Steeling Demand: Mobilising Buyers to Bring Net-Zero Steel to Market Before 2030
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July 2021 Version 1.0 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030 Supported by Breakthrough Energy An analysis by Energy Transitions Commission and Material Economics for the Mission Possible Partnership's Net-Zero Steel Initiative Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030 Steeling Demand: Mobilising buyers to bring net- Breakthrough Energy zero steel to market before 2030 demonstrates that Founded by Bill Gates, Breakthrough Energy is demand signals from steel buyers to steel manufacturers dedicated to helping humanity avoid a climate can help unlock investment decisions. Such signals disaster. Through investment vehicles, philanthropic will secure the next generation of breakthrough programs, policy advocacy, and other activities, technologies needed for primary steel to become truly we’re committed to scaling the technologies we net-zero emissions. This is significant in an industry that need to reach net-zero emissions by 2050. globally accounted for 2.6 Gt of direct CO2 emissions in 2019, representing about one-quarter of industrial Mission Possible Partnership CO2 emissions and 7% of total energy sector emissions Led by the ETC, RMI, the We Mean Business Coalition, (including process emissions). This report provides and the World Economic Forum, the Mission Possible the guidance needed to the critical stakeholders in Partnership (MPP) is an alliance of climate leaders the automotive, construction, renewable energy and focused on supercharging the decarbonisation of white goods sectors on how to seize the associated seven global industries representing 30 percent of commercial opportunity for steel buyers in being early emissions – aluminium, concrete, chemicals, steel, movers and actively participating in the commercialisation aviation, shipping, and trucking. Without immediate of low-CO2 primary steel production technologies. action, these sectors alone are projected to exceed the world’s remaining 1.5°C carbon budget by 2030. This report was developed by the Energy Transitions Commission and Material Economics on behalf of MPP brings together the world’s most influential the Net-Zero Steel Initiative, part of the Mission leaders across finance, policy, industry and business. Possible Partnership. This work was supported by MPP is focused on activating the entire ecosystem Breakthrough Energy. of stakeholders across the entire value chain required to move global industries to net-zero. The Energy Transitions Commission (ETC) ETC is a global coalition of leaders from across the energy Net-Zero Steel Initiative landscape committed to achieving net-zero emissions Global carbon emissions from iron and steel production by mid-century, in line with the Paris climate objective are currently around 2.3Gt per annum – or about 7% of limiting global warming to well below 2°C and ideally of global energy system emissions. Business-as- to 1.5°C. usual scenarios suggest that this could rise to 2.8Gt Our Commissioners come from a range of organisations – per annum by 2050. Multiple technology pathways energy producers, energy-intensive industries, technology to decarbonise steel production are already being providers, finance players and environmental NGOs – developed, but, in a highly competitive sector, market which operate across developed and developing countries signals are lacking to unlock further investment. and play different roles in the energy transition. This The Net-Zero Steel Initiative aims to mobilise steel diversity of viewpoints informs our work: our analyses industry leaders who want to work together to shape are developed with a systems perspective through the favourable policy, market and finance environment extensive exchanges with experts and practitioners. required to transition to zero carbon emissions in steel. Material Economics Learn more at: Material Economics is a management consultancy firm advising leading businesses on how to reduce their www.materialeconomics.com environmental footprints and become more circular. www.breakthroughenergy.org The firm has published leading reports on climate change, heavy materials, and the circular economy, www.missionpossiblepartnership.org and has experience from more than 100 sustainability- www.energy-transitions.org related strategy projects in sectors such as heavy industry, buildings, finance, transportation, manufacturing, and food. 2 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030 Contents EXECUTIVE SUMMARY 4 BACKGROUND – THE STEEL INDUSTRY TRANSITION 7 CHAPTER 1. COMMERCIAL OPPORTUNITY FOR EARLY MOVERS IN LOW-CO2 STEEL 