DNV published a new report outlining the challenges and opportunities for the global industry in transitioning to low-emissions steel.
The report ‘Shaping the future of sustainable steel: Lessons from Europe’s steel Industry’ highlights the urgent need for steel producers to transition to low-emission production methods, responding to increasing demands from regulators, customers, investors, and employees for more sustainable practices.
As explained, the steel industry currently accounts for around 7% of global CO2 emissions. However, steel is an essential material for a huge range of construction and industry products. Hence, emissions abatement in the steel industry is a global climate priority.
CORE FINDINGS
- Steel producers are under pressure from all angles to decarbonize their products: There is broad support for reducing the carbon footprint of steel, with pressure from regulators, customers, investors, and employees.
- Producing high-grade, low-emission steel requires an unprecedented technology transformation: Building the capacity to produce low-emissions steel will take billions of Euros in capital expenditure and many years of work.
- In the meantime, producers use ’carbon banking’ to fund more immediate process improvements: Drawing on precedents in the renewable energy sector, ’green steel’ products sold today command a premium, with the proceeds used to fund longer-term transformation.
- As scrutiny over green claims intensifies, independent verification will be essential to any carbon-accounted steel strategy to avoid greenwashing: A third party must assure any carbon reduction claim. Regulators will crack down on those with unverified claims, and buyers are increasingly sophisticated in how they evaluate the sustainability profile of steel products.
- Digitalization will be a catalyst to verify carbon-accounted steel: Carbon emissions data is still mostly handled in spreadsheets. Producers who can use and share this data digitally will be better equipped to reassure their buyers of the provenance of their steel.
The market experiences growing demand for high-quality, low-emissions steel as users have set ambitious goals to reduce carbon emissions, including scope 3 emissions in their supply chain. Meeting this demand will require an unprecedented technological transformation and massive financial investment. Significant capital expenditure will be necessary to develop the capacity for and transition to producing low-emission steel, with full implementation expected to take decades.
While the transition to low-emissions steel presents numerous opportunities, the report acknowledges the significant challenges the industry faces. Among the most critical of these – alongside the cost and technological readiness – is the lack of clarity over the regulatory landscape. The absence of uniform low-emission or “green steel” standards often create uncertainty.
Consequently, just 40% of the steel producers interviewed for the report say they are compliant with regulations such as the EU claims directive, Carbon Border Adjustment Mechanism and the Corporate Sustainability Reporting Directive. Achieving agreement on principles and interoperability of different standards is essential to foster trust and transparency across the sector.
Trust and transparency will be essential for the effective decarbonization of steel. If steel consumers cannot be confident of manufacturers emissions reduction claims, they will not be committed to paying a premium price for low-emissions steel. The credibility of sustainable steel claims will depend heavily on robust assurance mechanisms.
…said Geir Fuglerud, CEO – Supply Chain & Product Assurance at DNV.
Digitalization will play an important role here, with respondents placing digital transformation as their top priority both today and in the next 18 months. Currently, carbon emissions data is often managed using outdated methods, but producers that adopt digital systems to track and share emissions data will be better positioned to have the sustainability of their products and emission reduction efforts verified and make better and more data driven decisions in their efforts to decarbonize. This digital transformation will give steel producers a competitive edge as scrutiny over environmental claims intensifies.
Decarbonizing prime steel production will also require innovative R&D on new manufacturing processes, but there are steps manufacturers can already take to start reducing emissions and generate revenue to fund further developments.
“The current scarcity of low-emissions steel means early movers in the steel value chain such as in downstream sectors that invest early in supply will have a great position to secure long-term contracts while their rivals are playing catch up and will have limited access and opportunity,” commented Christopher Lilholm, acting Head of ESG & Sustainability, Supply Chain & Product Assurance at DNV.
