This is Dana Perkins and you're listening to Switched on the BNEF podcast. On last week's episode, we discussed aluminum, and this week we're looking at another important metal, steel. The sectors with harder to abate emissions by twenty fifty include things like cement, plastics, trucking, shipping, and aviation, and
of course, the subject of today's show. Steel. It's produced with the world's most commonly mined metal ore iron and has extensive uses, whether these be construction, automotive, household appliances, or the renewable energy equipment that is essential for the paths to net zero. For BNOF subscribers, relevant research on the steel industry can be found on the Decarbonizing Industry series page. This is on BNF dot com or NYFW go. For those who have a terminal, hover over research and news,
then go to series and then find Decarbonizing Industry. We drew upon a few specific research notes such as net zero needs set to boost metals demand nearly fivefold and Asian steel giants spread bets on hydrogen, along with the number of company profiles, and on the show today, we're going to talk about some of the major steel manufacturers and how they're approaching decarbonization. I speak with BNF's head of Sustainable Materials, doctor Julia Atwood, and our sustainable materials
analyst in Bloomberg's Beijing office, Yu Chen Teng. Together, we go through the range of different production methods and innovations that steel producers are using to reduce their missions, including recycling. We also discuss the EU Carbon Border Adjustment Mechanism or CBAM for short, and how it's impacting global manufacturers emissions targets. And lastly, we get to whether or not nuclear power could play a big role in the decarbonization of this sector.
As always, if you like this podcast, make sure to subscribe to receive updates on future episodes, and give us a review a rating on Apple Podcasts or Spotify to increase our discoverability. Now let's jump into my conversation with Julia and Yuchen about steel you ten, thank you for joining us on the show today.
Thank you Dana for having me and Julia.
Welcome back, Thanks Dana, nice to be here.
So we're going to talk about steel decarbonization, which fits into the hard to abate category, the things that are really difficult to figure out how we're going to decarbonize. And as we're getting started, let's give it a little bit of context. How big are the emissions? What are we talking about in terms of scope?
Well, Steele is about seven to eight percent of global emissions, depending on how you count them. But the really interesting thing is that in economies that are trying to decarbonize, it's often a much bigger slice of that. So in China and Japan and Korea it's actually in the teens. So steel decarbonization is an outsized topic for those countries because they know that in order to keep this critical material, they're going to have to make it green.
Now you're saying they're going to have to make it green, and then that leads me to the question why is it hard to abate?
Yeah, steel is particularly hard to abate because it uses coal intensively, and it's hard to get rid of those cold because not only are they used as fuel, but
also they're used for their chemical properties. So in fact, they're used in blasphernesss as reducing agent to bring the iron ore to turn them into iron es centrally, So there's really no good substitute for those coal and coke used in blasphernesss and blaspherness using that process to make iron actually accounts for about seventy percent of total steel production in the world.
And you previously said that there were a few main centers in the world where stale is produced and it's a big part of their exported economy, and so I guess my question is also why is it produced there and why is this not something that is part of this global deglobalization as we think about supply chains which keeps propping up this year. Why is it in so few centers.
So, actually around half of steel steel is actually made in China, and most of the steel actually about ninety five percent of steel made there in China is consumed domestically, so it supports industries like the property industry, it supports the infrastructure build in China. So, as you can see, because we have such concentrated demand from China, that's why
we have a large chunk of steel produced there. So following China, we have India, which is currently the second largest steel producing country in the world, accounts for about four percent of total steel production, and followed by South Korea, US and Japan, which roughly produces around the same share of steel. So I mean China is as Julian mentioned,
China is pretty outsized and it's steel production. But steel as a material has been used extensively to help those developed economies basically urbanized in the past, and now it's really the emerging economies such as China and India driving those steel demands. So we'll soon see those steel production shifting increasingly to meet those demand from those emerging economies.
In particular, that was a really good summary. The way to think about it is just that steel follows industrialization. You have to have steel in order to build cars and houses and roads and bridges, and we've typically only had one enormous country industrializing at a time, so we had China, and now it's moving into India and Southeast Asia. So I think you will see some shifts in where steel is produced in the pretty near future.
