SUSTAINABLE SUPPLY

RANDY CHARLES, founder of Greenway Steel, talks with Modern Metals about the future of green steel

What is green steel?

First, on a relative basis, green steel could be considered steel with embed-ded carbon (CO2e emissions associated with production) below limits being specified for purchase. We are seeing this today with global warming potential (GWP) limits being specified by both California’s Buy Clean California Act, as well as the Federal GSA construction
materials purchasing supported by Inflation Reduction Act spending.

Second, on an absolute basis, green steel is that which demonstrates the lowest possible embedded carbon, as close to zero, as possiblem with current technology. Good examples of this would be the steel produced using hydrogen (H2 Green Steel and HYBRIT) or that uses carbon capture in the process (Nucor and U.S. Steel). The value for this steel will be for end users wanting to decarbonize their supply chains.

Will there be a green premium for green steel?

Yes and no. H2 Green Steel has raised billions of euros in capital and debt financing to build a new steel production facility. The company did this by securing offtake agreements for future production at a premium to the market before the mill was even built.

Granted, this happened in the regulated economy of the EU operating under ETS (emissions trading system) with a price for carbon. That contrasts with what we would consider a voluntary market in the U.S.—the domestic market for steel is generally at a premium to the global market, and American producers are already producing some of the
greenest steel in the world.

The reality is that U.S. steelmakers continue to invest considerably in further reducing the GHG emissions associated with their production. And steel-consuming sectors will be meeting a market for sustainable products represented by a decarbonized supply chain. To think that this would not be a value-added supply chain might be naïve.

That said, if you are starting up a new rebar mill and fighting for market share, already competing against some of most efficient steelmakers (efficiency equates to low emissions), and the largest independent consumer of your product is building their own mill, you might not be collecting a premium for your rebar.

What can influence the future market for green steel?

Currently, the GWP limits in place for GSA, and being established by Federal Highway Administration through support of EPA, are only applicable for spending associated with the IRA. After 2026, will these limits be further embedded into general federal buying specifications? That will depend on the new administration coming to power in 2025.

On the regulatory side of the equation, states other than California plan to implement Buy Clean requirements that echo California’s Buy Clean Act. There also is a federal partnership initiative under the Biden administration that
support similar requirements for Washington, Oregon, Michigan and other states.

Keep in mind that bipartisan support helped to push the PROVEIT Act through the Senate and into Congress. AISI and SMA support that legislation. Critics of the bill believe it lays the groundwork for a carbon tax. A future carbon
liability for American manufacturers could certainly create demand for green steel.

While EU’s Carbon Border Adjustment Mechanism is being implemented, U.S. producers may find themselves in a competitive position to supply the EU market with low carbon embedded steel with lower cost production—thanks to relatively low U.S. energy costs.

How can companies prepare for joining a green steel market?

Listening to your customers is an obvious first step. That starts with asking the right questions about their needs and forecasts and associating your company as part of a supply chain in support of sustainable products. Know your carbon footprint or direct emissions, which is essentially a laser focus on energy consumption, so it should be part of regular business consideration, regardless. Simply convert this understanding into the right messaging and branding. Consider the markets you are supplying. Not unlike the development of requirements for quality systems back in the 1990s, automakers are taking the lead with regards to sustainability. Are you in the markets for fabrications that ultimately make their way into federally funded projects? Are you supplying European manufactuers operating in the U.S.? If your eyes and ears are open, you are likely to find opportunities for value added business.

THE VALUE [IS] FOR END USERS WANTING TO DECARBONIZE THEIR SUPPLY CHAINS.
– RANDY CHARLES, GREENWAY STEEL

Summary / Foreword

Background

Methodology

A basic methodology was used to compare CO2 emissions generated / saved as a result of including
InterCoat® ChemGuard in the production route of a steel mill’s galvanizing line.

The calculation devised was:

Data:

Results / Conclusion

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M A I N   T A K E A W A Y S

  –  Freight management leader report reveals climate change weighing heavy on industrial minds

  –  Businesses face carbon calculation and sustainability challenges no matter what the political climate

  –  Transparency, efficiency, accurate quantification and technological advances will be future cornerstones of the sustainable enterprise

Recently, a valued partner-client of ours (TA Services) asked us to contribute some carbon calculation and sustainability insight into industry reports that materially affect their business in particular — and their global category as a whole — in 2024.

As we put together some top-level responses for their excellent prompt and questions — this article was born!

By way of a little background – TA Services (TA) is a full-service premier integrated solutions provider for domestic and international freight brokerage, managed transportation, third party warehousing & fulfillment, and cross-border logistics needs.

