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Europe’s steel industry sees numerous paths to decarbonization

22 February 2022 Kevin Adler

Established leaders in Europe's steel industry such as Sweden's SSAB and Germany-based ThyssenKrupp Steel, as well as Swedish startup H2 Green Steel, made major announcements in the last few weeks about their paths towards low-carbon and net-zero production.

In the near term, steelmakers across Europe are committing billions of euros to installing new low-carbon manufacturing technology and closing high-emissions blast furnaces. By the end of the decade, they may be running furnaces with no-carbon green hydrogen and capturing carbon from process units. A combination of these technologies will be needed to control emissions from an industry that, according to IHS Markit, contributes 9% of Europe's annual man-made GHG emissions, or about 3.6 gigatons of CO2.

On the demand side, steelmakers are lining up customers among automakers, builders, and wind farm developers. The ability to make "green" steel may prove to be a weapon against higher-carbon imports from China, Russia, South Korea, and Turkey, according to a report delivered to the European Parliament in December.

Managing these challenges is critical not only for the industry's survival but also for the economy of Europe, according to paper from the European Parliament's Committee on Industry, Research and Energy (ITRE).

Europe's steel producers accounted for 7.6% of global production in 2020, or 139.3 million metric tons (mt), according to ITRE, down about 10% from the prior year due to COVID-19. The industry contributed €132 billion ($150 billion) in gross added value to the EU economy, ITRE said in a paper "Moving towards zero-emission steel," published in December.

"Since the steel industry is capital and energy intensive, any required investment into decarbonization technologies will impact the profitability of EU steelmakers that already operate in highly competitive global markets. Thus, a major challenge for the EU steel industry will be to remain competitive vis-à-vis players based in regions where carbon regulations and costs are non-existent or limited," ITRE said.

However, the region has shifted from being a net exporter in 2011 to a net importer by 2020, said ITRE, sending out 17.7 million mt of steel but importing 21.1 million mt.

Among the measures taken by European regulators have been anti-dumping duties on some types of specialized steel. In January 2022, the duties for steel used in electrical transformers were extended for five years for product from China, Japan, Russia, South Korea, and the US.

Traditional vs. emerging technologies

Three processes are used to make steel. Blast furnace and basic oxygen furnace (BF-BOF) technology accounted for about 54% of Europe's steel production in 2019, according to IHS Markit. Melting scrap steel with an electric arc furnace (EAF) was the second-biggest source, at about 43% in Europe. Direct reduced iron-EAF (DRI-EAF), which uses an ore that's easier to process, accounted for the other 2.7% of European steel.

Emissions come from two sources—energy to drive the processes, and the processes themselves—so tackling the problem must address both aspects. For example, if the power for an electric arc furnace is fossil free, that reduces emissions through the use of EAF but also with the clean power that operates the furnace.

BF-BOF is a two-stage process that takes iron ore and metallurgical coal and melts them in a blast furnace using coal, oil, or natural gas to provide the necessary high heat. Then the reduced iron product is processed in a blast oxygen furnace to make steel. It's by far the most energy-intensive and carbon-intensive process.

The DRI-EAF process "reduces" iron oxide, but doesn't melt it, thus using less energy. Some operators today use hydrogen instead of natural gas, and to the extent this will be low-carbon hydrogen in the future, that's another route to carbon reduction. The DRI-EAF product can be processed into steel at lower temperatures through an electric arc furnace, for more savings on energy use.

Starting with scrap steel avoids the initial, high-energy step involving a blast furnace, and it's the most environmentally beneficial, said ITRE. "Recycling one [mt] of steel can save 1.5 [mt] of CO2, 1.4 [mt] of iron ore, 740 kg of coal, and 120 kg of limestone compared to primary steel produced in a traditional blast furnace," it said.

IHS Markit said that scrap-EAF is cost effective and can reduce emissions by 84-95%. But it added "this route is limited by the availability of scrap."

Reducing energy use has cost benefits as well. The European Steel Association (EUROFER) says that about 17% of the cost of making steel is energy, though that has surged at times such as last year when energy prices in Europe soared. Steelmakers instituted temporary surcharges of €25-€50/mt to recoup some of the added costs.

In terms of process emissions, ITRE said approximately 70% of the carbon coming out of a blast furnace and coking oven can be captured with existing technology. But this is more theoretical than operational at the moment, as carbon capture and storage (CCS) is in place on a commercial scale at only one steel plant in the world, in the United Arab Emirates. That facility captures 0.8 million mt/year of carbon, and its capacity is being expanded to 5 million mt/year.