And we certainly spend a lot of time talking about mitigation, but steel has an important role to play in adaptation when people are thinking about making more resilient infrastructure. So is the demand for steel and theory increasing, staying flat decreasing? What's our forward looking view not just on decarbonizing steel, which we will come to but whether or not it'll remain the critical material that it is today.
Well, Julius, as your work done the new industry which contains our demand outlook all that do take that question.
That is a masterful plug, Thank you, Jen. It depends on the country so incredibly. We actually see steel production going down in China, which would have been unthinkable ten or twenty years ago. Overall, we think it will ramp up, and that's because of a lot of growth in India, a lot of growth in Southeast Asia. Everybody else kind of stays the same because we really think of them as being in replacement cycles. So you only need as much steel as you need to replace anything that you're
tearing down because the building's too old. The point about adaptation is really interesting. Obviously, for adaptation there's a lot of reinforcing of existing infrastructure that you would want to do, and construction is the biggest source of demand for both steel and cement, and cement, which we're going to be looking at soon, is a very similar portion of global emissions.
So we've talked internally about adaptation being difficult because your problems just pile one on top of each other, and so a lot of build out of adaptation infrastructure. It's going to mean more cement, more steel, more emissions. So that just makes it even more important that the steel makers start to look at how they can get to net zero.
Do they currently have the technologies that they need or is this a conversation that still continues to kind of let's say, lean on hydrogen.
Our team dived into the possible net zero technologies who make steel, so hydrogen, as you mentioned, Dana is a big one of them. So currently I think with the technology readiness level where somewhere we're very close to commercializing this technology. So we'll see the leading steel makers putting out the first projects using green hydrogen around twenty twenty
five twenty twenty six. And obviously there's some other technology, for instance retrofitting the emissions intensive blast furnaces with CCUS and also substituting some of the coal potentially with biomass, and they are emerging technologies such as electrolysis that can also help us make green steel. However, those other technologies are at a much less mature level compared to the hydrogen. So in Europe in particular, hydrogen is the e goo to option to help steal decarbonize.
What is the state of the race to net zero by steel producers? And what I mean by that is, you know, I look sometimes at industries and I see net zero targets really come in waves. It's typically not one or two companies, it's either most of them or very few of them. Is this something that is a big push in the steel industry and are they all racing towards a net zero future? And perhaps what do the targets look like.
Well, I wouldn't say they're as eager as racing, but there are certainly some big players out there putting out their net zero targets. So actually, very recently we've looked into some of the largest integrated steel makers, so those predominantly reliant on blaspherness production to make their steal right now. So we look at where they are in terms of net zero target setting, which actually converges mostly on twenty fifty,
so that's like the common goal that they set. We also look at what are the technologies that they're planning on adopting to achieve those targets, and what are some of the projects that they put out there. So amongst those top eight integrated steelmakers we look at. There's actually
one interesting outlier, which is SSAB. So it's the smallest amongst the a's that we look at, but it has the most ambitious target, planning to achieve net zero by twenty thirty, which is really impressive or really unusual for such an hartobate sector.
Now, legislation certainly has a motivating force for companies, and I'm thinking about right now EU legislation. So the EU Carbon Border Adjustment mechanism, how is this acting the steel industry?
Well, SEBAM really started the conversation for a lot of people. It has an extremely long implementation time, so we don't think we're really going to see the full effects of the carbon price and this tariff until the twenty thirties. We hope that everyone will have made a lot of progress by then. So I would say what this is
doing is putting everyone on notice. Every other country that imports to Europe now has to either find a way to produce a green product to sell specifically into that market, or needs to start figuring out another place to send their steel. You tended you want to comment on the China dynamics. We talk a lot about how Oh, China's the biggest steel maker. This is going to be huge for them. But actually you were the first person to give a very different spin on it to me.
