- Businesses associated with metals supply chain and manufacturing are going to need to know their carbon footprint. Or, more specifically, the greenhouse gas emissions associated with their business.
- The good news is that knowing your footprint means having a meaningful focus on your energy consumption and opportunities to reduce costs are identified.
- And too, knowing your footprint is the starting point for participating in the future supply chain and market for low carbon emissions (green) products.
Earlier this year in March the SEC made a formal proposal that will require public companies provide investor community with greenhouse gas (GHG) emissions disclosure. Public comment period was extended from 60 days to 90 and subsequently, over 3,400 letters were received. Concerns regarding the proposal expressed by public comments involved everything from the legal authority to set such rules (especially relevant given recent Supreme Court ruling involving the EPA), the costs associated with measuring and accounting, liabilities associated with securities fraud litigation, not enough clarity describing what is material (an issue for scope 3 emissions) and having to maintain multiple different sets of accounting.
REGARDLESS OF THE U.S. BEING A VOLUNTARY MARKET FOR THE MOST PART, THERE ARE GOOD REASONS FOR WANTING TO KNOW YOUR EMISSIONS, OR CARBON FOOTPRINT.
WE CAN SUMMARIZE THESE REASONS AS FOLLOWS:
Continued regulatory interest and action associated with GHG emissions.
Emissions accounting is essentially a meaningful focus on energy consumption. Emissions accounting is a good tool for managing costs.
Energy costs have potential to increase, will be volatile, and increasingly impacted by regulatory actions directed at emphasizing types of energy consumed.
Supply-chain partners, both suppliers and customers, will be looking for solutions for green, low carbon emissions, products.
HENRY HUB NATURAL GAS SPOT PRICE
CBAM could well represent the best solution to countering cheap, subsidized, global steel production. And no denying that assigning a price on carbon emissions thru CBAM will better support investment decisions.
Steel producing companies that have in the past been laser focused on energy intensity and have invested accordingly in the technology to support efficient production, today, find themselves as examples of the world’s lowest emissions producers. Being focused on energy consumption has the benefit of not only providing cost efficient operations but, too, lower emissions.
SHARE OF GLOBAL ENERGY-RELATED CO2 EMISSIONS BY SECTOR. 2015
Companies, such as Ford, Johnson Controls, Trane Technologies, Vestas, Volvo and others have joined the First Movers Coalition. The coalition’s members are committing to steel purchases, set a target that at least 10% of their annual steel procurement volumes by 2030, meet or exceed the First Movers Coalition definition for near-zero emissions.
Until this regulatory proposal, emissions disclosure in the United States can be described as a voluntary market. Companies would provide emissions data if they felt it was necessary and likely would be in response to their stakeholder’s interests regarding sustainability. This differs, for example, with certain industries being required to disclose GHG emissions. Examples of this are, the EU’s emissions trading system (ETS) as well as California Air Resources Board (CARB) Cap and Trade program.
The US and EU in October 2021 reached a steel and aluminum trade agreement suspending section 232 tariffs. Following up on this agreement, in March of this year, an agreement in support of EU energy security was announced. In both cases, an emissions based global steel and aluminum trade arrangement that incentives industrial decarbonization and lowers energy demand was referenced. Further, the need for a dynamic regulatory environment in support was referenced. Everyone understands that both the political will and the technical challenges behind implementing a Carbon Border Adjustment Mechanisms (CBAMs) provide headwinds in it happening, but fact still remains, other than tariffs, a the EU/US energy security agreement reference previously includes a commitment to establishing increased, and stable, LNG demand from EU for US product. When new markets, representing increased demand, are created for a product, one can expect higher prices along with that demand. Maybe we see short term economic recessionary pressures on energy prices, however, it is hard to imagine how energy costs over the long term don’t have upside pressure. Over the past two years, NG prices have more than doubled.
Efforts directed at industrial decarbonization within the metals industry will have impact across the supply chain as consumers create demand for green, low carbon emissions associated products. Projecting the rate of green steel adoption and demand is tricky for the voluntary US market. A little more straightforward is projecting demand in the EU as the ETS clearly specifies emissions reduction requirements. One can make the case that by 2030 the demand for green steel in the EU flat rolled market could exceed production capacity of announced green steel projects. Some of this demandwill translate over to the US through European transplants including automotive companies.
Also, we can imagine that marketing in the US around green buildings or industrial parks will create a market for green steel. Mass timber products have been aggressively marketed as a sustainable construction material vs. steel and concrete. The idea that mass timber provides for carbon storage and ultimately a lower emissions solution than full lifecycle consideration for steel is not a certainty and highlights legitimate controversy around accounting for lifecycle emissions. Regardless, building materials for construction contribute to construction emissions in a significant way. Green steel provides meaningful carbon emissions reduction and an option that designers, architects, and builders, may consider important for their clients.
So why know your footprint? Setting a baseline and keeping up with your footprint ensures your organization is prepared to adapt to future regulatory requirements and potentially a cost associated with carbon liability. It means
you have a laser focus on energy consumption at a time when energy costs at a minimum will be volatile and likely higher. And a very real prospect is the opportunity to differentiate your business and be a part of a value-added supply chain for green products. You can only do this by first knowing your footprint.