TA gets things to where they gotta go, plain and simple, and they do so as efficiently and cost-effectively as possible using industry-leading technology, talent and processes.

But what’s a transportation and logistics company to do when facing an ever-shifting, realtime and regulatory environment that often presents serious climate change obstacles when least expected?

IT’S ALL ABOUT HAVING A TRULY MEASURED RESPONSE.

A 2024 State of Transportation report from sustainable fuel and freight company Breakthrough clearly demonstrates how transportation and shipping leaders have shifted focus to climate issues and sustainability as major priorities for the year 2024.

This report was based on a survey of 500 U.S. transportation decision-makers conducted in January and highlights the growing concern among shippers and carriers regarding extreme weather events and their impact on supply chain operations.

THE GREENWAY STEEL TAKE ON CARBON FOOTPRINT CALCULATION AND SUPPLY CHAIN SUSTAINABILITY.

The broad, looming topics of emissions, climate, and sustainability or ESG, can all take on a political slant — and already have if you’ve been paying attention national news at all this year.

For the business, however, it’s important to consider sustainability issues as something that will be impacting the enterprise for many years to come, no matter what happens in any given November or future election cycle.

This is clearly reflected in the concerns outlined in the Breakthrough survey report specific to transportation and logistics:

What’s happening as a result of climate change is going to affect the enterprise whether the nation picks Red or Blue as its favorite color.

But to the specific concerns of our friends at TA? We’ve come up with three overarching, realistic “needs” for the climate-responsive logistics company based on a larger brainstorm we had about the issue.

A CLOSER LOOK FOR A COMPANY LIKE TA SERVICES:

1. Transparency across each link in the supply chain will be critical to implementing the most efficient solutions.

Because at the end of the day, the organizations with the lowest emissions and most sustainable supply chains will have a leg up on creating the decarbonized supply chain of the near future. That efficiency likely includes a monetary value for the business. Companies will have to work together with similar goals, while knowing that there’s still much to learn to make things happen in a timely manner.

Best of all, the more companies work toward climate-related evaluation and measurement, the better everyone’s going to get at it. Experience will be everyone’s teacher and benefactor, here.

2. Determining accurate values for ever-changing, climate-driven elements will become routinely essential to the C-O-D-B.

In addition to disclosing GHG (greenhouse gas) emissions and having to account for international standards around sustainability being included in regulatory settings, it’s time to identify and include the possible financial impacts of climate change.

For both GHG emissions and climate change, you can only imagine how far down the rabbit hole one can go when considering what these financial ramifications may be! This is particularly true with Scope 3 supply chain emissions — generally incorporating existing carbon-reduction the “downstream” secondary carbon footprints beyond a businesses direct or connected scope.

Suggestion? Consider these issues from a materiality perspective — and try to focus on KPI’s and what is important now for the business, while laying the groundwork to be able to quantify what’s coming.

Learn more about calculating and measuring your carbon footprint — and look for supply chain partners who are doing the same. Above all, use your time wisely, and remember that this is both a sprint AND a marathon. We’re going to get better the more we do it!

3. Where you stand on technology today is not where you’ll be standing tomorrow. So keep up!

The challenge for tackling emissions – at the very least those specific to GHG emissions in transportation — is that the technology is evolving. Electrification, hybrids, fuel cells, windpowered tankers, AI integration … How and when will they be available? What will it cost? At what scale? And where will it make the most sense to implement?

This is all being determined today AND tomorrow; so it is important to keep up to date on current developments while and sustainability strategies into supply chain solutions now. Transportation thought leaders are keeping technology top of mind. Every business should.

Even if you face a trial-and-error moment (and you will), there is no substitute for experience.

TO SUM IT ALL UP?

While the last name of our company is currently Steel based on where we started, it’s illustrative to realize that Greenway brings similar carbon footprint calculation and sustainability solutions to supply chains for just about any industry with a current or near-term need to create the lowest possible carbon footprint.

At the end of the day (and the end of this article), it comes down to efficiency. In steelmaking, certainly, and across the global industrial and commercial landscape, the company with a laser-focus on energy intensity and efficiency is (almost by default) going to already have a lower carbon footprint. That’s a leg up on cost-competitiveness.

And Finally …

From material producers and suppliers to the myriad elements contained in hundreds of uniquely wired
supply chains, Greenway Steel helps companies connect the dots between carbon footprint calculation and real world sustainability solutions.

And for our partner-client at TA, they’re also factoring in fuel prices, driver shortages, and freight capacity and demand as day-to-day, often minute-to minute issues. Plus re-shoring of American manufacturing, the energy transition or diversification (whatever we call it) are all inflationary in nature.

