Five actions to improve the sustainability of steel

Steel is one of the world’s most sustainable materials, but decarbonizing remains a challenge.

In brief

• Steelmaking currently contributes around 8% of the world’s total carbon emissions, making decarbonization a global priority.
• Technological advances have helped reduce emissions but there are five actions that can accelerate a sustainable transition.
• A collaborative approach from industry, government and consumers can build a commercially viable green steel market.

Steel is critical to continued economic development and the backbone of global sustainable initiatives, including the energy transition. But the steel industry is also one of the world’s most energy-intensive, accounting for around 8% of global carbon dioxide emissions.¹

For steelmakers, reducing these emissions is critical as the global decarbonization agenda accelerates. Steelmakers that move now to improve the sustainability of operations can get ahead of evolving carbon regulations and capitalize on environmental, social and governance (ESG) metrics to gain a competitive edge.

How should steelmakers steer the transition?

Over the past 50 years, advances in technology and a move from traditional blast furnaces (BFs) toward the electric arc furnace (EAF) have reduced energy use in steel production by 60%. “The continued move to EAF will drive down emissions further, but creating a genuinely sustainable industry will require broader, bolder measures from all players across the steel value chain,” said Bob Stall, EY US Mining & Metals Leader.

For steelmakers, five key actions can help guide the sustainable transition:

• Assess and adopt clean technologies, promoting a balance of risk, capital cost and quality
• Increase production of sustainable steel to capitalize on growing demand
• Improve ESG performance to meet shareholder expectations
• Embrace digitization to unlock value
• Collaborate with all stakeholders to accelerate the transition to improve output quality

Assess and adopt clean technologies

Combining short-term commercial imperatives with long-term value creation requires balancing risk, cost, quality and decarbonization. Aligning investments with cyclical gains can mitigate financial risks, as higher initial capital costs are likely to be offset by the long-term benefits of more sustainable operations and improved ESG performance.

Steelmakers may consider adopting some of these emerging technologies to reduce emissions:

1. Carbon capture

Top gas recycling can recycle up to 90% of the exhaust gas from BFs, reusing it for combustion with the remaining highly CO₂-concentrated 10% able to be stored or used.² Determining whether carbon capture is suitable may depend on overall operating costs, with technology costs still high at this stage of maturity.

2. Innovations in product mix

Moving to scrap-based EAF production will reduce emissions, but each steelmaker will need to decide whether and how to transition based on the affordability and availability of scrap and the desired quality of the end product.

A comparison of emerging and new technology production methods for greener steel

3. Hydrogen

Use of green hydrogen (generated by renewables) with direct reduced iron (DRI) and EAF is likely to be the cleanest alternative for steelmakers in the future,³ although it will be some time before hydrogen is economically feasible and scalable.

4. Alternative smelting reduction processes

Some newer commercialized smelting reduction processes can offer better emission control compared with integrated plants, but their economic viability depends on overall power consumption and use of export gases.

Increase production of sustainable steel

As companies face more pressure to reduce scope 3 emissions, demand for low-carbon supplies, including steel, is growing. In particular, automakers which use 12% of the world’s steel use, are accelerating decarbonization initiatives and seeking cleaner inputs.⁴ Government incentives are likely to boost demand further.

Steelmakers that produce more green products can capitalize on this demand. We already see some dominant players offering certified green steel products in a trend set to increase.

Improve ESG performance

Investors are seeking more sustainable portfolios, demanding greater ESG compliance and performance from potential investment targets. At the same time, pressure from government to decarbonize is increasing, with many countries enforcing carbon tax regimes and emission trading systems (ETSs).

Improving ESG metrics will reap benefits for steelmakers beyond compliance with regulations and stakeholder expectations. “Companies with a better ESG performance can secure project financing at a lower cost, enhance resources management, reduce operational risk and increase resiliency against future changes,” said Saurabh Bhatnagar, EY India National Mining & Metals Consulting Leader; Partner, Ernst & Young LLP. Some steelmakers are including the impact of carbon emissions when assessing the profitability of capital investments. Adopting shadow internal carbon prices can help identify sustainability inefficiencies and the potential impact of a low-carbon economy on costs.

Embrace digitization to unlock value

Many steelmakers are already digital leaders, adopting technology to improve defect recognition, process safety and quality assurance. But there is a potential to make greater use of digitization to quantify, monitor, record and assess processes to enhance sustainability performance and reporting.

Digital solutions can also help improve productivity by optimizing energy consumption, minimizing waste and controlling emissions. And blockchain offers the potential to verify the sustainability quotient of steel value chains, giving end users reliable data to assess their net carbon impact. It can also help create more agile supply chains, while cloud computing can allow central command and control centers to oversee geographically dispersed mine-to-metal value chains.  

Collaborate with all stakeholders to accelerate the transition

Decisions made around sustainability initiatives cannot be based purely on financial costs to the business. Instead, steelmakers must act with all stakeholders in mind and be prepared to make a balanced trade-off between industry, end consumers and the environment. Aligning stakeholders will be critical to quicken the pace of change needed and to enable the collaboration required to co-develop feasible solutions to complex challenges.

Building the future of green steel

The steel industry’s transition to greener steel will not be uniform across regions. Steel producers in Western regions and countries already investing in improving sustainability are likely to see a more rapid adoption of low-carbon technologies compared with steel producers in China and India, where the combination of newer capital assets and cost pressures will force a more gradual transition.

Even in countries where progress will be slower, steelmakers should make incremental investments in process improvements to decrease energy intensity, reduce carbon emissions, increase material efficiency and promote the circular economy. Given the relatively large carbon footprint of steel production, even small steps will make a big difference in moving the industry closer to carbon neutrality.

Making this shift will require a staged digital road map to realize the potential of new technologies and achieve economies of scale, while improving sustainability across the steel value chain. And it will require steelmakers to join with a broad range of stakeholders, including governments, the United Nations, academia, communities and the World Steel Association, to build a greener steel industry.

Steel is one of the world’s most sustainable materials — permanent, forever reusable and the most recycled substance on the planet. Building a more sustainable production process is a long-term investment that will yield enormous environmental benefits over the full life cycle of green steel.