How will collective green demand signal push low-CO2 investments in global steel industry?

• • Minus disruptive tech, steel industry emissions may reach 4.25 GtCO2 by 2050

• • Decarbonising iron production will lead to reduction of nearly 2 GtCO2 of emissions

• • Creating green demand coalition essential for fast-tracking investments in sector

Morning Brief: Aligning the steel industry’s transition with the 1.5-degree pathway of the Paris Agreement now seems to be an almost lost cause. Limiting global temperature rise to below 1.5 degrees centigrade will call for limiting GHG emissions to between 130-235 gigatonnes of C02 (GtC02), which is also called the remaining carbon budget.

Carbon clock ticking:

According to the IEA, energy related annual GHG emissions globally are close to 40 GtC02. Total emissions are around 52-55 GtCO2 annually. Therefore, it is easy to calculate how quickly the remaining carbon budget is set to be exhausted.

Now, the global steel industry’s annual GHG emissions, as per RMI data, were around 3.13 GtCO2 in 2020. Subtracting the minor energy and material efficiency gains made in steelmaking, this annual figure is more or less static in the absence of rapid proliferation of disruptive low-CO2 technologies such as H2-DRI or electrolysis and CCS. It is easy to calculate how fast the carbon budget may get exhausted.

Emission reduction scenarios:

RMI calculations show that in the absence of proliferation of low-CO2 technologies, that is in a business-as-usual (BAU) scenario, the global steel industrys annual emissions may reach 4.25 GtCO2 by 2050. The reduction strategies are demand management or demand reduction (0.78 GtCO2), decarbonisation of iron reduction (1.93 GtCO2), and CCS or other technologies (1.23 GtCO2). These cumulatively lead to near-zero (0.25 GtCO2) by 2050.

Now, in the context of developing economies such as India, demand reduction at the current juncture is a barely realistic assumption, with growth of 8-10% annually projected till at least 2035. As far green iron, under the compliance mechanism of the CCTS, gradual reductions in emissions through efficiency measures and shift away from coal-based processes through fuel switch may become viable by 2035-40.

Electrolysis and other direct electrification processes may attain significant viability with the sharp reduction in energy costs amid proliferation of renewable energy. However, CCS costs are currently prohibitive, as per industry sources. In fact, in the steel industry there is only one existing facility in the Middle East which is currently operational. Therefore, significant R&D in this domain is required, particularly in the context of post-combustion capture technologies, for wider implementation.

Green coalition:

As per the First Movers Coalition (FMC), expanding the pipeline of commercial-scale, near-zero emissions primary projects and progressing them to final investment decisions (FIDs) in the next five years becomes the critical task for putting the global industry on a 1.5 degrees Celsius-aligned pathway. Strategic interventions can create a viable investment case for breakthrough, near-zero emissions steelmaking technology.

As per RMI research, green steel demand in the Asia Pacific, excluding China and India, is set to reach over 6 mnt by 2030, mainly emanating from the automotive sector (3.3 mnt). Demand signal is absolutely critical for investments. The non-profit has recently announced its plan to launch its Sustainable Steel Buyers Platform (SSBF) in the Asia Pacific with the aim of aggregating green demand to propel investments.

Buyers on the SSBF platform will:

• • Gain early market access to initial supplies of low-emissions steel

• • Gain market intelligence on producer readiness and green premiums

• • Gain early leadership position in the green supply chain

Indian context:

In India, as per calculations, around 25-27 mnt of low-CO2 steel demand has gained visibility by 2030 in the form of government CAPEX on infrastructure. Aligned with corporate targets and the urgency to reduce Scope 3 emissions, demand may be even higher.

The nearly 80 steel producers who have secured the steel ministry’s Green Steel Certificates will be looking to reap the advantage that accrues to early movers and also gaining a premium on their products as the governments much-awaited green public procurement policy comes into effect.