Would any of us be surprised if costs for labor and fuel continue to pressure bottom lines everywhere? Never has efficiency been more important; and as a result, the relentless pursuit of efficiency can be considered a bedrock strategy for sustainability.

In other words? Freight management, transportation and supply chain logistics concerns (likeTA) are no exception to the new obstacles — and opportunities — presented by sustainability and decarbonization. Because as we’re going to find out in the years to come?

There ARE no exceptions to the climate-based challenges we are all going to face.

  • A premium will be charged for green steel.
  • That premium is dependent on how “green” that steel needs to be.
  • Customers will determine premium, or how green, depending on the options provided them.

So much goes into the discussion of what is green steel and what will be the premium but first, think about bicycles as an example. For $5,000, you can buy a high quality, performance- orientated, road bike and race with it if that was your intent. However, meet the $13,050 Cannondale SuperSix (Shown left).

Beauty of a bike for sure. What do you get for the extra $8,000? The best of everything, yes. Does it have more than twice the performance capability? No, of course not.

But it is a great example of how the last, incremental gains in a product or performance potentially comes with an exponentially increasing price tag.

WHAT DOES THIS HAVE TO DO WITH GREEN STEEL? WELL, HOW GREEN DO YOU WANT TO BE? OR MORE SPECIFICALLY, HOW GREEN DOES YOUR CUSTOMER WANT THE STEEL TO BE?

When we talk about how green, what exactly do we mean? Green steel is green steel, right? No, it is not. For example, the Global Steel Climate Council has proposed a standard for green steel using a curve, representing a glide path over time, that suggests that their members’ steel today and for years to come, is already green.

Point being, is you can buy steel today, and if that is the level of green you need, then no premium is associated. That may very well suffice for the Federal Government’s Buy Clean initiative (looks like there will
be standards for both EAF and integrated).

THE $13,050 CANNONDALE SUPERSIX

You can buy green steel today under one definition of green at little to no premium. Or you can get the best of the best in terms of green and yes, that will be the $13,050 bike. Just a guess, but it’s not hard to imagine that the offtake agreements we are seeing put in place with the innovative new mills fully decarbonizing the process and supply chain have premiums that increase rapidly over a kinda sorta green, or a it’s good enough green.

There is still embedded CO2e in the product and it will likely represent most of your supply chain emissions footprint.

Another definition of green steel may be considered using Kloeckner’s innovative description of green steel at “Prime” or “Pro” level as part of their branded Nexigen product line. Not many producers are at the Pro level today. Maybe a few more are at Prime level depending on how the green is defined. Given that this product may not be as readily available, and is defined by lower levels of embedded carbon in the product than that generally available every day, you can expect having to pay a premium.

There is an example of General Motors being Nucor’s first customer of their Econiq net-zero steel. Net zero must be the most green, right? That’s debatable given that it was only scope 1&2 emissions that were offset. And given the wide variation in offset prices in a voluntary market, the actual cost, and any relation to premium charged, for this level of green can vary greatly. Just the same, clearly increased cost is associated with offsetting the product attributes, and it will be reflected in a premium.

H2GreenSteel and HYBRIT have unique prospects for what may be considered good examples of being the most green of steel production. They look to be identifying emissions fully throughout the value chain in an effort to decarbonize. That means not just scopes 1&2 emissions but also, scope 3. If the intent for buying green includes not just the production of the steel, but the mining and refining of raw materials and alloying metals, production of electrodes, transportation of all products up and downstream, and so much more, then, as you can imagine, the cost is substantially higher for this version of green. And of course, it will be reflected in the premium paid.

The other variable, is green achieved via offsetting or actual decarbonized processes for production? The costs for achieving decarbonized process will likely exceed the cost of offsetting. That depends of course on the quality of offset purchased and retired. Higher quality offsets are valued higher in the voluntary market and for good reason.

So, all things considered:

  1. what is your customer’s expectation for being green?
  2. what mills, in what markets, have it available?
  3. and do they use offsets or have they eliminated actual direct emissions in their process through investments in new technology?

Much is still to play out in the years ahead when it comes to defining green steel and how much of a premium will be afforded the various products representing green. Know your carbon footprint, understand emissions associated with existing supply chain, and craft strategies directly with your customers.

Could your metals recycling business be making more from the refrigerants you collect and recycle or destroy? Depending on what those specific refrigerants are, you could be eligible for carbon offsets, in addition to emissions credits against your carbon footprint.

If your business accepts appliances like refrigerators, cars, and air conditioning units with refrigerants still inside, youʼve likely been carefully staying up to date on Environmental Protection Agency (EPA) regulations. Staying in compliance with refrigerant removal and recovery protocol means youʼll steer clear of lawsuits and fines.

