43t GHG/t crude steel.
Gurlit believes that biocarbon could become an attractive complement to steel decarbonisation. He stressed that none of the emerging technologies alone will enable a global net-zero steel industry by 2050. In fact, all of them will need to be employed in combination. Nevertheless, biocarbon needs to improve its perception in the eyes of regulators and the scientific community. At least two problems should be overcome: a) the scepticism about achieving scalability with sustainability; b) the hypothesis that large scale biocarbon production would displace food production. Summing up, biocarbon is an interesting alternative for the decarbonisation of the steel industry, mainly in Brazil, but its future performance might face some relevant concerns.
Exports of H2-based HBI
A second good opportunity for the Brazilian steel industry, derived from the need to decarbonize, refers to export H2-based HBI, mainly to Europe. Gurlit said that green hydrogen will be in short supply in Europe over the next decades. Taking Germany as an example, he estimates that demand for green H2 will amplify from 1.5Mt in 2020 to 3.4Mt in 2030 and even to 6.9Mt in 2040. Meanwhile, the respective supply will expand from zero to 1.7Mt and to 3.2Mt.
Brazil can fill the gap left by the shortage of green H2 in Europe, because the availability of competitive renewable energies puts the country among the most competitive green H2 players in the world. However, it will be quite expensive to transport H2 from Brazil to Germany. McKinsey estimates that the cost to produce green H2 in Brazil as of 2040 will be $1.20/ kg, but the ammonia costs will add $0.88/ kg and the transportation costs (including shipping and cracking) another $1.34/kg.
Bearing this context in mind, the possibility to export H2-based HBI from Brazil to Europe seems more economical. To reach such a conclusion, McKinsey assumes the following assumptions: • Raw materials and freight: last two years’ on average; • Electricity costs ($/MWh): Europe ($37) x Brazil ($23); • H2 cost of production ($/kg): Europe ($2.4) x Brazil ($1.7); • H2 transport via ammonification route from Brazil to the European Union ($/kg H2): $2.1; • Carbon price (€ CO2eq/t): $85; • Exchange rate ($/€): $1.2.
Fig 2 demonstrates that using the technological route consisting of H2 DRI /Submerged Arc Furnace (SAF)/BOF, the landed cost to produce slabs (fully verticalised in Europe) will be equivalent to $595/t in 2030. However, by fabricating HBI in Europe, but importing H2 from Brazil, the result will be $670/t. Considering the possibility of producing H2-DRI in Brazil and exporting it to Europe, the total costs will reach $565/t. Moreover, if only the rolling activities will be performed in Europe, the costs will be $521/t. Consequently, it will be viable to export slabs and H2DRI, but not H2 properly. Similar exercises and conclusions, using the H2-DRI / EAF technological route, are shown in Fig 2.
McKinsey has a positive view of the Brazilian steel value chain under the huge challenges that the global industry will face due to decarbonisation.
Biocarbon, which is a peculiarity of the country’s steel sector, and H2-DRI can be valuable assets during the future transformational changes. �
Fig 2
From imports to exports
Despite being the second largest crude steel producer, India has struggled to raise its exports, relying on the imports of speciality steel from other markets. With new schemes in place, the Indian government is hoping to drive self-reliance, and increase capacity. By Dilip Kumar Jha*
AFTER attaining the status of the world’s second largest crude steel producer, India is now focusing on achieving Aatmanirbhar (self-reliance) in specialty steel in the next few years. The Indian government has been making all possible efforts to attract investment in this highly remunerative sector with little success so far. But, the government is looking now to turn the tide with favourable policy support to make India a large specialty steel exporter in the years to come.
Despite having achieved 154Mt of crude steel production capacity, claiming the world’s second largest crude steel producer’s slot, (only after China which contributes nearly 57% of world output) India continues to remain highly dependent on imports of specialty steel from countries including South Korea and Japan to the
Year-wise incentive outlays (all product categories) Financial year (April-March)
2024-25 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 Source: Ministry of Steel, Government of India
Product category-wise incentive outlays Particulars
Coated/plated steel products High strength/wear resistant steel Specialty rail Alloy steel products and steel wires Electrical steel Source: Ministry of Steel, Government of India
Amount (INR billion)
7.75 10.88 13.94 13.77 12.93 2.22 1.73
Amount (INR billion)
25.05 19.20 2.09 8.52 8.09
tune of up to 4Mt, nearly two-thirds of all types of annual steel import of 6.7Mt.
India currently produces nearly 18Mt of specialty steel against the annual consumption of around 22Mt. But, the trend is now set to change as the union government plans to bring down overseas dependence in specialty steel and thus foreign exchange outgoings of over $4 billion (INR 300 billion).
