Steel: It’s not sexy, but changing this industry is vital to reducing global warming and so climate change
In my recent article on the role capitalism can and must play in dealing with climate change, I mentioned that other articles would follow looking at specific industrial issues that need to be faced in the climate battle. This is the first of those articles.
Why steel?
Policymakers and environmental groups worldwide focus a lot on reducing emissions from cars, planes and power plants, all of which are vital. But if we are to get to net-zero emissions, other less front-of-mind sectors need to change as well. One of those is steel.
The production of steel results in c.7% of all global carbon dioxide (CO2) emissions.
That compares with flight travel and shipping at under 2% each (see chart at the bottom of this note). Every ton of steel emits on average 1.85 tons of carbon dioxide, to say nothing of other pollutants like sulfur dioxide, nitrous oxide, contaminated wastewater and hazardous solid wastes.
The difficulty in trying to deal with this problem is that steel is everywhere.
It is currently an indispensable part of our economic world. Steel is used in a vast range of industrial and consumer products: cars, trains, ships, farm machinery, scaffolding, construction materials, factory production lines, guardrails, barbecues, etc.
And production levels continue to rise.
In 1950, global steel production was 189 million tons per annum. By 2018, that figure had jumped 10x to 1.8 billion tons. The International Energy Agency projects this to rise by another third again by 2050 as developing economies rapidly advance. With nearly half of global steel production, China has a big role to play if the industry’s impact on the warming of our planet is to be reversed.
No real alternatives.
Barring the discovery of some brilliant new non-polluting material to replace it, we are going to need steel for the foreseeable future. The question then becomes how can we substantially reduce the carbon footprint of steel production. The industry has made considerable efficiency gains over the years, but with overall production up, its carbon footprint keeps rising.
Solutions.
The solution therefore must come from either breakthrough technologies which decarbonize the production process and/or the adoption of effective carbon capture and storage (CCS) to reduce emissions. Before investigating the potential for such advances, let’s have a look at current steel-making processes.
Why is steel production so polluting?
It begins with iron ore.
Over 2 billion tons of which is mined every year - 95% is used by the steel industry. Iron ore is the world’s third most-produced commodity by volume - after crude oil and coal - and the second most traded commodity - only beaten by crude oil.
The mining of iron ore is highly energy-intensive and causes vast amounts of air pollution in the form of nitrous oxide, carbon dioxide, carbon monoxide, and sulfur dioxide from diesel generators, trucks and other heavy equipment...to say nothing of the pollution caused by transport by rail and/or ship from mines to steel mills all over the world. It also lays waste on the natural environment, indelibly scarring the land (see photo below). And it pollutes the water table with heavy metals and acid that continue to leak out for decades even after a mine is closed. (Mining companies never end up paying for such externalities of course.)
Then there is coal.
Primary steel production via blast furnace requires large inputs of coke; high-grade coal that has been baked until it becomes carbon by burning off impurities without burning up the coal itself (a highly polluting process causing the release of toxic compounds). Coke burns with intense heat and is used in the reduction process to remove oxygen from natural iron ore to make purified pig iron. This chemical reaction emits large amounts of CO2.
The whole steel manufacturing process uses vast amounts of energy produced by–you guessed it–fossil fuels.
Steel requires about 20 gigajoules of energy per ton produced. Three-quarters of the energy comes from burning coal, making the production of steel the most energy-consuming and CO2 emitting industrial activity in the world.
Options to reduce the environmental impact of steel-making:
Reduce the carbon footprint of the blast furnaces used to smelt iron, for example by using natural gas rather than coke to remove the oxygen from the iron ore. This is more expensive, but it can reduce CO2 emissions by roughly half. Introduce a carbon tax and the price differential will quickly drop.
Increase the use of electric arc furnaces to refashion steel scrap into new steel products. This is much less polluting and adds an element of circularity to the process. If renewable energy is used to power the furnaces, the result can be dramatically lower emissions. This is already being actively done, with nearly half of steel production coming from electric arc furnaces. The difficulty is finding enough scrap steel and sufficient supplies of renewable energy. As demand for steel continues to rise, you simply need more primary steel to be produced, which can then be recycled down the road.