But even beyond simple compliance, knowing how your decisions tie into carbon markets means having a strong strategy for the future.  Knowing more about your options can help you make an accounting plan that ties into the Greenhouse Gas (GHG) Protocol, the widely-used global standard (which the EPA also uses) to measure and manage greenhouse gas emissions from the private and public sectors. Youʼll also be better prepared for regulatory changes—some happening as we speak

— while benefiting from the work youʼre already doing. More on what you need to know below!

Impact of refrigerants on carbon emissions and the environment

As you may know, refrigerants—especially older ones—have a significant impact on carbon dioxide (CO2) emissions that contribute to climate change. One estimate suggests that CO2 emissions from cooling make up 10% of all global emissions.

Chlorofluorocarbons (CFCs), or halons, have the highest global warming potential (GWP)  of all refrigerants.  A unit of GWP is equivalent to the amount of warming

caused by a ton of carbon dioxide. Here is the status of the three most common refrigerant types:

Refrigerant Type One Common Type Global Warming Potential Units (calculated in 2013) Usage Status in United States
Chlorofluorocarbon (CFC) R-12 10,200 Phased out in mid-1990s to protect ozone (Montreal Protocol)
Hydrochlorofluorocarbon (HCFC) R-22 1,760 Almost fully phased out by the EPA
Hydrofluorocarbon (HFC) R-32 677 Being phased down by the EPA

The GWP of the CFC R-12 is 10,200 times the climate effect of the same amount of CO2! Even though CFCs are phased out, they are still in circulation in the scrap metal you collect today. Other more climate-friendly refrigerants have taken hold in Europe and are starting to be incentivized in the US. However, legacy refrigerants are likely to affect your emissions accounting for some time.

Refrigerants under the GHG Protocol

The GHG Protocol divides emissions into three “Scopes.” Refrigerants are considered Scope 1, a direct emission from your own sources, as opposed to purchased energy which is Scope 2, or supply chain/indirect emissions which are Scope 3. Emissions from refrigerants are also classified as “fugitive emissions,” emissions that come from both intentional and accidental release into the atmosphere. Why does this matter to you?

Determining your fugitive emissions helps you better calculate your carbon footprint. We recommend calculating your footprint because it can provide a starting point for participating in green markets and reducing costs from potential carbon liability. Because of their high GWP, refrigerant fugitive emissions are likely to make up a meaningful percentage of your footprint.

Managing refrigerants and making the most of carbon markets

To manage refrigerants coming into your yards, you collect them, either with your Section 608 certified technician(s) or a third-party specialist that you hire. Then you can send them to be destroyed or reclaimed (recycled)  by an approved facility. Whether you collect revenue from refrigerant recycling or create carbon offsets from destruction, you benefit from the emissions credits when accounting for direct emissions.

Accounting for your refrigerants comes in handy when youʼre looking at offsets and credits. The terms carbon credit and carbon offset are often used interchangeably, but theyʼre slightly different.  Carbon credits are awarded by a regulatory agency— such as the European Union emissions trading scheme or Californiaʼs cap-and-trade program—as part of an overall emissions allowance (one credit = one ton of CO2) that is lowered periodically to incentivize carbon reduction. Offsets are generated by the elimination of CO2 in the environment. Other businesses can buy both your credits and offsets.

The potential for creating and selling to the carbon markets will vary depending on the volume and type of refrigerants you process.

Estimated Collection Rates in Metal Recycling Industry Offsetting or Credits Economic value
80-85% HFCs No offsets available Credit when accounting for emissions (footprint)
10-15% HCFCs Offsets in the voluntary market Determined by amount collected and offset value in the voluntary market
Up to 5% CFCs Credits in the California cap-and- trade market Better value as credit in CA market means lesser volumes necessary

Because CFCs have such a high GWP, they provide higher credits against emissions. They are also the least likely to be collected. As such, they could provide a financial opportunity for your business.

Getting started

As the world moves towards carbon neutrality, now is a great time to take stock of the refrigerants you take in and get a head start on regulatory changes. Start benefiting financially from your collection by making an accounting plan, know your options, and learning your carbon footprint!

In todayʼs ever-evolving business climate, having an accurate inventory of your collection of refrigerants is important. Carbon accounting is a tool for doing this and helps too in determining your carbon footprint. The best financial choices between recycling or destruction can then be determined for your business.

Contact Greenway Steel to learn more.

AS SEEN IN THE FEBRUARY 2023 ISSUE
Modern Metals

SUSTAINABLE STEEL

Metallurgist and steel industry veteran Randy Charles talks with Modern Metals about effective GHG emissions reduction strategy

Q:Why is it important to have a greenhouse gas emissions reduction strategy?