In Europe, IHS Markit says that retrofitting a BF-BOF plant with CCS will increase the steel production cost by about 22-40%. But given the average age of BF-BOF plants (45 years), IHS Markit said "the region has better potential by replacing the aged plants with new and less carbon emission intensive DRI plants." Compared with BF-BOF plants, a newly built natural gas DRI plant will reduce emissions by about 36% CO2 emissions and increase production costs by about 14%.

To achieve deep decarbonization, IHS Markit said Europe's producers would have to retrofit a DRI-EAF operation with CCS or switch their main fuel to blue or green hydrogen. These options could reduce carbon emissions by about 91%, but IHS Markit said they "require policy support to develop this technology to mature and compensate the increased costs."

Companies

Several of Europe's largest steelmakers—ArcelorMittal Europe, SSAB, and ThyssenKrupp—have announced net-zero plans and are implementing near-term emissions reductions strategies.

They're relying on corporate interest in low-carbon steel, as well as the Industrial Deep Decarbonization Initiative that includes pledges from the UK, Germany, and other European nations to purchase low-carbon steel and cement announced at COP26 in November.

ArcelorMittal, headquartered in Luxembourg, has announced a net-zero CO2 goal for 2050 and a 30% reduction goal for 2030. It is running a demonstration project at its Dunkirk steel mill that's directly capturing up to 50,000 mt/year of carbon from a blast furnace.

France published a steel roadmap last May, mandating a reduction in CO2 emissions of 31% by 2030 in comparison with 2015 levels. Under this program, the government has made available €1.7 billion to ArcelorMittal to replace coal furnaces at its Dunkirk and Fos sites with EAF technology. When completed, Matthieu Jehl, CEO of ArcelorMittal France, said emissions at the two facilities will be reduced by 40%, and this will cut total industrial emissions in France by 10%.

But to get to net zero, Jehl said the company needs access to carbon-free electricity to power its operations. Jehl said it's "essential to the roadmap" that the government fund hydrogen electrolyzer plants near steelworks.

Swedish steelmaker SSAB announced a plan in January to reach net-zero emissions for its operations by 2030-2035, bringing forward its prior goal of 2045, at a cost of about $4.8 billion over a decade. "Our customers are demanding fossil-free products from SSAB," said CEO Martin Lindqvist on 28 January.

Lindqvist said that the company will install EAF technology at four mills in Sweden and Finland, retiring all coal-fired blast furnaces. When complete, the transition will deliver a net reduction in Sweden's national emissions of 10% from current levels and 7% for Finland.

Demand will be high for the clean product. Last fall, SSAB, mining company LKAB, and energy company Vattenfall announced a partnership to provide "fossil-free steel" to Volvo for building trucks. "We decided to create an entirely fossil-free value chain, all the way from the mining, iron ore processing to iron and steel production, including logistics services and electricity," said Martin Pei, SSAB chief technology officer, in October.

Autoliv, a manufacturer of auto safety products such as airbags, signed a deal with SSAB in November to use fossil fuel-free steel in its products as well.

Citing SSAB's own feasibility studies, IHS Markit estimates that fossil fuel-free steel will cost approximately 20-30% more than traditional steel due to the investments to retrofit existing plants or build new plants. "But a saving grace is that the process is more energy efficient. According to SSAB, one metric ton of fossil-free crude steel requires 4,100 kWh to produce, compared to 5,800 kWh — 41% more — for traditional steel production," IHS Markit noted.

Since November 2019, German steelmaker ThyssenKrupp has been blending hydrogen with pulverized coal to reduce emissions for one of its blast furnaces in Duisburg, Germany, in a pilot project. On 15 February, the company announced with its partners Air Liquide and BFI that it will use only hydrogen in a test at one furnace at the mill rather than the coal-hydrogen mix, under a two-year program to determine how much emissions are reduced and if processing of iron ore is affected.

"Provided that sufficient quantities of green hydrogen are available, CO2 emissions can be reduced by up to 20% on one plant," ThyssenKrupp said on 15 February about the H2Stahl project. "Along with the expansion of the use of hydrogen … the internal infrastructure of the plant will be prepared for the large-scale industrial supply with hydrogen … from Air Liquide," it said.

Sweden-based H2 Green Steel is a steel startup developing technology for producing steel with up to 95% less CO2 emissions by using hydrogen and renewable power for production. It signed up BMW as a customer this fall.

The company's first mill, being built in Boden, Sweden, will be operational in 2024 and could be expanded to produce 5 million mt/year of green steel in 2030, H2 Green Steel said.