Production-linked incentive scheme
In an endeavour to attract capital investment, generate employment, promote technology up-gradation in the steel sector, and eventually bring down imports, the government of India introduced a production-linked incentive (PLI) scheme with a total capital outlay of INR 63.22 billion, which initially received a lukewarm response. Launched at fi rst for fi ve years, the PLI scheme was expanded to last another two years. Later, domestic producers were encouraged to participate in this highly remunerative specialty steel production. Five product categories were primarily covered under this scheme which includes coated/plated steel products, high strength/wear resistant steel, specialty rails, alloy steel products and steel wires, and electrical steel, as well as 19 sub-categories.
All these product categories and subcategories contribute a mere 8% of India’s existing domestic annual steel production of 102Mt. By launching the PLI scheme in the specialty sector, the government intends to become self-suffi cient in specialty steel production and move up higher on the steel value chain to be at par with advanced steelmaking countries like Japan and South Korea. Additionally, the Indian government also aims to expand exports of specialty steel to 5.5Mt by 2026-27, and consequently refuel India’s forex reserves by approximately $4.43 billion (INR 330 billion).
Encouraging response
After repeated extensions in deadline, the government fi nally received an encouraging response from existing and potential new steel producers. A total of 79 applications from 35 small and large steel-making companies were received with a total investment commitment of INR 460 billion to set up 28Mt of additional specialty steel production by 2030. However, out of the 79 applications, only 67 applications from 30 companies were selected, with a total committed capital outlay of INR 425 billion to set up 26Mt of new greenfi eld and brownfi eld production. Selected companies have committed 70,000 new job opportunities.
Bimlendra Jha, managing director, Jindal Steel and Power Ltd (JSPL), said that his company has committed an investment of INR 79.30 billion to manufacture eight types of high-end alloy steel in India. JSPL is one of the qualifi ers of the PLI scheme and now aims to increase the output of value-added steel using new age technologies in the Indian steel sector. JSPL along with its subsidiary Jindal Steel Odisha has submitted the highest number of entries to manufacture specialty steel products such as HR coil, sheets and plates, and API graded products used in sectors like oil and gas. Further, the company also plans to manufacture high tensile sheets under the PLI scheme which are used in structural grade fabrication and the automobile industry. JSPL has also identifi ed auto-grade steel AHSS and cold rolled and coated products for use in the auto sector, as well as tin mill products for use in the tin and food processing industry. For application in white goods, and auto and roofi ng segments, JSPL group plans to manufacture coated/plated products of metallic/non-metallic alloys, colour coated, and aluminium (Al)- zinc (Zn) coated (galvalume) grades.
Similarly, Tata Steel has submitted bids to manufacture seven types of specialty steel products, while JSW Steel applied for six categories. The offi cial documents submitted to the government reveal that ArcelorMittal Nippon Steel India has also submitted four entries, while the Indian government-owned Steel Authority of India Ltd (SAIL) submitted the least number of applications for just two specialty steel categories.
Conclusion
Specialty steel is a value-added variety wherein normal fi nished steel is worked upon by way of coating, plating, and heat treatment to convert into high value-added steel for use in various strategic sectors such as defence, space, power, and automobiles, among others. The price of specialty steel is increased in proportion to the additional efforts made to produce such high-end products. With this, India is on course to become a net exporter of specialty steel in the next four to fi ve years. �
is increased in proportion to the additional efforts made to produce such high-end products. With this, India is on course to become a net exporter of specialty steel in the next four to fi ve years.
The gold standard?
The ResponsibleSteel Standard does not say no to new blast furnaces or ban the use of coal. The aim is not to tell companies how to make their steel, but rather to set a standard to reduce the impacts of their production processes – and that requires that all certified steel must have lower than average emissions for given inputs and production systems… and then to improve on that.
IN the small town of Lulea in northern Sweden, they are reinventing how we make one of the most common materials in the modern world. The process of manufacturing steel being pioneered there may rescue the metal alloy from its growing reputation as an environmental pariah, responsible for approaching a 10th of the annual emissions of gases causing climate change. For the pilot plant on the shores of the Baltic Sea does away with the coal-guzzling blast furnace, one of the foremost technologies of the industrial age, and replaces it with a system that employs hydrogen, made using water and wind power.
Hydrogen Breakthrough Ironmaking Technology (HYBRIT) is a collaboration between the Swedish government and the country’s biggest steel, iron-mining, power, and car-manufacturing companies. It currently produces one tonne of steel per hour, some of which has gone into Volvo vehicles rolling off the production line during 2022. But by 2026, a commercialscale plant should be turning out more than a million tonnes of ‘green steel’ a year. And by 2050, its backers believe the technology could be making most of the world’s primary steel and cutting the industry’s carbon dioxide (CO2) emissions by more than 90%.
But HYBRIT, like other technologies now being developed to decarbonize steel making, is currently costly. It adds about $300 to the price of a car. So, are there enough makers and consumers of steel products willing to pay this green premium? Or are governments willing to subsidize it or regulate to require it? If there are, then how can manufacturers effectively brand and certify their green-steel products – and give the financiers who must bankroll the trillion-dollar industrial transition confidence they will get returns on their investment?