A: The metals industry is intensely focused on sustainability, with producing mills investing billions of dollars and manufacturers striving to meet a market for green products. The SEC has proposed disclosure requirements regarding emissions, and the Biden administration has proposed disclosure requirements for federal contracting companies. Both the U.S. and European Union continue to negotiate a global steel and aluminum trading scheme based on emissions, and the EU has implemented a carbon border adjustment mechanism. Within the metals industry and supply chain for metals products, emissions will be part of future discussions. The good news is that on a very fundamental basis, measuring and calculating an organization’s carbon footprint is just a laser focus on energy consumption. Having an emissions reduction strategy is also an energy consumption reduction strategy.

Q:Where does one start?

A: Companies should know their footprints and become familiar with the Greenhouse Gas Protocol, which describes emissions as both direct and indirect and references Scopes 1 through 3. Scopes 1 and 2 are direct emissions. Consumption of natural gas for heating facilities; electricity for operating equipment; and diesel, gasoline and propane for mobile equipment are all examples of Scope 1 and 2 emissions. Scope 3 can become more complicated because it describes emissions generated throughout the upstream and downstream supply chain. There are 15 categories of Scope 3 emissions. Emissions associated with purchased goods and transportation and logistics will make up the bulk of Scope 3 emissions and are a good place to start.

Before considering carbon offsets and renewable energy certificates (RECs), an organization will want to first focus on internal opportunities to reduce emissions. In other words, reduce energy consumption. It is no surprise that the world’s most efficient steel producers, many of which are located in the United States, also have global leading low emission profiles.

Q:Is developing a strategy complicated?

A: GHG emissions result from combustion of fossil fuels. Know where fuel is being consumed, know the quantities and cross reference these fuels with the appropriate emissions factor. There are intricacies relative to accounting to take into consideration, As an example, how leasing arrangements are handled depends on the type of arrangement. Additionally, certain circumstances when accounting for utilities may require a custom, location-based emissions factor versus a grid average emissions factor associated with kWh power purchases.

There is something else to keep in mind relative to having ready access to necessary data. Often, accounting records are saved in dollars spent—monthly spend for power, for example. So save this information by quantity: kWh for power, ccf for natural gas and gallons for fuel.

Q:How do companies avoid a “greenwashing” label?

A: After implementing internal processes to help reduce energy consumption and associated emissions, almost all organizations will still have remaining emissions. If necessary, these can be compensated for through use of offsets or RECs. Will this be considered “greenwashing”? High-quality carbon offsets will directly result in the reduction of global emissions. Power purchase agreements (PPAs) and virtual power purchase agreements (VPPAs) will directly result in new renewable energy projects for which an organization can receive credit through RECs. These truly can be meaningful investments and are being used today by leading steel producers.

Q:Is it necessary to provide targets?

A: This largely depends on the strategy’s objectives. The current administration proposal for
federal contractors may require both targets aligned with Science-Based Target initiatives (SBTi) and reporting through the Climate Disclosure Project. At same time, utility providers and suppliers of purchased goods also may have targets already established. Many large public companies have been communicating their targets through sustainability reporting. Targets are being established for 2030 and 2050, but a lot can happen between now and then. Regardless, starting with an understanding of your organization’s footprint is the first order of business before targets can be considered.

Q:Anything else to consider?

A: A side benefit may be the ability to hire conscientious people. Surveys provide perspective on different age groups and their thoughts relative to sustainability and climate. These comments are worth considering as an organization reaches out to recruit professionals new to their careers. When comparing prospective opportunities and employers, potential employees may consider a company that is clearer on communicating its objectives around sustainability and GHG emissions strategy to be more favorable.

  • 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.

  • The carbon markets and decarbonization will have transformational affect on the steel and metals industry in 2022 and the coming years.
  • It will be driven by government regulations, international agreements, investor’s expectation regarding sustainability as well as availability of capital for investment.
  • There will be a price for carbon emissions, and too, there will a price for carbon neutral steel, and there will be demand for steel in support of decarbonization.

Thousands of years ago, men were forging iron blades in wood charcoal fueled fires, alloying the iron with small amounts of carbon, and creating Damascus steel blades for battle. They were also creating CO2. Fast forward to today and steel is still used across the world for weapons and too, bridges, surgical instruments, and everything in between. In fact, over 1.9 billion tonnes of steel are being produced across the world.

