The green transition of the steel industry

The world is undergoing a profound industrial revolution aimed at significantly reducing environmental impact. The demand and production of steel, one of the world’s most carbon intensive commodities, has increased enormously since the turn of the century. Therefore, a green transition for steel manufacturing is not just needed, it’s existential.

Steel is everywhere, from our vehicles and infrastructure, to the everyday appliances we use at home. It plays a fundamental role in our daily lives and will continue to be crucial for future development.

However, it is also responsible for around ten per cent of global greenhouse gas emissions, which is more than the entire tourism sector. Not only that but steel is in fact, the byproduct of the production process; on average, for every tonne of steel manufactured, 1.89 tonnes of CO2 is produced.

In addition, its strength, durability and malleability makes it an essential material across a wide range of markets. As such the sector has experienced a vast increase in production capacity over the last two decades, from just over 800 million tonnes globally in 2000 to 1,900 million tonnes in 2023.

Much of this has been driven by the polarisation of the sector. Looking back to the turn of the century, there was a relatively even global distribution of steel production. However, China, which represented 17.5% of the market in 2000, now dominates, producing 54% of the world’s steel, equating to over 1,000 million tonnes. To put that into perspective, India, the world’s second largest steel manufacturer, produces just under 200 million tonnes.

All this means that in order to meet the Paris Agreement’s goals, the industry needs to reduce emissions by 90% by 2050. Stefan Erdmann, CTO of Finnish steel manufacturer, Outokumpu, commented: “Over 20% of global steel plants will be running to the end of their life in the coming decade, and that means a lot of potential for changing some of those production methods.”

It is clear that the steel industry needs to transform and as such, Outokumpu has researched the main challenges that lie ahead for the sector and identified Five Critical Shifts for leading the industry into a new era. Stefan added: “Primarily we looked at the share of production across different continents, the dominant technologies used for steel today and the decarbonisation pathways across the globe.”

Shift 1: The focus is on carbon (for now)

Any industry responsible for ten per cent of global carbon emissions will be under pressure to enhance its sustainability credentials, and that is certainly the case for steel. Carbon pricing mechanisms are already in place in Europe, while US manufacturers are being offered substantial incentives for deploying carbon neutral processes. As such, the race is very much on to develop steel with as limited impact as possible – a race that has the potential to redefine the entire sector.

In Outokumpu’s case, low emission stainless steel is crucial in accelerating the green transition across industries and the company is already supporting its customers to reduce their emissions by over 12 million tonnes annually.

Circularity has become a significant business model driver and each year Outokumpu process more than two million tonnes of recycled steel across its mills in Europe, the US and Mexico. The company’s stainless steel has the lowest carbon footprint in the world, currently 75% lower than the global average, and with its Circle Green stainless steel, up to 93% lower. It features low carbon energy and fuels as part of the production process, resulting in a 75% emission reduction compared to conventional products across Scope 1, 2 and 3.

“Traditionally, the world’s average is to produce around six tonnes of CO2 per tonne of stainless steel”, Stefan added. “Our footprint is around 1.5 tonnes. However, it means we’re still creating more CO2 than we are stainless steel, despite the fact that we are recycling more than 90% of our material – how crazy is that?

“We asked ourselves, with the current technologies available, what is the lowest amount that we could achieve to create the super green product that we have now. This came to a 93% lower carbon footprint than the global average and 0.5 tonnes of CO2 per tonne of stainless steel.

“Since 2016 our journey towards decarbonisation is clearly tracked by SBTi targets. We are currently at 32% reduction, aiming for 42% by 2030. The truth is that a lot of companies are waiting to fully get started on their decarbonisation journey because related technologies are expensive, but it’s important to remember that if you understand your emissions, you can achieve a low or similar cost for a decarbonised structure.”

A key piece of the decarbonisation jigsaw for Outokumpu, in order to drive change across the industry, is transparency. As such, the company has clearly identified where it plans to reduce emissions across Scope 1 (addressing coke and fuel use), 2 (increasing the share of low carbon electricity) and 3 (addressing the four main raw materials which amount to ~70% of the company’s value chain emissions).

The next part of the process is what Stefan described as, “the holy grail of decarbonisation”. This means identifying and understanding the financial efficiency of carbon reduction projects. The graph below shows the reduction of carbon emissions versus the cost to the company. For every €100 spent, Outokumpu has been able to reduce emissions by 1.75Mt.

Any decarbonisation journey needs clearly defined and identified targets. And while many businesses have definite long-term lines in the sand (whether that be 2030, 2040, 2050 or all three), it’s no good to only have targets set on the distant horizon.

Looking too far ahead can sometimes result in overlooking what’s immediately in front of you, so it’s also important to set targets around the here and now. Outokumpu is aiming for an eight per cent energy efficiency improvement target by the end of the year, corresponding to energy savings of some 600,000MWh.

During 2023, the company also implemented approximately 100 projects delivering 215GWh of energy savings which cover around 35.8% of the company’s commitment of 600GWh. This has been achieved by investing in furnace improvements of heat treatment lines, optimising energy consumption and fully utilising the company’s energy management system.

Value chain emissions (tCO2-eq/t of stainless steel)

Why just ‘for now’?

Outokumpu’s carbon shift recommendation for the steel industry has come with the caveat of ‘for now’. This is primarily because the company predicts that further challenges will eventually emerge that will muscle in on the carbon agenda.

Despite being a significant contributor to global emissions, the steel industry is also well place on the decarbonisation journey. Carbon-free processes already exist and around 85% of end of life steel is already being collected for recycling today. However, industry experts predict that additional issues such as biodiversity and water will be the next sustainability challenges which manufacturers will have to quantify and address.

Greenhouse gas emissions are linked to both water scarcity and biodiversity loss. Climate change caused by emissions leads to more frequent droughts and alters precipitation patterns, exacerbating water shortages in many regions. Emissions contribute to rising temperatures and changing climatic conditions that threaten many species and ecosystems.

After tackling the carbon challenge, industry must focus on minimising its impact on all aspects of the environment from biodiversity to water usage. Outokumpu has stressed that we need to undergo a paradigm shift and view Earth as a closed system akin to a spaceship, where resources are finite and must be managed with maximum efficiency.

A good lens through which to look at the future direction of sustainability is the Planetary Boundaries. Produced by researchers at the Stockholm Resilience Centre, the Planetary Boundaries model identifies nine essential, quantifiable boundaries within which humanity must operate to maintain long-term sustainability (worryingly, six out of these nine boundaries are currently beyond a safe operating space).

While today’s focus is carbon-centric, tomorrow’s challenges will demand a holistic approach, likely to encompass more of these Planetary Boundaries and higher social requirements. The industry’s journey from carbon reduction to sustainability expansion will redefine its role in a world where environmental stewardship is no longer only about emissions but about multiple sustainability dimensions.