Setting the standard
At ResponsibleSteel, we believe we have the answer. Set up seven years ago by steel makers and civil-society activists as an independent body, we have devised an
international climate, environmental, social and governance standard for steel that we believe can drive the market, while making it transparent, honest and verifiable.
Steel making is the largest materials industry in the global economy. Nothing else matches steel’s combination of strength, durability and low cost, for building bridges and skyscrapers, pipelines and railway tracks, ships and automobiles, stadiums and wind turbines, consumer goods and the machines that make them. Developed countries typically have around 10 tonnes of steel in use for every man, woman and child. Around two billion tonnes more is manufactured worldwide every year.
Steel builds big. The 163-storey Burj Tower in Dubai contains 31kt of the stuff; the Beijing ‘bird’s nest’ Olympic Stadium 42kt; and the Sydney Harbour Bridge weighs in at 53kt. Yet such statistics are dwarfed by the steel content of the world’s motor vehicles. More than a billion tonnes of steel is driving around the world’s roads every day.
But there is a downside. The production of steel is a prodigious source of the CO2 emissions warming the atmosphere. It is responsible for around 3.7 billion tonnes annually, according to the International Energy Agency (IEA). This is due primarily to its reliance on coal, the dirtiest fossil fuel, as both a fuel and a feedstock.
How steel is made
Chemically, iron ore comprises various oxides of iron. So to make steel, it has first to be stripped of its oxygen atoms. This is done by mixing the ore with coke in a
blast furnace. Coke is made from a very hard form of coal known as metallurgical (as opposed to thermal) coal. When this is burned, it creates the high temperatures needed to melt the iron ore and release its oxygen, which is captured by the carbon in the coal. The resulting ‘pig iron’ falls out to the bottom of the furnace, from where it is further refined to make steel. But the other output of the process is carbon dioxide. The production of a typical tonne of steel made in a blast furnace typically emits around 2.3 tonnes of CO2.
Not all steel comes from blast furnaces. Increasingly, the world is recycling scrapped steel. This does not require carbon to remove the oxygen. It can be done by melting scrap in electric-arc furnaces. Rather than coal, these furnaces require lots of electricity. So the overall carbon footprint of the process depends on how that electricity is generated in the power station. Generally, that fuel is still coal or natural gas, resulting in worldwide average emissions for electricarc furnace production of 0.6 tonnes of CO2 per tonne of output. But emissions can be much less if the electricity comes from low-carbon sources, such as wind turbines, solar panels, hydroelectric dams or nuclear
reactors.
While some 85% of the world’s steel scrap does get recycled, this cannot meet rising global demand for steel, which has doubled in the past two decades. More than two-thirds of demand is met with primary steel from blast furnaces, making steel responsible for some 11% of global CO2 emissions and 8% of all greenhouse gas emissions. With blast furnaces making up more than three-quarters of new steel-making capacity currently under construction (India’s production is set to more than double by 2030, for example), the industry’s outsized contribution to climate change seems set to rise further – especially as other industries decarbonize.
This cannot go on. The IEA says that if the international community is to meet its pledges to limit warming to near 1.5 degrees C, the steel industry needs to reduce its CO2 emissions by more than 90% by 2050. Time is short, warns SteelZero, a Climate Group initiative run in partnership with ResponsibleSteel with a focus on scaling demand for net-zero steel
by mobilising quantified and timebound public commitments from private sector steel buyers, under which steel purchasers promise to achieve 100% net-zero steel sourcing by 2050. It says that to be on track will require ‘substantial emissions reductions within this decade.’
Rising quantities of scrap
There is good news for the long term. The carbon intensity of steel production should fall as rising quantities of scrap become available to make new products. But the long lifetime of many steel products, especially in construction, means that in most countries supply will continue to lag many decades behind demand, says ResponsibleSteel co-founder Matthew Wenban-Smith, who led on the greenhouse gas requirements of the new ResponsibleSteel International Standard V2.0.
“To achieve net-zero steel, we will have to use steel efficiently, and maximize the recovery and recycling of scrap. But that is not enough,” he says. Even on optimistic assessments, there won’t be enough scrap to be the key to decarbonizing steel making for at least half a century, even if every electric-arc furnace runs on renewable energy. So the industry urgently needs other solutions. “We need to produce net-zero steel from iron ore – and at scale.”
Enter ResponsibleSteel. Our organization was set up in 2015 by veterans of past green business certification systems such as the Forest Stewardship Council (FSC), to stimulate this process. Co-founder Francis Sullivan, today calls ResponsibleSteel ‘a coalition of the willing.’ We had initial funding from ArcelorMittal, the world’s second-largest steel producer, and Australia’s BlueScope Steel, and today our membership is responsible for around 13% of the global industry.
Under ResponsibleSteel’s membership rules, steel makers must submit at least one production site for certification to an entry-level standard, which also means committing their business to working towards near-zero emissions, explains Thuong Bui, standard and assurance director at ResponsibleSteel. By late 2022, 53 sites had been certified across five continents, collectively producing over 100Mt of steel per year. A further 15 site audits are in the pipeline, Bui explains.
