A new report from climate research house Industry Tracker, has found that the European steel industry has less than 26% (12-35%) of its carbon budget remaining and companies must rapidly shift their business models to reach net zero.

This means the industry’s existing assets could release 2.3 billion tonnes of CO2 in their lifetime, compared to a 2050 budget of just over 3 billion (based on the IEA’s Net Zero Emissions scenario).

Steeling for Net Zero provides an in-depth assessment of 10 of the largest and most impactful global steel companies, accounting for 68% of primary steel production in Europe, including ArcelorMittal, Tata Steel, Thyssenkrupp and SSAB. The research analyses how these companies are positioned to action transition plans and achieve net zero, based on their targets and existing asset portfolios.

Having been on an upward trajectory since the mid-20th century, emissions from steel now account for up to 9% of all global emissions – more than the whole of India – and demand for the metal is on the rise.

The biggest contributor to emissions from the steelmaking process comes from the blast furnace. This is the dominant method for making primary steel and has been in use since the 14th century. With this carbon intensive method, there is no way of achieving the required reduction in emissions to meet the EU’s 2050 net zero target. Reductions from efficiency improvements have all but plateaued – over the last two decades, the companies analysed have only reduced their emissions intensity by an average of 1% per year.

“Steel is used across many products and sectors that are integral to the way we live. However, with a large carbon footprint and a growing emissions profile, steel remains a problem child in the path to net zero."

Carole Ferguson, managing director of Industry Tracker

Blast furnaces have a long life cycle of about 15-20 years before they need upgrading. This is an expensive process, costing on average US$175 million, meaning these furnaces cannot be shut down prematurely without incurring write-offs. This risks companies getting locked into carbon intensive methods unless they start investing in new technologies and timing their transition correctly.

Industry Tracker’s analysis finds that these companies will need to stop renewing blast furnaces before 2030 and have between now and 2033 to begin investing in new technologies. The estimated cost of making this shift ranges between US$4 and USS$34 billion for companies, depending on the size of their current asset base. Using asset-level data, it is revealed that these companies have collectively used up three quarters of their 2050 carbon budget, and in a worse case projection, three companies have already exceeded their budget from locked-in emissions.

Eight of the 10 companies analysed have emissions reduction targets, with ArcelorMittal, Voestalpine, Tata Steel and Salzgitter all making commitments to become net-zero, climate or carbon neutral by 2050, while SSAB aims to achieve this by 2045. However, most of the emissions cuts outlined in these targets come after 2030, when they are at high risk of missing the window for investing in vital new technologies.

"With momentum starting to build for new technologies, particularly green hydrogen, steel companies have the opportunity to break out of their current capital intensive business models."

Carole Ferguson, managing director of Industry Tracker

The analysis does show that some of the leading European steel companies – such as SSAB, ArcelorMittal and Tata Steel – are starting to develop the low-carbon innovations required to significantly reduce their footprint. This includes hydrogen-based steel production, which can reduce emissions to near zero, as well as carbon capture utilisation and storage (CCUS), which could cut emissions from traditional steelmaking routes in the mid-term.

Seventy per cent of the companies in the report are involved in projects developing ‘blue’ or ‘green’ hydrogen production, including ArcelorMittal, Thyssenkrupp and SSAB. This is encouraging as it indicates they are not just investing in hydrogen-based steel production technologies, but are also getting involved in developing supply chains to ensure they have access to the large volumes of hydrogen needed to scale up this type of sustainable steelmaking.

“I am optimistic that with public support, cross sector partnerships and investment capital seeking to solve the climate crisis, steel companies have the potential to lead the way in the transition and drive the green hydrogen economy.”

Carole Ferguson, Managing Director of Industry Tracker

For the most part, however, these technologies are still early stage, and they must be rapidly scaled and commercialised to meet global climate targets. The current balance sheets and cash flows of these steel companies are not sufficient to support the cost of the transition. This means companies must leverage partnership opportunities, while subsidies, direct public funding and investment capital must be made available.