For a company such as BMW that's seeking to reduce its carbon footprint, having fossil fuel-free steel is very attractive. "Our goal is to reduce CO2 emissions in our steel supply chain by about 2 million mt by 2030," said Andreas Wendt, BMW Group's board member responsible for purchasing and supplier network. "Steel is essential for producing cars and will be no less important for future vehicle generations."

The first shipments could arrive at BMW in 2025, coinciding with production of the 3-Series battery electric vehicle that will be the first production model to use BMW's Neue Klasse EV architecture, according to IHS Markit.

In addition to steel and iron ore processed using green power, BMW and H2 Green Steel have agreed to a scrap recycling program. H2 Green Steel will take back sheet metal remnants, such as those produced at press plants when doors are punched out, and it will process them in such a way that they can be shipped back to the plants as new steel.

Smaller operators, such as the Slovenian Steel Group (SIJ Group), also are moving ahead with decarbonization plans. It's being supported by a €25 million loan announced in February from the European Bank for Reconstruction and Development (EBRD).

SIJ Group is the largest vertically integrated steel producer in Slovenia and exports to 68 countries. All of its steel is made from recycled scrap.

"SIJ Group already has one of the lowest carbon footprints in the steel industry globally, manufactures its products from 100% recyclable steel scrap, and is aligned with the EU Taxonomy," the EBRD said. The taxonomy directs the bank's investments towards sustainable projects, especially in hard-to-abate industries.

Regulations

Looming over the industry are numerous EU policies.

The most significant legislation, according to ITRE, is the EU Emissions Trading System (ETS) Directive, which created a cap-and-trade program under which Europe's steelmakers must offset their carbon emissions with credits. Steelmakers have exemptions in the form of free allowances under the ETS, but proposed regulations begin to eliminate the free allowances in 2026 as a way to push down the industry's emissions. As part of the EU's effort to achieve a 55% reduction in economy-wide GHG emissions by 2030, the European Parliament is considering phasing out the free emissions allowances for steel entirely by 2035. Allowances for all industries under the ETS would be reduced by 61% by 2030 from 2005 levels, likely pitting steelmakers against other carbon emitters in bidding for credits and raising the cost of EU allowances, which already reached record highs last year.

Another key measure is the carbon border adjustment mechanism (CBAM), which is still under development. The CBAM is a tax on imported materials, coming in the form of certificates that would have to be purchased to land the product in Europe. Based on the embedded emissions of the product, the CBAM is designed to protect industries such as steelmaking by addressing carbon leakage—the risk of European production being outsourced to avoid ETS carbon prices.

"Applying CBAM will ensure that importers pay the same carbon price as EU domestic producers, thereby maintaining the competitiveness of the EU industry," ITRE explained.

EUROFER, the industry's trade group, supports the CBAM. But it opposes the proposal to accelerate phasing out ETS allowances, saying that both policies in conjunction are integral to protecting the industry while it takes a world-leader role in reducing its carbon footprint.

The ETS and CBAM have received public statements of support from global steel companies that have a presence on the continent, but also in countries that export to Europe.

"In Europe everyone is clear that this transition cannot be afforded just by the industry. The industry will pay part of the cost, governments have to support it, and customers have to pay more for green steel," said Tata Chief Executive TV Narendran on 10 February, when the company announced its quarterly earnings. "Otherwise, who's going to pay for this transition?"

Tata, based in India, produced nearly 7.8 million mt of steel in its most recent quarter, which ended 31 December 2021. Of that total, 62% was produced in India (4.8 million mt), and 38% in the UK and Netherlands (3 million mt). At a Netherlands facility, Tata is in the midst of a €300 million upgrade program to reduce emissions of particulates and nitrogen oxides by more than 90%.

While the industry in Europe has enjoyed a post-COVID rebound with steel consumption up by 13.8% in 2021 compared with 2020, EUROFER said that growth in 2022 and 2023 will be a "moderate" 3.2% and 1.7% respectively. Slower growth and the need for massive investments make it especially important to get the transition to greener steel right, said Axel Eggert, EUROFER executive director said on 10 February.

"The positive trend in steel-using industries and in steel demand observed since the end of 2020 continues, but the outlook is becoming gloomier," Eggert said. "Ongoing supply chain disruptions, skyrocketing energy and carbon prices as well as persisting inflation are putting the recovery of the steel sector at risk. Combined with the current EU climate and energy policies, these are the ingredients of a dangerous cocktail that may drive Europe into a structural crisis and industry out of Europe."

Posted 22 February 2022 by Kevin Adler, Chief Editor

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