ACCR: Coal Has No Place in Green Steelmaking

A majority of global investors believe low-emissions steel must be made with hydrogen or electricity.

Steel, one of the world’s most carbon-intensive materials, should not be considered ‘green’ if coal or natural gas play any part in its manufacture.

That’s the view expressed by global investors in a new survey from activist group the Australasian Centre for Corporate Responsibility (ACCR), which found four in five asset owners, fund managers and lenders believe green steel cannot be made with fossil fuels.

The survey covered 500 investment professionals, working in pension funds, asset managers and banks across 34 countries in North America, Europe, Asia and the Pacific. It asked a range of questions on how to define ‘green’ steel, which currently has no internationally agreed-upon definition.

While respondents expressed a range of views, a clear majority said fossil fuels were incompatible with a label that implies climate-friendliness.

When asked whether green steel should be made without fossil fuels, but with hydrogen and renewables instead, 81% agreed. When asked if it could be made with fossil fuels if the emissions were abated, such as through carbon capture and storage – only 35% agreed. Meanwhile, just 29% said green steel could be made with hydrogen manufactured from natural gas.

“It’s clear from this research that investors around the globe have a very clear-eyed understanding of the opportunities of the green steel transformation and are willing to move faster – if the right frameworks are in place,” said Fiona Deutsch, Company Strategist and Lead Analyst at the ACCR.

With the vast majority of investors surveyed predicting a transition away from the use of metallurgical coal in steelmaking, she said it was “clear that fossil-fuel free projects are viewed as a safe, long-term prospect for shareholders”.

“Any company seeking to expand metallurgical coal assets or double down on coal-based ironmaking should be paying serious attention to this strong investor sentiment,” Deutsch added.

Not a simple task

Steel is one of the most polluting industries in the world, contributing around 8% of global carbon emissions. It is also one of the hardest sectors to abate because of its reliance on metallurgical coal in the reduction process.

Decarbonising it is not just a matter of switching to renewable energy sources. In the dominant steelmaking technology, coal is actually required to be mixed in with iron ore to reduce it to iron, before it can be smelted into steel.

The most promising alternative technology – known as direct reduction – uses hydrogen (or, traditionally, natural gas) to reduce the iron ore to iron, but it has multiple problems. For example, it requires a very high grade of iron ore that is not in plentiful supply; and it needs vastly more green hydrogen – that is, hydrogen manufactured from water using renewable electricity – than is currently manufactured.

Steelmakers and iron ore miners are working to solve these problems, but the technology is in its infancy and is far more expensive than the coal-dependent blast furnaces that dominate production in China, India, Japan and South Korea.

This has led metallurgical coal suppliers such as BHP and Anglo American to argue that their product has a decades-long future in steelmaking.

A report released this month by Global Energy Monitor (GEF) – a San Francisco–based non-governmental organisation cataloguing fossil fuel and renewable energy projects – however showed that the global iron and steel industry was making major strides towards net-zero goals, with more lower-emissions electric arc furnace (EAF) steelmaking coming online and entering the development pipeline over the past year than ever before.

The report showed two trends supporting this shift: first, nearly all newly announced steelmaking capacity follows the EAF production route (93%), indicating a strong boost in EAF steelmaking in the years to come; and second, planned capacity and retirements indicate a transition away from coal-based production.

“If these developments and retirements take effect, global operating steel capacity should sit just under the International Energy Agency’s net zero-aligned target of 37% EAF steelmaking by 2030,” GEF suggested. “And with heightened momentum, the goal is increasingly attainable.”

What is ‘green’?

It may seem obvious that ‘green’ steel cannot be made with fossil fuels. But the debate over how – and how quickly – to decarbonise the ubiquitous building material is fierce, with many arguing that continued use of fossil fuels can be consistent with a ‘green’ label.

Some claim that continued use of metallurgical coal in steelmaking is unavoidable and has a decades-long future, and that steelmakers should focus on improving efficiency and reducing emissions intensity. Others promote coal’s use with carbon capture and storage as a viable solution to the sector’s eyewatering carbon emissions.

But according to the ACCR’s survey, investors are not buying these arguments and are beginning to worry about the future of metallurgical coal. Sixty-eight percent said they expected steelmaking to turn away from metallurgical coal. That was even true in Australia – the world’s biggest exporter of steelmaking coal – where more than two-thirds of respondents expected the industry to end its reliance on the fossil fuel.

Of all the regions surveyed, Europe was the most bullish about demand for green steel – while Indian and Chinese investors were the most bearish. European steelmakers, such as Swedish joint venture HYBRIT, are leading the world in hydrogen-based steelmaking technologies. Investors were also worried about the reputational risk of owning metallurgical coal mines.

A particularly hopeful sign for proponents of green steel was that 72% of Chinese investors did not see a long-term future for metallurgical coal. That was ahead of US investors, at 68%. This is significant because China produces half of the world’s steel, and hosts the majority of coal-fed blast furnaces.

That finding chimed with a recent report by think tank InfluenceMap, which found Chinese steelmakers were showing increased support for hydrogen-based steelmaking methods, and increased use cases for scrap recycling through electricity-powered furnaces.

InfluenceMap found Japan was far behind China on this, and that steelmaker Nippon Steel was lobbying to weaken the nation’s climate policy. The research also found Japan and South Korean steelmakers were lobbying to weaken the EU’s carbon border adjustment mechanism (CBAM), which will soon charge a carbon levy on imports including steel, cement, aluminium and fertilisers.

“Internationally, the Japanese steel industry stands out as the most strategically and negatively engaged on a range of climate and energy policies, many of which are necessary to accelerate industrial decarbonisation,” Karin Kitsuda, Japan Analyst at InfluenceMap, told ESG Investor.

But while the Chinese steel industry was comparatively less vocal and negative on climate policies internationally, such as on the CBAM, she said the picture from the world’s second biggest economy was still mixed.

“They are still advocating ambiguously on other elements of the transition, such as the need to decarbonise hydrogen production and transition towards EAFs with increased use of scrap steel,” Kitsuda said.

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