New research: time for steel to shed its coal problem

The decarbonisation of the steel sector is underway, yet near-term decisions by investors, companies and policy makers will determine if emissions from steel drop significantly or stay stubbornly high, according to a new report from the Australasian Centre for Corporate Responsibility​ (ACCR).

The steel sector is one of the most carbon intensive industries in the world, accounting for approximately 11% of global carbon emissions. The vast majority (90%) of emissions from steel production come from the use of metallurgical coal in conventional blast furnaces to produce iron, the primary component of steel.

“Forging pathways: insights for the green steel transformation” highlights that 71% of the world’s blast furnaces are due to reach the end of their operating lives between now and 2030, which means decisions to invest capital in refurbishing blast-furnaces, rather than available green steel processes, risks locking in coal-based methods for decades to come.

The research finds that across every stage of the value chain, companies are taking advantage of advancements in technology to enable less carbon intensive steelmaking. But not all technologies labelled “green” offer the same potential for decarbonisation.

Green hydrogen showed the most promise in terms of technological advancement, while Carbon Capture and Storage remains one of the least cost-effective solutions, with significant uncertainty around viability and effectiveness.

The research concludes that capital allocation towards innovative green iron technologies in regions with abundant renewable energy potential is imperative. One possible solution sees ironmaking decoupled from steelmaking, with iron production occurring in areas with significant renewable energy production, delivering a reliable supply of high-value green iron.

The report analyses how 20 major companies (16 steelmakers and four iron ore miners) are addressing steel decarbonisation, finding:

• For the iron ore companies:

  • Three companies mine iron ore in the Australian Pilbara region, where the vast majority of iron ores are not currently suitable for commercial Direct Reduced Iron (DRI) or Hot Briquetted Iron (HBI) production. Each company is tackling this challenge, acknowledging the significant business risk and initiating efforts to address it, with outcomes still to be determined.
  • Scope 3 emissions, predominantly from steelmaking, account for more than 95% of their total emissions footprint. Investments aimed at reducing scope 3 emissions are underway, but ambition and clarity vary.
  • All are pursuing decarbonisation projects (64 in total) with an array of technologies, but with varying degrees of emissions reduction potential.
  • All are directing substantial investment towards operational decarbonisation by 2030, however all need to improve disclosure of their specific capital allocations toward steel decarbonisation projects.

• For steelmaking companies:

  • 50% of the decarbonisation projects the group has invested in have significant potential to reduce emissions, while 40% of the projects have only limited potential.
  • 94% of the companies have net zero by 2050 targets, but short-term commitments are scarce, suggesting companies will struggle to deliver the rapid and substantial emissions reductions their targets require.
  • Less than 20% have net zero emissions targets explicitly encompassing Scope 3 emissions.

Commenting on the findings, Fiona Deutsch, Company Strategist and Lead Analyst at the Australasian Centre for Corporate Responsibility (ACCR) said:

“Steel does not have a climate problem, it has a coal problem. With 90% of emissions from the sector coming from the use of metallurgical coal to produce iron, it’s clear that moving capital allocation away from coal-dependent methods and towards genuine green steel processes is where investors, companies and the climate will get the most bang for their buck.

“One of the most time-critical decisions now is whether any more money is pumped into coal-dependent steelmaking processes.

“Investors and companies across the steel value chain can’t afford to waste a minute, or a dollar, heading in the wrong direction.

“It’s very clear from our research that the shift towards green steel is underway and that this is a sector that no longer deserves the reputation of being ‘hard-to-abate’.

“Every single one of the steelmaking and iron ore companies we analysed is investing in decarbonisation projects - which really illustrates the immense opportunities for value creation the market sees in green steel. However, we are also seeing investments go into technologies that have limited decarbonisation potential. Just because a process is called ‘green’, doesn’t mean it is.

“While the overwhelming majority of steelmaking companies we analysed have net-zero by 2050 emissions reduction targets, what investors really need to see is robust near-term commitments. Delaying decarbonisation just makes the job harder further down the track, risking capital misallocation and loss of market share as transition leaders pull away from the laggards.

“The financial risks associated with failing to decarbonise are already apparent and will only increase, for example as the EU’s Carbon Border Adjustment Mechanism (CBAM) fully kicks in. Conversely, all signs indicate that producing green steel is only going to become more cost-effective, with market demand forecast to increase.

“Having the right policy and regulatory frameworks in place is critical for creating favourable investment environments, and global advocacy by investors and companies for the right policy settings is critical.”