9 i. Pressure on supply chain emissions is increasing in major steel-using sectors 9 ii. A few sectors are more likely to be early champions for low-CO2 steel 11 iii. The automotive sector will be a leading sector for low-CO2 steel demand 12 iv. The construction sector could require large volumes of low-CO2 steel 13 CHAPTER 2. TIME FOR VALUE-CHAIN COLLABORATION ON LOW-CO2 STEEL 15 i. A breakthrough around the corner – truly low-CO2 steel at scale is within reach by 2030 15 ii. Value-chain collaboration is required now to make breakthrough steel a reality before 2030 20 iii. Steel buyers have a commercial interest in being early movers 20 CHAPTER 3. DEVELOPING DEMAND SIGNALS TO BRING LOW-CO2 STEEL TO MARKET 26 i. The basic elements of a low-CO2 steel demand signal 26 ii. How a direct demand signal could be set up: The automotive example 29 iii. How a future purchase commitment could be set up: The construction example 31 CHAPTER 4. A CALL FOR ACTION 34 i. Two critical actions for steel buyers 34 ii. Two critical actions for steel producers 34 iii. Four critical actions for policymakers & public organisations 35 iv. One critical action for civil society 35 ACKNOWLEDGEMENTS 36 3 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030 Executive Summary Primary low-CO2 (and eventually CO2-free) steel low-CO2 primary steel, seize early commercial production will be essential for all actors in the opportunities in premium green markets, value chain, spanning steel production and use, and provide differentiation amidst markets in order to reach voluntary and regulatory climate characterised by tight operating margins. Acting targets by 2030 and beyond. Decarbonising steel is early will also allow companies to adapt to also essential to reach net-zero emissions globally changing policies, such as anticipated regulations by 2050. From wind turbines to electric vehicles, on lifecycle CO2 emissions, and to market forces, steel will be an integral enabler of the energy such as rising carbon prices. They will need transition but it is also a major part of the embodied to engage ‘upstream’ in a way that is new to carbon in many industrial products today. many steel buyers, but the potential pay-off is significant. Early movers already include Volvo’s The pressure to decarbonise is coming from partnerships with SSAB, BMW and BHP Ventures’ a combination of factors, including policy investments in Boston Metal, and Scania, Daimler action, scrutiny from finance players, and and Kingspan’s partnerships with H2 Green changes in consumer preferences. As pressure Steel (H2GS). Further examples can be found grows to deliver deep decarbonisation of as more than ten corporates in the construction production and products, the world needs and renewable energy sectors such as Landsec, solutions that reduce emissions associated Multiplex and Ørsted, have signed up to the Climate with carbon-intensive materials such as steel Group’s SteelZero initiative thereby pledging to in the short term and provide a foundation secure 100% net-zero steel by 2050 at the latest. for deeper cuts in the 2030s and 2040s. Providing low-CO2 primary steel to satisfy the Early movers in the automotive, construction, demand of early mover corporates will require renewable energy and white goods sectors breakthrough production technologies to be can benefit from developing new low-CO2 brought to market. This paper explores the steel supply chains. For all these sectors, early types of action required to catalyse investment action on low-carbon steel is attractive as: in these breakthrough technology pathways. This paper shows how demand signals from • Steel is a major component of their steel buyers can help unlock these investments value-chain emissions. for low-CO2 steel. It explores how such demand signals could be structured while meeting the • They face significant and rising pressure commercial imperatives of sellers and buyers. from regulators and customers to decarbonise It is based on interviews and workshops with supply chains. more than 50 steel manufacturers, steel users, regulators and finance providers, and extensive • Low-CO2 steel will be a market differentiator analytical work on low-carbon technologies and in the next decade and it is hard to stand value-chain dynamics. It provides options to out with incremental CO2 reductions. help steel producers and buyers to design green demand signals and quantitatively describes • The premium for low-CO2 steel is a small the advantages and disadvantages of each. share of the total product cost. The good news is that, compared to just four • Buyers are sufficiently large to effect years ago, these breakthrough technologies have change in supply