Access Intelligence: Building access is about more than just control | PROPMODO BOOKMARKS→

Green Steel May Be the Future, but It Needs a Marketing Campaign

Eight years ago, the steel industry was thought of as one of the last sectors to decarbonize. At least that’s what energy analyst and economist Chris Bataille, who has spent more than 20 years researching how the world can shift to sustainable energy, believed. But in 2015, when the Paris Agreement was on the verge of being signed by 194 states and the European Union, he realized the timeline for steel and all heavy industries was being moved forward significantly. Since the landmark agreement was signed, Bataille has been focused on helping make net-zero decarbonization of industries like steel a reality. 

Creating steel is an emissions-heavy process that is responsible for nearly eight percent of global carbon emissions. With commitments to net zero emissions on the line in countries around the world by 2050, it’s one of the industries targeted for change. Steel produced without emitting carbon dioxide, known as green steel, is a technology that exists and has been proven to work. Advocates for green steel are hopeful that pioneering efforts in Europe will be reproduced in other places around the world. 

Construction is responsible for 25 percent of the world’s greenhouse gas emissions, and of that, one-third is associated with materials (like steel) and the construction process. Given the new imperatives around ESG commitments, stricter laws around emissions, and the Paris Agreement, why aren’t more steel manufacturers adopting the new technology? It turns out it may just need a more effective marketing campaign to get the message out to not just steel manufacturers but the real estate industry too. 

How it works

In modern steelmaking, carbon dioxide emissions occur in a couple of different ways. Blast furnaces, one of the most common ways steel is made, typically run on coal and create chemical reactions during the process that release carbon dioxide as a byproduct. Around the world, up to 70 percent of steel is manufactured in this way, which generates close to two tons of carbon dioxide for every ton of steel produced. The other 30 percent of steel is mostly made through the use of electric arc furnaces (EAF). While smaller, EAFs are more efficient and use electric currents to melt steel and have been found to have up to 75 percent fewer carbon emissions than traditional blast furnaces.

With green steel, manufacturers would instead replace coal with hydrogen, a renewable energy source, and rather than carbon dioxide, the byproduct would instead be water vapor. This process effectively cuts out any emissions and drastically reduces the carbon footprint of steel when used in construction. Cutting out fossil fuels from the process is a method called direct reduction, where blast furnaces are replaced by direct-reduced iron plants, and hydrogen is used instead of coal or natural gas. Another technology being piloted by nearly all European steel producers is carbon capture and usage. The system recycles emissions to create new products for the chemical industry, like ammoniac or bioethanol. As of now, the technology is still in its early stages and hasn’t been proven to make sense economically. 

Sweden is the first country to start making green steel at scale. Green steel venture HYBRIT delivered its first batch of green steel to carmaker Volvo in the summer of 2021 after launching test operations at its pilot plant the year prior. Volvo will begin using the steel in building the frame rails of its line of heavy-duty, fully electric trucks. Companies in other countries have begun experimenting with the technology as well. The German steel giant ThyssenKrupp said last fall it is investing $1.9 billion into a hydrogen-powered, direct-reduction steel-making system. The move by such an industry giant could help pave the way for more companies to follow suit. 

In the U.S., there are hopes from advocates of green steel that it will gain more ground among steelmakers to adopt the technology and that construction companies and real estate developers will gain more awareness of green steel and help boost demand for the product. Nucor, the largest steel manufacturer in the U.S., is now making partially green steel. The company has committed to reducing greenhouse gas emissions by 35 percent by 2030 and is now using recycled steel and EAFs at its 24 steel mills. Nucor announced in 2021 that General Motors will be the company’s first customer for its new line of net-zero steel, Econiq. In Arkansas, United States Steel Corporation recently broke ground on a $3 billion facility featuring two EAFs that it says will cut carbon emissions by 75 percent.

Government leaders are looking to promote green steel too. Last month, the Biden Administration took a step to encourage more green steel production by proposing a green steel club with the European Union. The arrangement would entail promoting trade in green steel and aluminum by imposing tariffs on countries that produce more emissions-heavy steel, like China. The passage of the Inflation Reduction Act last year is expected to help bolster more use of hydrogen in the steel industry by offering a 10-year production tax credit for clean hydrogen production facilities. Bataille expects that by the late 2020s and early 2030s, steel manufacturers will begin using hydrogen-based technology and, by the 2030s, will be able to fully electrify the process. “That’s the strategy for most replacements over the next decade or so,” Bataille told me. “We know how to do it, the technology is feasible. It’s very electricity-intensive, so the cost is dependent on the amount of electricity put in.”

