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Europe’s Steel Transition Stalling, Needs Further Funding

Steel and concrete CCUS and hydrogen-based solutions require investor backing.

European steel companies need financial support to restart their emission reduction efforts or risk burning through their carbon allowance 15 years ahead of schedule, according to a new Industry Tracker report. The climate research house for investors assessed the transition strategies and degree of alignment with the Task Force on Climate-related Financial Disclosures (TCFD) of ten of the largest steel companies, which account for 68% of primary steel production in Europe. Companies include ArcelorMittal, Tata Steel, Thyssenkrupp and SSAB.

Reductions from production efficiency improvements “have all but plateaued”, Industry Tracker said, noting that the assessed companies have only reduced their emissions intensity by 1% per year over the last two decades.

On average, the European steel industry has less than 26% of its carbon budget remaining before 2050, the report added. “This means the industry’s existing assets could release 2.3 billion tonnes of CO2 in their lifetime, compared to the [International Energy Agency scenario’s] 2050 budget of just over three billion,” Industry Tracker said.

However, European steel companies will be facing steeper carbon prices due to changes in regulation, the report warned. The EU’s Emissions Trading Scheme (ETS) and planned Carbon Border Adjustment Mechanism (CBAM) will make it harder for companies to offset their emissions rather than committing to absolute reductions. Of the ten assessed companies, only ArcelorMittal, SSAB, Voestalpine and ThyssenKrupp use carbon prices that are aligned with the EU ETS allowances, which have doubled since 2019, Industry Tracker said.

This means the steel sector has less time to decarbonise.

Investing in innovation

Industry Tracker warned that companies will need to stop using current production methods and invest in new steelmaking technologies to achieve net zero by 2033, which will require a significant amount of capital expenditure from each company. For example, transitioning to green hydrogen-powered production is estimated to cost firms between US$4 and US$34 billion (depending on asset base size), the report noted, adding that the sector will be extremely reliant on public funding and partnerships.

These companies are already investing in innovative solutions, but will need more financial backing to accelerate their development and implementation. Six out of ten have secured public funding for projects looking to develop and scale carbon capture, utilisation and storage (CCUS) technologies. Further, around 70% of companies in the report are involved in projects centred around blue and green hydrogen-powered steelmaking.

CCUS technologies are also being explored by other carbon-intensive industries, such as concrete, according to market research firm IDTechEx.

The production of cement, which is a key ingredient for concrete, contributes 7% of global anthropogenic CO2 emissions, the firm noted, adding that the need for low-carbon concrete production will only intensify due to population growth. But concrete firms could recycle CO2 produced through carbon-curing, where captured carbon is injected into fresh concrete as a method of storage, IDTechEx said.

Nonetheless, in order to more quickly become a feasible and commercialised solution, CCUS projects continue to need significant investment from public and private investors, as well as policy support, Industry Tracker warned.

“With momentum starting to build for new technologies, particularly green hydrogen, steel companies have the opportunity to break out of their current capital-intensive business models. I am optimistic that with public support, cross sector partnerships and investment capital seeking to solve the climate crisis, steel companies have the potential to lead the way in the transition and drive the green hydrogen economy,” said Carole Ferguson, Managing Director of Industry Tracker.

Steel is also among the first sectors to be targeted by Climate Action 100+ (CA100+), one of the world’s largest investor engagement initiatives on climate change. As part of CA100+’s Global Sector Strategies workstream, the initiative has outlined sector-specific investment expectation on steel company transition plans, asking for workstream-aligned progress reports by the end of 2022.

For example, CA100+ has asked steel companies to disclose their scope for deploying CCUS or hydrogen-based technologies and to specify which policy positions they are adopting to accelerate their transition to net-zero, such as in relation to the EU’s CBAM.

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