So, as Julia mentioned, CEBAM certainly has raised a lot of tension outside of the U. So actually China is not the biggest exporter of steel to Europe, but certainly had the SEABAM caught a lot of retentionion in their people, well, particularly the industry is very eager to understand how SEABAM works, what are the methodologies, which we yet have very little details on terms of how producers are going to have to pay the carbon fees into the EU, but we
will be expecting more details coming through leading to twenty twenty six. But this certainly is a great example of how a piece of legislation in the EU could have such large ripple effect to the rest of the world. So, I mean China, like other countries, they're very concerned about the impact of this piece of legislation.
I'm generally pretty down on policy when it comes to industrial decarbonization. I think it hasn't really pulled its weight so far. It's been giving industry a pass. But that said, something interesting that could come out of SEABAM is a framework for standards for green steel. So most of the green steel that's bought, and so today it's B to B and those businesses have to spend a lot of time figuring out what do I think is green steel? What are my emissions criteria? How far down the supply
chain am I going to go? If the EU sets up a really nice framework for this is how you report your emissions? These are what we think our standards are. That's a great jumping off point for the people who are trying to develop green standards that can be used throughout the industry. And then that sort of starts to lead you into thinking about this as a real product rather than something that a producer is doing to make their consumer happy, and speaking.
Of a space that some may think as a whole pass and others may think is a tangible way to working towards net zero emissions right now voluntary carbon? Are the steel producers looking at voluntary carbon offsets? And are they big buyers of them at this moment in time?
They're not big buyers of them. They're looking at everything, so they are looking at voluntary carbon offsets. I occasionally get questions about direct or capture, So is this something that they should consider doing. Should they just run their assets into the ground doe direct air capture as they need to in order to make a green product, or even just wait until it's hopefully less expensive in twenty fifty.
That's kind of a dangerous strategy because this is one of those things where it's relatively straightforward to actually measure the emissions because these are centralized plants. So I think a product that is called green steel based on offsets is not going to be able to command a premium for very long.
And I just want to also provide some context to how steel makers think about offsets. So currently, actually in steel production, the carbon element is an intrinsic part to steal. So actually steel is made up of about two percent of carbon, so physically you actually need that carbon to
be added in the steel production process. So for instance, even though you are using one hundred percent of hydrogens grain hydrogen to make that stew, at some point you will have to add in some carbon content, be it biomass or say if you're add in some sort of fossil fuel and then capture the emissions later. So the point being there will be some carbon or carbon emissions left.
It's almost unavoidable in like how steel is made. So that's why a lot of the steelmakers believe that at some point they're going to have to rely on carbon offsets or some sort of offsetting mechanism to help them reduce or tackle that residual emissions, which is approximately five
to ten percent of their emissions. However, I feel like the focus of the steelmakers now in terms of decarbonization is that they want to look for technologies that will enable them to take the largest chunk of the emissions. So residual emission is important to get us to net zero. However, it is the smaller parts of the pie that we're looking at. So rather they're looking for really deep decarbonization technology such as hydrogen and ccus, which allows you to bate emissions to a large extent.
Now, Julia, you've spent a lot of time at BNF thinking about circular economy solutions, and what I'm wondering is how much is recycling of steel a part of the solution for decarbonizing the overall output.
Oh, it's definitely a big part. Most of the green steel that is sold today is recycled steel. It's going to be really important in these developing economies that are ramping up their steel production because they will also start to see the first cars, the first consumer goods, the first buildings that they built fifty years ago coming out of commission. So that's going to generate some scrap that they can then recycle into steel. The issue is there
isn't a huge amount of upside here. When you look at something like plastics that's very badly recycled today, there's a huge amount of benefit that you can get from recycling them, both on the waste and the emission side, if you do it mechanically. For steel, the developed world recycles steel very well, and so there's not a huge amount of benefit that they're going to get emissions wise
for that. But Eachen, I mean, you can tell us a little bit about the plans that steelmakers have for recycling.