The universal standard?
ResponsibleSteel has enthusiastic NGO members, too. “We think it is going to be the universal standard,” says Reecha Upadhyay of Climate Catalyst, which campaigns on green steel. “We tell for making greener steel is not ready yet, so it intends to reline an existing blast furnace at its giant ResponsibleSteel-certified Port Kembla plant, to come into operation between 2026 and 2030.
The company says this does not undermine its environmental credentials. It has committed to reducing the carbon intensity of its steel making operations by 12% between 2018 and 2030, and the relining will help achieve that. It is also expanding scrap recycling at its operation in the United States and partnering with Shell and Rio Tinto to develop greener steel making technologies, which it says it will adopt swiftly as they become commercially available and as markets open up for green steel.
The stakes are high. Blast furnaces last many decades and generally need their interior brickwork replaced every 15 to 20
years, at a cost of hundreds of millions of dollars. Under business-as-usual, half of all steel plants globally are due for this relining before 2030. The Global Energy Monitor,
governments and others considering devising their own standards: don’t spend years reinventing this. The work is done. Look no further.” But it is early days for delivery, she says. “None of the certified sites yet have clear financed pathways and action plans to achieve near-zero.”
That is hardly surprising. The transformation will be expensive. Companies considering the necessary investment fear greener, more expensive products will lose out to cheaper and dirtier competitors. But on the other hand, if markets start demanding certified green steel at scale, first movers may have an advantage, as slow adopters find themselves with shrinking markets and stranded assets.
One company on the cusp of such a decision is ResponsibleSteel founder BlueScope. It says the alternative technology
BOX ONE – GREENHOUSE GASES
GRAPH PRODUCED BY RESPONSIBLESTEEL AND STEELZERO ResponsibleSteel’s certification system is evolving. On 14 September 2022, initial requirements for the certification of production sites were extended, following an extensive consultation. The new International Standard V2.0 sets additional tougher requirements for certifying steel, allowing steel makers that meet these to make enhanced claims to their customers.
Under the system, sites can be certified at four levels of emissions of greenhouse gases (not just CO2) of increasing strictness. To meet Level 1, the entry level for initial steel certification, producers must be better than the current average for the proportion of scrap in their feedstock. Where there is no scrap, that average is the greenhouse gas equivalent of 2.8 tonnes of CO2 per tonne of steel. It declines on a sliding scale as more scrap becomes part of the mix, to 0.35 tonnes for 100% scrap.
Level 1 is intended to be temporary. As Smith of Mighty Earth puts it: “We need to get rid of Level 1 as soon as possible. Better than average is not compliant with Paris.” Level 2 requires emissions a quarter below the current average. Levels 3 and 4 are tougher again, with Level 4 requiring emissions below 0.4 tonnes of CO2 per tonne of steel for no scrap, and below 0.05 tonnes for all scrap. The level will allow those who achieve it to claim “near-zero” emissions.
Certification requires companies to track and publish updates on their progress to reducing site emissions and on their current performance to produce certified steel. ResponsibleSteel does not currently set a timetable for companies to graduate through the levels. But Climate Catalyst says they should aim to hit Level 2 by 2030, Level 3 by 2040 and Level 4 by 2050. “It’s going to take a massive effort to get to Level 4 by 2050,” says Heaton. “But that’s what we have to aim for.”
Graph produced by ResponsibleSteel and SteelZero
an independent think tank, reckons that the steel sector could spend $70 billion on blast furnaces in the next few years, which it estimates would lock in the future emissions of some 65 billion tonnes of CO2.
Surging demand
Annie Heaton, CEO at ResponsibleSteel, expects that demand for decarbonized steel will surge with the first ResponsibleSteel certification of steel, due in 2023, and with the growing influence of SteelZero among steel purchasers. “We believe buyers will compete to be responsible,” she says. “Our view is that the market will reward the right thing if the conditions are there. The big question for both private and public sector procurement teams has been how they can specify steel in a way that will make a difference and be credible at the same time. If we all can be clear and consistent on that, the market can really drive change. Our aim is to work with the market to create those signals to drive that change.”
ResponsibleSteel avoids being technically prescriptive. The ResponsibleSteel Standard does not, as some NGO activists propose, say ‘no new blast furnaces’ or ‘banish coal now’. “Our position is not to tell companies how to make their steel, but to set a standard to reduce the impacts, however, they make it,” says Heaton. Initially, that requires all certified steel to have lower than average emissions for given inputs and production systems. And then to improve on that.
Critical here is the proportion of scrap used in production. This is by far the biggest determinant of emissions, but one over which a shortage of supply means many producers have little control. So ResponsibleSteel’s emission standard has a sliding scale from where no scrap goes into production and higher emissions are allowed, to 100% scrap where the required levels are much lower (See Box 1).