This is what the chemical reaction looks like for the traditional route of blast furnace iron production: 2Fe2O3 + 3C => 4Fe + 3CO2 and according to the World Steel Association, one tonne of crude steel cast results in roughly 1.9 tonnes of CO2 being generated and total direct emissions from steelmaking around 2.6 billion tonnes of CO2 or 7-9% of global man made CO2 emissions in 2020 .

Imagine if the C source is replaced with hydrogen. We’ll get: Fe2O3 + 3H2 => 2Fe + 3H2O, FeO + H2 => Fe + H2O.

Iron ore and hydrogen gets us iron and water. No CO2. This is the ideal process behind the decarbonization of the steel industry. It is not about removing carbon from steel. It is about removing the carbon, specifically the CO2, from the process of making steel.

To be clear, the global demand for 1.9 billion tonnes of steel is not going to soon be met with clean, green, fossil free, steel

THERE WILL BE A PRICE FOR CARBON EMISSIONS, AND THERE WILL BE A PRICE FOR GREEN STEEL.

Now, we can all agree or disagree on climate change, the stated goals of CO2 emissions reduction and associated political rhetoric but one thing is always certain: money will have influence. Article 6 in the Paris accords outlines how carbon markets can work and the UK COP26 Presidency published a Climate Finance Delivery Plan to provide clarity on when and how developed countries will meet $100 billion annual climate finance goal.

You want to finance a green steel project? There is no shortage of interest in green steel investment. Spotify Technology SA’s founder Daniel Ek is one of Sweden’s H2 Green Steel early investors. And the HYBRIT project just received funding from EU’s 1.1 billion Euro Innovation Fund. On the other hand, need financing or investment to reline an old blast furnace? You get the idea… Or, let’s put it this way: the weighted average cost of capital for an offshore oil project is going to be a lot higher than for a renewable solar energy project. In other words, there are many investors and subsidies supporting green projects.

And article 6? That gets us to carbon markets and ultimately a price being placed in carbon. There are different markets yes. Europe operates under a cap and trade market. The US looks likely to operate under a voluntary market (though a cap and trade program is in place in California (see chart)). China? That’ll be dictated by the CCP, but too, People’s Daily, China, recently reported that the total trading volume of China’s national carbon market reached nearly 77 million tonnes and turnover in excess of 3 billion yuan.

produced using hydrogen. Hydrogen is an energy intensive product to produce and not enough renewable energy is being created to produce the amount of green hydrogen necessary. Storing it and transporting it is a whole other issue.

WHY WE ARE EVEN DISCUSSING THIS IN THE FIRST PLACE ?

The Paris Agreement (Paris Accords or Paris Climate Accords) was adopted in 2015 and is an international treaty by 196 parties that covers climate change mitigation, adaptation and finance. The idea behind the agreement is to limit global temperature rise to no more than 2 deg C and aim for 1.5 deg C. A goal of carbon neutrality by 2050 had been further established by 60 countries including the UK and EU. Notably the US, India, and China did not sign on to that UN pledge.

However, in September 2020 President Xi Jinping announced China’s 30/60 goal to achieve peak CO2 emissions by 2030 and hit carbon neutrality by 2060. India claims neutrality goal by 2070. The current administration of the US has set a goal of 50-52% reduction (from 2005 levels) in C emissions by 2030 and zero carbon emissions by 2050. The majority of global steelmaking capacity is located in countries with mid century net zero targets.

POSTED DECEMBER 15, 2021. NOTES:

  1. California and Québec held their first joint auction in November 2014.
  2. Current Auction Settlement Price is the price at which current vintage allowances sold at auction.
  3. Auction Reserve Price is the minimum price at which allowances can be sold at auction.
  4. Secondary Market Prices are a composite of commodity exchange futures contract prices for near month delivery and a survey of OTC brokered transactions for California Carbon Allowances. Secondary market prices are provided with permission of Argus Media Inc.
  5. Secondary Market Price data drawn on December 14, 2021.

So in consideration of all this, there will be a demand for green steel via regulations, investor expectations regarding sustainability, and/or accounting for your company’s emissions (scope 1, 2 and 3). There will be a price for carbon emissions, and there will be a price for green steel. You will need to know your carbon footprint. And you will need to consider options for offsetting your emissions.

In some respects this development of carbon neutrality and sustainability is analogous to the 1990’s and implementation of quality standards. Suppliers to automotive companies were first to get on board with certified quality systems. And eventually, this development made its way across the entire industry.

What is the time frame for this? 2022, and certainly the years to follow, have potential to be a transformational in the industry. Acting early may well help get ahead of life cycle CO2 emission regulations and too, potentially rising costs for carbon.