Thanks Julia and Dana. You raised the really important point that recycling is going to play a big role in
terms of reducing immediate or short to medium term. It is almost the most important solution because it is the only mature, commercially available technologies that we have to make green steel So how the method works is essentially you scrap as feedstocks, you put it in the electric arc furnace also known as EF, and then you're plug in essentially low carbon renewables or some form of low carbon electricity into it and then magically you get your green steel.
So one way or another, those eight steelmakers that we've studied plan to install such recycling capacity to help them to enable them to make green stew in the medium to short term leading to twenty thirty. So it's important part to help them achieve their interim targets. However, as Julian mentioned, yeah, it's not every solution. We need also other technologies to really help us get to net zero.
Staying on the topic of technologies, you know, we talked about some of the things that we're currently being looked at. So you talked about hydrogen and carbon capture. What are some of the more experimental things that are being looked at at the moment from a technology standpoint, and is there, you know, a bleeding edge when it comes to innovation in the steel space.
Yeah, so I want to maybe discuss too interesting technologies.
One is actually one category of technologies that allows the existing integrated still making process to partially reduce emissions, and these category technologies we call them blasphemess based technologies, so they could be top gas recycling coupled with CCUS or carbon capture, So that essentially means that you're recycling the off gas from the emissions intensive furnaces such as blast furnace or basic oxygen furnace where you make steels, So
you recycle those off gases that contains carbon and then you feed them back into the furnace so that you require less carbon to be fed into the blast furnace in the first place to serve as reducing agent, and that can partially help you lower the emissions. Now why this is important is because it's one important category that a lot of the Asian steelmakers are focusing on. So
let's break the Asian steelmakers into a few categories. There's the Japanese steelmakers, so they are really the ones leading the steel making technologies currently in the world. So they are super fascinated with their blast furnaces and they're looking to preserve that edge in the industry. So certainly they don't want the blast furnaces to go away, so they would try to find technologies that could help blast furnaces to reduce emissions, so the top gas recycling and carbon
captures one way. Another way is to inject hydrogen into the blast furnace. That will also allow you to reduce emissions by around twenty percent. And then there's also another category of the steelmaker or Asian steel makers is the
Chinese ones. They are certainly also looking at blast furnace based technologies because their blast furnaces were very much built in the past ten years twenty years, so the acid live for these assets are very young, so these steel producers are still hoping to use them for a long time, so it doesn't really make sense to knock down those furnaces that are still quite young, still quite good, and to build new furnaces running a hydrogen so it makes
more economic sense for them to preserve that and hence inherent they have the motivation to also figure out a way to reduce plastphorness emissions.
It all comes back to hydrogen and ccs in the end.
Though, one of the strategies you end up seeing from some really large companies is to wait for smaller companies slightly more in innovative, maybe nimble startups to really come up with the technology and then buy it. Then, is there a vibrant space of companies that are looking at innovating that aren't a part of these very large steel producers in these centers around the world.
There is, but they have a very particular niche. They all want to try and make steel directly with electricity, So using hydrogen is basically just a convenient storage tool and transport unit for electricity that U ten has looked into this a lot more detail.
So we've certainly noticed a few startups in this space that are claiming that they have this innovative technologies that doesn't really on either hydrogen or ccus, but allows you to make green iron or green steel. One example being Boston Metals. So they have their proprietary process which is known as molten oxide electrolysis or MOE, which is a
high temperature process. You essentially pass a current into a chunk of molten iron ore and by the electricity will reduce those iron iron and bring them and turn them into molten iron. So another startup in this space, a few others. Actually, there's another startup called Electra so they're also developing an electrolysis based process. However, it's a low temperature electrolysis process, and interestingly, contrary to theme process from
Boston Metals, it allows you to use intermittent renewables. So MOE relies on twenty four seven clean power. That means you're going to have to find in some kind of storage or like really nice renewable to allow you to produce green iron continuously. However, for electros process, you actually
can ramp up and down your production very flexibly. So in some way, or according to the company, actually they claim that their production side could also potentially serve as a grid balancing facility for the local grid.
Could it in theory? I mean you mentioned grid balancing, so I guess this is the other side of the same coin. But it could be quite then responsive to the intermittency issues that we talk about when we think about wind and solar.