It’s not easy being green…steel

At this point, with green steel, it’s not if it will happen but when it will happen. And the sooner, the better: a recent study from CDP found within the global steel industry, 14 percent of steel companies’ potential value is at risk due to rising carbon prices if steel companies don’t reduce their environmental impact. While the technology around green steel and recent developments by major companies are an important milestone on the path to decarbonization and net zero goals, there are challenges to expanding green steel operations on a wider scale in the U.S. and around the world. 

In order to decarbonize the way steel is made, a lot of capital spending needs to take place. That capital need is expected to pencil out to about $4.4 trillion over the next 30 years, and that could increase production costs by around 30 percent by 2050 compared to today’s numbers. However, low-emissions steelmakers could also have a competitive edge over rival companies if customers are willing to pay a premium for the product and depending on how regulations surrounding carbon pricing play out.

The price of green steel is poised to be a major challenge for the industry. Steel made without fossil fuels is estimated to cost between 20 and 30 percent more, and while some real estate customers may be willing to pay a premium for green steel, for others, costs could be a dealbreaker. “The potential of green steel, no matter how (the premium) is priced, really seems limited in the next several decades. Realistically, it’s tough to say if green steel is going to be viable on a larger scale,” said KeyBanc Capital Markets’ Phil Gibbs. Where it could make sense is for certain high-profile, high-margin developments, like trophy skyscrapers and infrastructure projects that have premium pricing built into them. However, some studies have shown that globally, green steel prices would need to fall by more than 50 percent by 2035 in order to compete with the cost of traditional steel.

But maybe the biggest hurdle for green steel moving forward is the adoption of the technology at the country level. While producers aren’t necessarily pushing back on green steel technology, the impetus for widespread adoption mostly lies with the country where the manufacturer is based. China has the largest, most efficient blast furnaces, and it’s unclear whether leaders would stand on replacing them with a new hydrogen-fueled system. “Where we are getting pushback is ‘it costs more and who is going to foot the bill,’” Bataille said. What needs to happen to seal the deal, he argued, is to put the added costs onto the end consumer. For cars, it would add up to a consumer paying a couple of hundred dollars extra. For a building or a bridge, it could expand the cost of a project by 1 to 2 percent. 

One step toward green steel that is making a lot of progress is in upgrading facilities to a new system as they come up for replacement. Blast furnaces have about a 17-year life until the brick-lined inside begins to wear out. When that happens, the cost for the brick to be pulled out and replaced costs almost as much as pulling out and replacing the whole furnace itself. Bataille and other green steel advocates have been pushing steel companies to instead replace it with a direct reduction unit. Some steel companies have been receptive to this plan, while others have not. That’s what ThyssenKrupp has planned as part of its major shift to green steel, and in Canada, producers there are expected to replace blast furnaces with direct reduction units as well. However, there are limitations. These units require high-quality iron ore, and there’s not a lot of that left, as most has already been mined. But the next generation of direct reduction units will be configured to handle lower-quality iron ore. 

Above all, the key to getting the steel industry to adopt green steel technology on a wide scale and quickly is educating those in the industry said Bataille. Talking to architects, talking to construction companies, and even talking to the media will all help drive demand for the product. “Demand has to be there,” he said. “Developers have to ask for greener steel, structural engineering firms need to ask for it.” Where change could really make a difference is in China, where the largest share of the world’s steel is produced. Replacing blast furnaces with hydrogen-based ones could make a big dent in the country’s emissions, but the change can only come once the country’s party leaders get on board. However, China has committed to net zero by 2060, so there is certainly pressure to decarbonize one of its biggest industries. Bataille believes that once they do decide to upgrade, it will come quickly. “They move fast,” he said. “When they decide to do something, they move a lot faster than western companies just because they can.”

As pressure from government leaders and net zero commitments builds and the future impacts of climate change become clearer, steel manufacturers will have to pick up the pace in adopting green technologies in order to meet goals around decarbonizing. While Europe is leading the way and the U.S. is making strong progress, the industry can only hope that China will join the movement as well. For the real estate industry, which is focusing more and more on green initiatives and curbing emissions, until the premium price of green steel comes down, we probably won’t see as high of a demand for the product from developers as manufacturers might hope for. But while there is still a long way to go for green steel technology and adoption, it’s clear that government leaders and industry leaders are making a strong case for the technology and investing in its future, and that factor alone ensures it’s an issue that will only get more attention, which is exactly what it needs.

Image - Design