The purpose of this approach is partly to maximize industry buy-in and kickstart the industry towards low-carbon. But partly also because it makes no sense to set a standard that stimulates a rush for scrap when there is only a limited supply. That may help green the output of downstream companies that can afford to pay the most and corner the market in scrap, but it would penalize others, especially in developing countries with little scrap available. “It would be a beggar-myneighbour strategy,” says Heaton.
This pragmatic, flexible approach can be a hard sell to policymakers in Europe who are attracted to promoting local recycling and adopting simple carbon-intensity targets for steel, she says. “We can seem to be apologists for dirty steel makers.” But it has widespread backing among industry analysts, including the IEA, which publishes its own sliding scale. Many environmental advocates also agree. “We need to increase scrap use as much as possible, but it has a finite supply, so you can end up with cherry-picking by the auto industry and leaving other sectors without. That doesn’t help anyone,” says Roger Smith, Japanbased project manager at Mighty Earth, a US-based environmental group and ResponsibleSteel member.
Luckily, there is an alternative to blast furnaces. It turns iron ore into pig iron
without melting, by running a huge electric current through the ore, and stripping out the oxygen atoms using a gas, usually natural gas. A few plants already use this system, known as direct reduction, notably in the Middle East, where natural gas is cheap and plentiful. They typically produce half as much CO2 as coal in a blast furnace. But direct reduction can also run on hydrogen. Then, with no carbon involved, the by-product is not CO2 but H2O – water.
The hydrogen must be manufactured, however. This is best done by electrolyzing water, which also requires large quantities of energy. But if the energy for both making this ‘green hydrogen’ and running the furnace comes from low-carbon sources, then primary steel can be made with CO2 emissions as low as 0.1 tonnes per tonne of steel. This is what HYBRIT is piloting in Sweden. Vattenfall, the Swedish state electricity utility and partner in the project, calls it ‘the biggest change in steel production in over a thousand years.’
Many regard direct reduction with green hydrogen as the technical Holy Grail for near-zero production of primary steel. If it happens at scale, then it will require the creation of a huge new industry for producing green hydrogen. Alongside SSAB, a growing number of steel producers now plan to use the technology to deliver near-zero emissions by 2050, from, ArcelorMittal, Voestalpine and ThyssenKrupp in Europe to POSCO in South Korea.
Alternative fuels
Another, less technically radical way to lower emissions in primary steel production may lie in using alternative fuels in blast furnaces. For instance, coal can be replaced as a carbon fuel and feedstock by biomass. In Brazil, steel companies already grow trees to make charcoal to burn in blast furnaces. Provided new trees replace those cut down, this could theoretically be carbon neutral. But would it in practice?
This issue has been a talking point during discussions about ResponsibleSteel’s Standard. Some environmentalists argue that timber would be better used to replace steel in construction, where the carbon remains in the wood. Others say that the claimed carbon-neutrality is a fantasy and
add that there is only a limited amount of land to grow trees, most of which already has other uses, such as growing food.
Coal could itself have a future if blastfurnace CO2 emissions were captured, and either used as an industrial feedstock or buried underground. Carbon-capture technology has been piloted on a small scale in the steel industry, but nobody has yet scaled it up sufficiently to deliver the kind of carbon reductions needed. Still, the British government appears keen. It envisages creating a carbon-capture hub near British Steel’s Scunthorpe plant, which could collect CO2 from there and other local heavy industries, for burial in nearby former gas fields under the North Sea.
However it is done, creating low-emission ways of making primary steel is likely to remain costly, and increasingly it looks like a holding strategy until the world generates enough scrap to meet most demand through recycling in electric-arc furnaces.
Steel is already one of the most recycled of all materials. But scrap’s takeover of the industry is bound to be slow. In many developing countries that are still installing their urban infrastructure, there is as yet little scrap available. But even in developed nations its use varies greatly. In Europe, much of the abundant scrap is exported to countries where lower electricity prices make running electric-arc furnaces cheaper. The UK exports three-quarters of its scrap steel, and just 18% of its steel production is from scrap.
Green steelmaking in the USA
But in the US, which has lower electricity prices, around 70% of steel production is from scrap. (As a result, the carbon intensity of its steel industry is lower than most other countries at less than 1 tonne of CO2 per tonne of steel).
Wherever supplies are available, scrap recycling needs to be encouraged. Alongside this, we at ResponsibleSteel are also keen that our Standard ensures that electric-arc furnaces reduce the CO2 embodied in their output, by powering them with low-carbon electricity. Many still run on electricity generated in power stations that burn coal. “Just because electric-arc furnaces are lower-carbon than blast furnaces doesn’t mean they have a get-out,” says Jen Carson, head of industry at Climate Group. “Coal has to leave electric-arc furnaces, too.”