Potentially it could be. However, I must mention that their technology is still at a very early stage. So they've filed a patent a few years ago and now they're currently looking to build a pilot scale production plan by
end of this year. However, I guess one challenge that this electrolysis based technology is facing is scale, so it can allow you to produce almost as much as say, currently, the scale that they're looking at is they produce these iron plates that are one meter squared, and that is actually very very tiny compared to what a blasphemis could do, and that's at a million tons of scale, so it's
an order of magnitude of difference. However, it does shine light on, as you mentioned, Dana, the problem of could it potentially help address this renewable intermedtency issue. That's one potential. However, the scale at which they produce right now is still quite small. I have to say, even though they have this potential, maybe we'll have to wait and see how
it could actually tap the problem. But I want to mention another thing that this technology helps address is that, in fact, one common pushback that the hydrogen based still making technology is getting is that it requires a higher quality, higher grade ion ore, which isn't commonly used in today's production, and those higher quality are also more expensive and they're
in lower supply. However, electros process, amongst some of the other electual space technologies, will allow you to use lower quality grade of io, so we can continue to use the iore that we use today instead of having to worry about searching for higher quality reserves that could be in potential supply shortage.
A technology which has been around for a while but is certainly under discussion more than I have seen since I've been in this industry, is nuclear. Whether or not we put it in the clean category, we will leave for a debate in another day. Has there been much conversation by steel producers to look to what is a really substantial source of baseload power? Is nuclear something that they are looking at more intensively right now?
Yes, definitely, there are a lot of interest from the industries that we're beginning to observe. So, for instance, in North America, the largest steelmaker Nuker, which funny enough, its name actually suggests that it used to be a nuclear company, newcre It recently just invested in a nuclear power company called New Scale. So these North American steelmakers, which largely rely on efs and hence would be looking to source a lot of low carbon power, they're certainly interested in
the potential of nuclear. We have seen similar interest arising from the Scandinavian regions. So I think Fortum which is a finish energy supplier, and they have some nuclear power. They have signed some power supply agreement to supply nuclear power to also interestingly, a startup in the region called H two Green Steel. And the interest in nuclear is also very present in China, which might be not so
well known outside of the country. So the largest steelmaker in China and then the world, BOO, is actually looking at nuclear's potential to make low carbon hydrogen as well as providing low carbon power where it's hydrogen based steelmaking pilot projects in the province of Grandon in southern China.
So there certainly is innovation, and there are as you stated and that zero targets in the steel industry. But it really brings to heart that meaning of transition, that this is a long term transition with targets quite far out and into the future. For good reason, while we are looking to very quickly decarbonize and really are aware of the fact that the actions that we have right now are so impactful in terms of overall net emissions and how one might actually achieve net zero, much less
at one point five degree scenario. What other alternatives to steal what's their competitor out there? That might reduce demand.
Well, steel and aluminum have always has been rivals in terms of where you're going to use them and the benefits of each. Now, aluminum, depending on where you make it, can have a massive carbon footprint, much higher even than fossil produced steel, so you have to be careful with your aluminum. We've also seen a real resurgence in interest in wood as a building material because that construction industry
is such a huge portion of demand for steel. So people are experimenting with how tall can I make a wood building? How do I have to set up the building codes for that? How would I have to change my design? Would it have to be like squattier? Can we not have huge skyscrapers anymore? That's a little tough because nobody wants to use their building as a pilot project. So I think it will proceed quite slowly. I don't
think steel demand overall is going to go anywhere. I think it can be replaced on the edges, but I think it's here to stay.
I'm glad you brought up aluminum because we actually also recorded a show on decarbonizing aluminum, as that is also hard to debate. So as we go from one hard to abate sector to the next. Thank you very much for joining today, Julia Nutchen, Thanks Janny. Bloomberg n EF is a service provided by Bloomberg Finance LP in its affiliates. This recording does not constitute, nor should it be construed, as investment advice, investment recommendations, or a recommendation as to
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