Use hydrogen to transform the iron ore and also to power electric arc furnaces. When hydrogen is used in a blast furnace instead of coke to remove the oxygen from iron ore, the byproduct is water rather than carbon dioxide. And when hydrogen is produced using renewable sources, it can be a steady source of green energy. This technology is available today, but it’s very expensive and currently inefficient given the extra energy created by using hydrogen is only marginally above that needed to collect the hydrogen.
Carbon capture and storage: This involves capturing the carbon released in the steel-making process and storing it underground or using it for other industrial purposes. A lot of research and investment is going into this, but the reality is that carbon capture and storage is still a long way from becoming an effective part of the solution to global warming. In 2019, the combustion of oil, gas and coal worldwide generated about 34 billion tons of CO2. It is thought it will take 30 years before direct carbon capture can pull 1bn tons of CO2 out of the atmosphere. It makes more sense to pull carbon straight out at the source in power or steel plants. But that too is still a very distant prospect and needs much more investment and technological development.
How do we bring about change? Push and pull…
The push has to come from governments via a carbon tax and regulatory pollution controls, as well as, perhaps, from green investing pressure rewarding those steel companies that change and selling out of those that don’t.
The pull can come from industrial customers demanding a lower carbon footprint steel product. Increasingly, steel companies will find it in their own interest to be on the right side of this issue. If you want to get an idea about what the steel industry itself is saying about making environmentally-friendly changes in the production process, have a look at this article. https://www.worldsteel.org/steel-by-topic/environment-climate-change.html. As an example, Germany’s largest steelmaker Thyssenkrupp in August last year outlined plans to build a plant in Germany by 2025 able to produce “carbon neutral” steel by using hydrogen generated from renewable energy sources. It aims to produce 400,000 tons of “green steel” that year and raise it to 3 million tons by 2030...still small compared to its total current production of 13 million tons. And the firm has given itself an out by saying that this plan is heavily dependent on the development of hydrogen as a fuel. If that lags, they will operate the plant initially using natural gas.
Technology innovation is required and at all stages of the steel production process. So is government involvement!!
Making greener steel is possible, but it is also expensive. Bill Gates in his new book, How To Avoid a Climate Disaster, estimates the extra cost in making green steel at 16% to 29% — a material but not astronomical premium given steel producers are not charged for the carbon and other polluting emissions they release. Alter this via a carbon or other tax and the incentive to move to greener methods of steelmaking will suddenly increase. And it is directly in the hands of governments to make this happen. Similarly, they can incentivize the development of alternative technologies via research grants, tax benefits and subsidization of greenfield projects. Hydrogen seems to be the key. The world needs this to become a major energy source in the future. To achieve this means reducing the cost of harnessing hydrogen and the stability of its use. With research and development, that might be possible...and we need to hope it is, particularly as hydrogen use could potentially be extended across many industries, including cement and transport.
Capital markets also have a role to play
The business consulting firm McKinsey estimates that global steel companies will lose 14% of their value, on average, if they aren’t able to reduce their environmental impact. Why? Because the increasingly large pool of ESG investors will shun them, while even mainline investment funds will think twice about being seen to be an investing partner in such businesses. The consulting firm concludes that “decarbonization should be a top priority for remaining economically competitive and retaining the industry’s license to operate.” Source: Bloomberg
Conclusion
This article has been focused on steel. But steel is just one of many heavy industry materials that in total are estimated to make up c.22% of global CO2 emissions. Forty-two percent of that — about 10 percent of global emissions — comes from the combustion of fossil fuels to produce large amounts of heat needed in the manufacturing process of industrial products like cement, steel, and petrochemicals. That 10% is similar to all the CO2 emissions from automobiles. For all kinds of reasons, industrial heat is going to be one of the toughest nuts to crack, carbon-wise. And we haven’t even gotten started.
Truly defeating climate change, of course, will mean getting to net-zero carbon emissions and eventually negative emissions. That means decarbonizing everything: every economic sector, every industry that uses fossil fuels. The problem is that we do not yet have the technology to do this. Nor, though, did we have the technology to go to the moon when that challenge was first taken on. Innovation requires governments and the private sector to work together, helped by capital markets, to drive research and development and then production of new technologies.
Time to get started!!!