Steel companies are often big enough customers to demand green electricity from their local grids. One is US Steel, which is doubling the capacity of its recently certified Big River Steel electric-arc furnace site in Arkansas, and plans to roll out a range of branded sustainable steel products made there. It has encouraged its energy supplier to invest in new solar power capacity to meet its demands, according to senior vice president and chief strategy and sustainability officer, Richard Fruehauf.
While low-carbon steel is high on the industry’s agenda, it faces other challenges that must be addressed to meet society’s
BOX TWO – SOURCING
Alongside greenhouse gases, the second addition to the ResponsibleSteel Standard is bringing responsibility for the sourcing of the industry’s input materials. Supply chains are complex, so this will take time and patience, says Bammert. Initial rules require companies to commit to responsible sourcing in principle. Then they must develop a full understanding of their supply chains, and assess their suppliers’ environmental, social and governance performance. Once the performance of suppliers has been assessed, companies will be required to increasingly source from suppliers that have a proven good performance, and to report publicly on their efforts.
Performance in the supply chain will, where possible, be assessed according to existing industrial certification standards, such as those of Bettercoal, the Initiative for Responsible Mining Assurance (IRMA), and for timber or charcoal replacing coal in blast furnaces, the FSC.
There are some quantifiable targets along the way. For instance, Level 1 requires producers to know where 80% of their iron and coal-based inputs come from, as well as the country of origin of 40% of scrap, and to have 100% of wood supplies from FSC-certified plantations. Level 2 will require 80% of iron and coal to come from suppliers that meet recognized performance levels, and 30% of scrap to come from audited suppliers.
By Level 4, certification will require producers to know where 98% of their iron- and coal-based materials comes from, with 80% from suppliers meeting recognized standards, and to know the country of origin of 80% of scrap inputs, with 60% of that scrap from audited suppliers.
expectations of 21st century businesses. Those challenges are also reflected in ResponsibleSteel’s principles and Standard. “This non-carbon stuff is not, as some say, baggage slowing down the journey. We can’t and won’t ignore other issues,” says Heaton. “You can’t be certifying steel products that have low carbon emissions but are bad on the environment or human rights,” agrees Smith at Mighty Earth.
These issues are important in the audits carried out by independent bodies for ResponsibleSteel certification, says Sabine Bradac who has carried out these audits at LRQA, the successor to Lloyds Register. ResponsibleSteel’s audits are more thorough than many, she says, covering everything ‘from ethical governance, health and safety, human rights, collaboration with interest groups, to greenhouse gas and noise emissions, water management, biodiversity and decommissioning procedures.’ Auditors ‘interview not only employees, but also representatives of communities, NGOs, environment agencies and others,’ she says, because the companies must show they are willing to co-operate with these stakeholders.
ArcelorMittal’s European CEO Geert Van Poelvoorde observes that the process ‘has helped us improve our approach towards our rights holders, including our local communities, our employees, and the contractors working on our sites.’
Labour and human rights
Still, there are issues to be resolved. Setting an international industry standard for labour and human rights is complex, because even developed countries have widely differing national laws that may not meet the expectations of stakeholders in the certification process.
For instance, International Labour Organization (ILO) norms on labour rights, which are incorporated in ResponsibleSteel’s Standard, are not enshrined in United States law. This has created problems for the member of the ResponsibleSteel board from the trade union movement, the Geneva-based international federation of trades unions, IndustriALL. Matthias Hartwich, its director for base metals, says that while the Standard is generally “strong and well-elaborated, and sometimes higher than ILO standards,” auditors aren’t always seen as fully implementing it to the letter.
This is where ResponsibleSteel’s assurance programme has the discretion to encourage progress rather than making binary assessments of pass or fail. Where one element of the Standard has not been met, the auditor can flag a ‘minor nonconformity’ for the site to improve on before the auditor’s next visit in 18 months’ time.
Establishing the credentials of process input materials from mining and elsewhere is another key requirement of certification. Overall, iron mining is estimated to be responsible for 23% of greenhouse gas emissions from the mining sector. But establishing the actual environmental footprint of these activities is not easy to achieve, says Marnie Bammert, who led the drafting of requirements on sourcing at ResponsibleSteel. “Supply chains are so complex. Some companies don’t know where much of their material comes from.”
So the current entry-level requirements ask for companies to set up procedures, collect data, increase transparency and assess and seek commitments from suppliers. At subsequent levels, they will adopt existing recognized standards – for instance on responsible mining – asking steel manufacturers to source from suppliers meeting specific performance indicators (See Box 2).
A growing issue will be ensuring good working conditions for the millions of collectors and sorters of steel scrap across the world, whose supplies the industry will use in increasing volumes. In some parts of the world, these small operators often operate in the informal economy. “Scrap is often regarded as sustainable, because it is recycling,” says Bammert. “But there can be issues around environmental and labour conditions, and few standards exist.”
The ultimate aim for most resourceintensive industries in the 21st century is likely to be the more efficient use of energy and materials. Steel will be no exception. So how can it be done? Many of the gains are likely to be downstream, among the major industrial users of steel.