Automakers will be driving towards carbon neutral vehicles that include entire supply chain in addition to the vehicles being emissions free. Large customers may request sustainability audits. Architects can spec carbon neutral construction. Border Carbon Adjustment will likely be alternatives to tariffs and quotas. Finally, the voluntary carbon markets themselves, now having moved beyond formation and innovation, have become mainstream with transaction values potentially exceeding $1 billion in 2021.

  • A company will need to know their carbon footprint.
  • Understanding GHG protocols defining the accounting for carbon are helpful.
  • Determine how to best position your company to benefit from the transformation to a decarbonized steel industry.

Globally momentum is building to address CO2 emissions in an industry that accounts for roughly 7% of global green house gas emissions. The original Paris Agreement in 2015 stipulated a mid century limit to global temperature increase of 2 deg C and in the years to follow focus has become 1.5 deg C. 2022 and the coming years will be transformational for the steel and metals industry. Now is the time to consider how you want to position your company to either take advantage of the opportunity, or at a minimum, not fall behind.

SO, WHERE DO YOU START?

It should be pretty obvious you need to know your carbon footprint. Or more specially, the GHG emissions generated from the commerce of your business. Only then can you determine how best to address.

The Greenhouse Gas (GHG) Protocol helps to establish global standards to measure and manage greenhouse gas emissions from private and public sector operations, value chains and mitigation actions. The Protocols arose in late 1990s when World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD) recognized the need for an international standard for corporate GHG accounting and reporting. Large corporate partners such as BP and General Motors, in conjunction with WRI, subsequently identified an action agenda that included the need for standardized measurement of GHG emissions.

Regardless of your process or place in the supply chain GHG Protocol classifies emissions as follows:

GHG emissions, while scope 3 emissions quantification is not required. And yet, scope 3 emissions can often represent the majority of an organization’s GHG emissions. This is where we will see considerable debate amongst primary (integrated) steel producers and secondary (EAF based) steel producers. So for example, a fully integrated steel producer has scope 1 emissions through smelting their own ore and yet an EAF producer may not count scope 3 emissions represented by their purchased pig iron and DRI. One can expect that

SCOPE 1 EMISSIONS

Scope 1 emissions are those emissions from directly owned or controlled sources. These are going be the emissions from your process. They could also be the emissions from your company travel our controlled outbound freight as examples. In your own business you will first want to address efficiency in your operation as best possible to reduce these emissions. Scope 1 emissions can then be covered by carbon offsets. You may find carbon offsets to be more economical than capital equipment investment as low hanging fruit so to speak still exists in the developing world.

SCOPE 2 EMISSIONS

Scope 2 emissions are those emissions resulting from purchased electricity, heating and cooling, etc. If you are powered by your very own wind farm or solar panels, you are in good shape. But if you tap in to an existing, operating grid supplied by a wind farm, that brings up the concept of leakage. We don’t need to go there right now, but suffice it to say it might not count against your carbon emissions. Renewable Energy Credits (RECs) and Virtual Power Purchase Agreements (VPPAs) are examples used to cover scope 2 emissions.

SCOPE 3 EMISSIONS

Scope 3 emissions are where things get interesting. This is a company’s indirect supply chain emissions both upstream and downstream. The emissions created in the production of your purchased raw materials are scope 3 emissions. According to the GHG Protocols, all organizations should quantify scope 1 and 2 emissions when reporting and disclosing

investors will increasingly expect scope 3 emissions to be addressed as part of expectations around sustainability. Scope 3 emissions ultimately need to be accounted for to ensure industry emission targets are met.

Of interest in understanding scope 1 emissions is that once these are reduced or offset, they are considered reduced and offset throughout the supply chain. In other words, reducing your scope 1 emissions means the reduction of scope 3 emissions for your customer. In the metals industry this becomes relevant for service centers, processors and end users. Do you simply purchase your steel (or aluminum and other metals) already neutral or offset and maintain a distinct inventory? Or will it be better to offset specific products in inventory as demand requires? This is a critical component of determining how you will want to position your company.

Further, it is critical to understand when determining the return on capital potentially being invested, is there a component for understanding carbon liability? Ultimately there will be a price for carbon that is set either in the voluntary markets or in the compliance market via regulations. RECs too will be setting a price for carbon associated with energy consumption. The higher Capex associated with a green project could be more than offset when considering cost of carbon at $35/tonne or even higher in the future. This concept becomes clear when considering integrated steel makers building new EAFs vs. relining old blast furnaces.

It’s a pretty safe assumption that in the years to come participants in the industry will have investors wanting to understand sustainability and customers specifying carbon neutral steel. Start today with understanding your company’s potential liability and then your options to address. Or even better, opportunities to position your company to take advantage of of this transformation to a carbon neutral world.

