Climate change to shock steel sector profitability, report warns

The global steel sector is facing a vicious cocktail of climate impacts that could see water scarcity, global warming and an increased carbon price place more than 10% of the sector's economic value at risk, according to a new report from CDP.

Climate change to shock steel sector profitability, report warns

The current production techniques within the sector are already close to their efficiency limits

The new CDP report, published on Wednesday (31 July), analysed the risks and exposure to climate change from the world’s 20 largest steel companies – such as SSAB, ArcelorMittal and Tata Steel – worth $259bn collectively.

The report claimed that the sector must reduce emissions by 65% by 2050 in order to align to the ambitions of the Paris Agreement to limit global warming to 2C. However, individual targets set by analysed firms suggest that only a reduction of less than 50% is achievable.

Failure to mitigate climate impacts and deliver a low-carbon future will have huge impacts on the future performance of the sector, according to the report. CDP found that 14% of the companies’ potential value is at risk as a result. This occurs in a scenario where a global carbon price reaches $100 by 2040; approximately 86% of the sector’s Scope 1 and 2 emissions are covered by existing or planned carbon prices that are much lower than this value.

What’s more, the report found that half of all inland steel capacity is exposed to high levels of water-stress risks, with decreases in freshwater supplies and increases in extreme weather events such as drought set to disrupt manufacturing. Company operations located in China and India are most at risk, the report notes.

The current production techniques within the sector are already close to their efficiency limits, meaning radical innovation and new business models are required.

CDP’s senior analyst Luke Fletcher said: “The pace at which the steel sector is reducing emissions is too slow for the transition to a low-carbon economy and it needs to deploy and commercialise radical technologies if it is to avoid looming carbon costs and remain competitive.

“The good news is that technologies to decouple carbon emissions from steel production are emerging; from hydrogen steelmaking to electrolysis using clean electricity. Plus, the sector is already a global leader in recycling, with steel now the world’s most recycled material.”

The report adds that European and East Asian companies have been proactive when setting and action on low-carbon targets, while Chinese, Russian and US companies lag in terms of disclosure and performance.

More than 90% of metal produced in the world is steel, and the sector is accountable for up to 9% of global emissions. Fortunately, steel is the world’s most recycled material – at 650 million tonnes annually – meaning that closed-loop principles can help reduce emissions from the extraction of raw materials.

Innovation pipeline

The report does highlight how some companies are leading when it comes to low-carbon innovation.

Four companies (ArcelorMittal, Baoshan Iron & Steel, Beijing Shougang and Inner Mongolia Baotou Steel) have partnered with Lanzatech, a firm which recycles industrial waste gases and other waste streams into ethanol-based aviation fuel. The fuel is already being used by airlines such as Virgin Atlantic, which has already been trialled on commercial flights.

Elsewhere, Tata Steel has unveiled a new technology that is able to reduce the carbon emissions from iron and steel production by more than 50%. According to Tata Steel, the technology removes numerous energy-intensive steps – including having to pre-process the ore and coal in separate coke, sinter or pellet factories. Test campaigns were conducted using steel scrap and biomass and created carbon reductions of more than 50%.

Earlier this year, UK steelmakers and university experts teamed together on a seven-year research programme aimed at boosting the productivity of the steel sector. The £35m SUSTAIN programme aims to double the gross added value of UK steel manufacturers by 2030, increasing the number of jobs to 35,000 and boosting productivity by 15%.

To meet these aims, SUSTAIN will investigate new ways of harnessing new energy sources, capturing carbon emissions and reprocessing industrial waste streams. The programme envisions that the industry will reach zero-waste and carbon-neutral status by 2040.

Commenting on the report, ArcelorMittal’s corporate responsibility general manager Alan Knight said: “While steel has a lower carbon intensity than many other materials, the large volumes produced globally mean that the industry emits more than three gigatons of CO2 annually. With the demand for steel ever-increasing, we know we have a role to play and a clear responsibility to significantly reduce the carbon footprint of steel.

“We know that there is more work to be done to achieve our ambition of being carbon neutral in Europe by 2050, and to significantly reduce our carbon emissions worldwide. Working with stakeholders to create supportive policies to ensure a global level playing field, access to renewable energy at affordable process and access to finance will be critical in achieving greater impact.”  

Matt Mace

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