More than half of the world’s steel is used in construction. The CO2 emissions from steel production that is embodied in buildings and infrastructure is huge. This received little attention until recently, as the standards and purchasing decisions of the construction industry have come under closer scrutiny. Some companies are addressing the challenge.
Wind farms
One is Orsted, a leading Danish windpower developer and founder member of SteelZero. The construction of wind farms is among the largest consumers of steel in Europe today. A single wind turbine can contain as much as 300 tonnes of steel. But the company says the specialised alloys needed are not available from low-carbon sources. It recognizes that it is crazy to fritter away climate gains by generating low-carbon electricity from its turbines by using high-emission steel in their construction. So, it intends to work with suppliers to have a carbon-neutral supply chain by 2040.
Also ahead of the game is Lendlease, an Australia-based international property company that is a member of both ResponsibleSteel and SteelZero. It procures 600kt/yr of steel for its buildings. But even this demand leaves it a minnow in the marketplace. Still, says the company’s head of sustainability in Europe, Paul King, by combining with other companies in construction, shipping, car production and the renewable energy industry and others, “we can send a stronger signal to steel manufacturers, and help them justify greater investment in decarbonizing further.”
Greener purchasing is not the only approach, however. Sometimes not embodied in the new structures, which will typically make up a third of an office block’s lifetime emissions.
purchasing is best.
To make their building stock more energyefficient, some property companies want to
tear down poorly insulated buildings and replace them. But architects are warning that such efforts often ignore the emissions
Whole life carbon assessments
Some European countries require mandatory ‘whole life’ carbon assessments for new buildings. But not yet the UK, where the issue has surfaced over plans by the retail giant M&S to demolish and replace a landmark store in central London. Objectors say the project will generate 40kt in embedded CO2 emissions. M&S claims the energy savings in the new building will recoup this within 17 years. A final decision awaits a public inquiry.
The optimum solution when replacing existing buildings will often be to reuse structural steelwork, says Will Arnold, climate change specialist at the UK Institute of Structural Engineers. “My mantra is simple: use less stuff,” he says. A bit of ingenuity can halve material use in buildings. Buildings should from now on be designed with reuse in mind – for example, by using standard-sized beams, and employing bolted connections rather than welded joints.
The second largest user of steel is the vehicle industry. The average road vehicle contains almost a tonne of steel. With many makers keen to improve the saleability of their vehicles by improving their green credentials, Sullivan sees the industry as a key market driver for greening steel production. Especially, he says, since the trend to electric vehicles running on renewable energy means the embodied emissions from steel used in their
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BOX 3: CHINA
In the race to decarbonize the world’s steel, much hangs on China. The country is currently home to half the world’s steel production, much of it to meet the demands of its booming construction sector. Annual Chinese steel consumption is currently 0.7 tonnes per person – higher than peak levels seen in the past in Europe or the US. Its blast furnaces take more than 30% of the country’s coal output.
Beijing promises more scrap recycling in future, using electric-arc furnaces. But this could be a slow change since the average age of its blast furnaces is today only 13 years. China aims to peak steel industry emissions by 2030, but an analysis by the environment think tank E3G suggests that a 1.5-degree compatible pathway requires those emissions to be halved by then.
ResponsibleSteel has high hopes of launching its Standard in China. “I think we will find China willing to engage,” says Heaton. “In some areas, such as air pollution, Chinese standards are often already higher than in Europe.”
construction is becoming an increasingly large part of their lifetime carbon footprint.
Volvo keen on HYBRIT
Thus, Swedish car maker Volvo is keen to be part of the HYBRIT project. The company was also the first car maker to join SteelZero. The ResponsibleSteel Standard requires steel makers to disclose verified information about the steel they supply, giving credibility for Volvo and others in meeting their supply-chain targets. “It limits our exposure to future climate risks and regulations,” says chief procurement officer Kerstin Enochsson.
Fruehauf at US Steel says his car-making customers ‘are all going green.’ His company recently introduced a sustainable steel line, verdeX®, which he hopes will comply with ResponsibleSteel’s product certification. Meanwhile, he wishes more of his customers would join ResponsibleSteel and recognize its certification. “We have one big auto maker here who sends us a long questionnaire every year to fill in on sustainability issues. But the questions all coincide with the principles of ResponsibleSteel’s Standard,” he says. “So, if that company would just recognize that our certification answers their questions, life would be a lot simpler.”
Fruehauf says this story illustrates one of the great potential benefits for the steel industry from the widely applied ResponsibleSteel Standard for steel. “There are a lot of people out there – environment groups, customers, bankers, regulators and so on – with their own definitions. An agreed definition would help us all.”