Main Take Aways

Sweden is rapidly becoming a leader in the global green steel industry initiative.
It’s being fueled by progressive government support, a mindset of the people where environmental consciousness runs deep in Swedish culture, a history of steelmaking and a region blessed with the right resources.
Will the technology developed here spread throughout the world in years to come?

When we think of Sweden what comes to mind? Abba? Ikea? Volvo? Spotify?

If you are in the steel industry then chances are too that you’ve been thinking, or at least have heard of, HYBRIT and H2 Green Steel (H2GS). These two companies are at the forefront of the global steel industrial decarbonization initiative. How is it that Sweden of all places is the country for this to happen?

Sweden actually has a long history going back to the middle ages of iron and steel production. Today the steel output of the country totals around 4.4 million tonnes and although relatively small in a world of steel production close to 1.9 billion tons the Swedish steel industry looks to be taking center stage in the global green steel initiative. (see chart)

HYBRIT

HYBRIT, a joint effort of steelmaker SSAB, working with Swedish utility, Vattenfall and miner LKAB, with financial support of the Swedish Energy Agency, had recently made headlines on August of 2021 with announcement of fossil free steel production for Volvo (manufacturing a load carrier for mining). HYBRIT is a reference to hydrogen break- thru ironmaking technology. The partnership claims fossil free production via:


H2 GREEN STEEL

H2 Green Steel has further announced a partnership with Iberdrola, a Spanish renewable energy company, to build a 1GW plant to produce Green Hydrogen. The new plant will produce and feed Green Hydrogen to a 2-million-ton direct reduction tower, located in the Iberian Peninsula. Significant large scale projects like this will help to further develop the commercialization of larger and more sophisticated Electrolyzers. This will result in more cost effective green hydrogen in support of a carbon free H2 economy. A budget of approximately 2.3 billion euros is estimated for this project.

Their plan is to have a HYBRIT demonstration plant in place in 2025, at the same time as the conversion of SSAB’s blast furnace site in Oxelösund in Sweden, which will enable them to produce iron ore-based, fossil-free steel for commercial use in 2026.

The project recently announced receiving financial support of the EU Innovation Fund for large scale projects directed towards greenhouse gas emissions. The fund had been created using money from the EU Emissions Trading System and is a good example of the capital being created and directed towards green projects.

H2GS

H2GS may be in some respects an even more ambitious endeavor than HYBRIT. H2GS states that they are, “on a mission to undertake the global steel industry’s greatest ever technological shift”. How can you not respect this? Founded in 2020, H2GS further states that by 2024 they will be in large scale production at their Boden site, and by 2030, they will produce five million tonnes of fossil-free steel annually. Not only do they intended to more than double the country’s output of steel it’ll be entirely green steel from hydrogen based production. Notably H2GS plan includes the world’s largest electrolysis plants for production of green hydrogen. The innovation being pursued with H2GS is applicable to more than just the steel industry as the large scale H2 production can further lead to carbon replacement across many industries. Capital investment objectives targeted for the project total over 2.5 billion euros thru a combination of equity and green project financing.

So what is it about northern Sweden, with HYBRIT in Lulea and H2GS plans for Boden, that make a location not far from the arctic circle ideal for revolutionary steelmaking endeavors?

Water and Ore. The north of Sweden is bisected by rivers and this equates to significant means for hydroelectric power. Sweden’s mines produce 80 million tons of ore per year. The hydro power is used to produce green hydrogen. Green hydrogen is used to reduce high quality iron ore used in steelmaking (see map).

Truly green, fossil free, steel produced free of CO2 emissions though the entire process from mining and reduction of ore to rolling and finishing the final steel product is possible under unique circumstances. In the case of northern Sweden it is the abundant production of clean hydro based energy for purpose of producing hydrogen and powering the steelmaking process, available iron ore, and a cultural disposition towards environmentally progressive thinking. As stated before in previous Greenway Articles (visit greenwaysteel.com ) the prospect of the world’s 1.9 billion tons of steel demand are not going to be met with these unique circumstances. The development however of large scale hydrogen steel production will accelerate the adoption of hydrogen based steel making technology as the world’s economies strive to hit stated green house gas emission reduction targets.

The Swedish people have a characteristic cultural love of nature. Natural resources are readily available to everyone as there is a right of common access which applies to all forests, fields, beaches and lakes across the country. In consideration of the country, it’s geology and the culture of Swedish people, one can then make the connection with the Swedish endeavor to become a leading innovator in the green steel revolution.

The hydro power generated by hydroelectric power is used to produce green hydrogen. Green hydrogen is used to reduce high quality iron ore used in steelmaking.

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