Why car makers are excited about green steel

With output of the green fuel falling far short of demand for years to come, car makers acknowledge that it will only be a gradual transition. EPA

Car makers and steelmakers are sealing deals for green steel, and using them to tout their environmental credentials. The trouble is, the steel is still being forged using fossil fuels and it’s not clear how soon that can change.

German steelmakers Thyssenkrupp and Salzgitter are finding buyers prepared to pay a premium for green steel, including Mercedes-Benz Group, Volkswagen, BMW and Ford Motor. But without large-scale supplies of green hydrogen, much of that steel will initially be made with natural gas.

European steelmakers are looking to a combination of electric-arc furnaces and hydrogen to transform an industry that still burns billions of tonnes of coal, generating about 7 per cent of the world’s carbon dioxide emissions.

With output of the green fuel falling far short of demand for years to come, car makers acknowledge that it will only be a gradual transition.

There needs to be a labelling system to show the emissions performance of different products, as using natural gas is just a first step in transforming the steel sector, said Oliver Sartor a senior adviser at think tank Agora Industry.

“Steel made with natural gas is not climate-neutral steel and that is what ultimately matters,” he said.

To prevent greenwashing, the German Steel Federation is proposing just such a labelling system, under which only primary steel produced with 100 per cent green hydrogen can be designated as “near zero”.

There will be a number of different levels of steel, depending on how much carbon dioxide is released in the manufacturing process, Thyssenkrupp said.

After making its first sales to Mercedes-Benz two years ago, Salzgitter aims to produce 1.9 million tonnes of low-carbon steel from 2026.

Customers are prepared to pay a three-digit euro premium per tonne, compared with steel from a conventional blast furnace, Salzgitter chairman Gunnar Groebler said.

“People are willing to pay a premium for it because they have understood that they can also be pioneers with green steel,” Mr Groebler said.

Future volumes

The company’s direct reduction plant will initially be fired by natural gas, which will curb carbon emissions by 60 per cent compared with coal-fired steelmaking.

The proportion of hydrogen will be progressively increased until the steel is almost emissions-free by 2033. VW and BMW have already secured future volumes.

“I conclude contracts where I can tell the customers very precisely what the CO2 footprint of the steel will be,” Groebler said.

Weaning the low-margin steel industry off cheap coal onto more costly green technologies will require massive government support. AFP

Mercedes-Benz declined to say what kind of premium it was prepared to pay for green steel. As the car maker works towards using steel produced with hydrogen instead of gas or coking coal, it has invested in start-up H2 Green Steel and partnered with Sweden’s SSAB.

BMW has also struck deals with low-carbon steelmakers, and said it’s encouraging suppliers to switch from coal-based production to the use of hydrogen.

Ford Motor said it has pledged that at least 10 per cent of its primary steel purchases will have near-zero carbon emissions by 2030. It also declined to say what kind of premium it would pay.

However, it’s too early to conclude hydrogen purchase agreements, given that most projects are at an early stage and the supporting infrastructure is only on the drawing board, Salzgitter’s Mr Groebler said.

Earlier this year, Germany unveiled plans to connect industrial centres near the Rhine, the south and the east of the country with hydrogen pipelines.

Hydrogen is set to play a key role in the nation’s pivot away from fossil fuels, as Europe’s largest economy aims to slash carbon emissions two thirds by 2030, compared to 1990-levels, and reach net zero by 2045.

Thyssenkrupp – which closed a green-steel deal with Mercedes-Benz in June, followed by a number of other contracts – is developing a system for tendering for the hydrogen it needs, a spokeswoman said.

Weaning the low margin steel industry off cheap coal on to more costly green technology will require massive government support.

Salzgitter and Thyssenkrupp have received a total of about €3 billion ($3.16 billion) to kick-start investments, while ArcelorMittal and Saar Stahl are among the other companies being lined up for support, Economy Minister Robert Habeck said last week.

The steelmakers are also looking to tap subsidies for operational costs, with the German government planning to allocate €50 billion from next year to decarbonise heavy industry.