How green steel production can help address climate issues

Steelmaking is responsible for about 8% of energy sector emissions, with each tonne of the metal produced creating nearly two tonnes of CO2

Asset managers will need to allocate capital to companies that hold the express goal of decarbonising the steelmaking sector. Reuters
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Last week two major milestones in the global effort to make steel production less damaging to the climate.

Boston Metal raised $262 million of venture funding for its electricity-based steel and metal-making technology, while Sweden’s H2 Green Steel assembled €1.5 billion ($1.6 billion) in equity to build its first plant that will use hydrogen to create steel.

Decarbonising steel will be difficult and costly, and if done at meaningful scale will reshape one of the world’s biggest industries. Steelmaking is responsible for about 8 per cent of energy sector emissions and today, producing a tonne of steel results in nearly two tonnes of CO2 emissions.

One way to understand this critical challenge is to look at it through numerical scales, from smaller to larger.

Start with thousands – or really, just 1,000. Global Energy Monitor counts 1,016 steel plants in 89 countries that combined have an annual capacity of 3 billion tonnes.

That’s barely 7 per cent as many steel plants as there are coal-fired power plants in the world, and a far cry from the more than 1 billion cars on roads today.

Quantifying emissions from this group is doable and the addressable market for steel decarbonisation technology is clearly defined.

The second scale to look at is millions. Boston Metal’s series C round will not go as far as building a series of full-scale production plants, or even one: Instead, the company will spend it on growing its team and demonstrating its technology commercially.

Hundreds of millions of dollars in the steel sector, are a starting point at achieving scale, not an end point.

Next comes billions. H2 Green Steel’s private placement from at least 15 investors will go towards a large-scale production plant. That equity capital is not all that will be needed, though; the company also has also commitments for more than €3.5 billion in debt financing.

While H2 Green’s production plans are ambitious, they’re not on the same scale: it aims to produce 5 million tonnes of steel by 2030, which would be a sliver of the output of the entire sector.

In 2021, the world’s steelmakers produced 1.95 billion tonnes, double as much as only two decades earlier and more than 10 times the global amount made in 1950. H2 Green’s production goal would not rank it within the top-50 steel producers by volume in 2021.

These numbers hint at the scale of capital required to transform today’s steelmaking into a lower-carbon industry. Deploying any new technology widely enough to make a dent in steelmaking emissions will require trillions of dollars of investment. And that is just the funding needed for capital expenditure.

At this still-early stage for H2 Green Steel and Boston Metal, capital commitment is evident. Some of the world’s biggest private equity and infrastructure investors are in both deals, as are some of the largest iron ore producers, fuels producers and steelmakers themselves.

Levelling up that commitment to the trillions will require much more – not just from the industry but from everyone else. Policymakers must provide long-term investment incentives and build a bridge from today’s innovations to tomorrow’s standards.

Asset managers will need to allocate capital to companies that hold the express goal of decarbonising an essential sector. Industrial consumers need to have an appetite for steel products that perform the same, but are made differently.

Ordinary consumers will need to support innovation, too. Fortunately there are billions of people who buy steel or products made with it, and we all stand to benefit from its decarbonisation.

Updated: September 15, 2023, 3:00 AM