Governments
A third group of market players should be even more influential, however: governments. Their policies will be critical to advancing low-carbon steel, through regulation, financial subsidies for ‘green steel,’ and market incentives. In June 2022, the European Parliament adopted a carbon legislative package including the new Carbon Border Adjustment Mechanism (CBAM). Through the CBAM provision, the EU plans to impose a carbon levy on imports if certain product groups are deemed ‘emissions intensive,’ including iron and steel, starting in 2027, with a full phase-in taking several years. The levy will be designed to match the costs incurred by European steel manufacturers who must buy emissions permits under the EU Emissions Trading Scheme (ETS) and is intended to stop high-carbon producers gaining a competitive advantage in European markets.
It may also encourage investment in lower emissions technologies outside the EU. “The EU tariffs are already concentrating minds in Asia,” says Upadhyay at Climate Catalyst, which works with governments in the region. “It is an incentive for them to up their game.”
Government procurement policies
But equally important will be government procurement policies. Public construction projects such as bridges, buildings and railways account for around a quarter of global steel use. This makes governments into major market players. If they choose, they can set, recognize and uphold standards that other purchasers will follow.
At the climate COP in Glasgow in late 2021, world leaders launched a Breakthrough Agenda. They declared their hope that by 2030 ‘near-zero emissions steel’ will be ‘the preferred choice in global markets.’ ResponsibleSteel and SteelZero are among the initiatives included in the agenda, to drive private sector demand for low-emissions steel. But will governments themselves play their part in making this happen? Some have already moved ahead. The state of California sets thresholds for the levels of embodied CO2 in steel purchases for public works projects. But elsewhere policies on public procurement often lag.
The Industrial Deep Decarbonization Initiative (IDDI) was designed to drive some momentum here, by bringing together governments in a pledge to buy low-carbon
steel and concrete under the auspices of the Clean Energy Ministerial (CEM). At the end of September, leading countries including Canada, Germany, India, and the United Kingdom, pledged to require low-emission steel and cement in public construction projects starting no later than 2030, and the governments of Saudi Arabia, the United Arab Emirates, and the United States announced they were joining the initiative.
This is welcome news.
The British government, as the host in Glasgow, was a prominent signatory of the Breakthrough Agenda. Yet until now it had not set embodied CO2 standards for its own steel projects – including the HS2 highspeed rail line, which is currently Europe’s largest construction project, and will require an estimated 2Mt of steel over the current decade. “Post-Glasgow, there has been a huge misalignment between what governments say on policy and what they do on procurement,” says Sullivan.
Finance
Right now, bankers are trying to look greener. There is a growing appetite among many financiers to set tough decarbonization standards as a condition for their investment. Steel making is a very capital-intensive business, and many financiers see the industry’s continued high emissions as ‘a hotspot in their portfolios [that] poses risks from a valuation standpoint, says Lucy Kessler, a climate finance specialist at the think tank RMI (formerly the Rocky Mountain Institute).
Future investments in blast furnaces risk becoming financial liabilities, and even if those furnaces continue to function, they will put many financiers at odds with their public climate commitments. ResponsibleSteel’s Standard can serve as a risk-mitigation tool for banks and financial institutions lending to or investing in the industries, says Shiva Kumar, its policy and impacts director. “We want to tell the financial world that there is a standard you can use to benchmark your portfolios.” We have a huge potential to help galvanize finance for decarbonization, with credit linked to ResponsibleSteel certification,” believes Kumar.
Substantial emissions mitigation
Some in the finance world say the Standard does not yet go far enough, however. The Climate Bonds Initiative, a member of ResponsibleSteel that has been developing its own certification system for green investment across industry, has been consulting on a proposed standard for steel.
“Our standards don’t allow investment in old blast furnaces without substantial emissions mitigation,” says its industry transition analyst, Fabiana Contreras. “Investors want more. We only certify if 50% of emissions will be mitigated before 2030. Industry groups don’t like our pathways. But we say the technology is in place and the money needs to go there.”
This assertive approach is matched by the Europe-based Institutional Investors Group on Climate Change, whose members include Goldman Sachs, Allianz and other pension funds, banks and asset managers. In 2021, it called for the industry to make cuts in its emissions of 29% by 2030. But it noted that, while existing technology could deliver 85% of the target, ‘the sector is currently not on track… by some margin.’
No insuperable barriers
The bottom line is that despite the uncertain timelines, there are likely to be no insuperable technical barriers to the global steel industry cutting emissions by 90% by 2050 or so.
Near-zero is achievable. By then, coal burning in blast furnaces could be all but banished, except when equipped with carbon capture. Continuing production of primary steel could mainly employ direct reduction technology using green hydrogen. But recycled scrap could be the main source of steel from new products and infrastructure.
Steelmaking in the year 2070
By 2070, things could look even better. Primary steel production could be largely phased out, as the world’s needs are met from recycled scrap. The HYBRIT plant in Lulea may lie abandoned.
These changes would mean steel production requiring a lot more electricity than today. That electricity will have to come from low-carbon sources, whether solar, wind, nuclear, or hydroelectric power. It would be a complete transformation, with an industry that helped drive the industrial revolution reinvented for the Anthropocene.
If it happens, then perhaps ResponsibleSteel will be out of business, our job done. �
