Fossil fuels are currently the backbone of the steel industry, but it doesn’t have to be this way. With a material as pervasive as steel, it is essential to reduce demand, and transform the industry towards fossil-free production. Steel is used in construction, to build transport including cars and ships and in many consumer products. It also plays an important role in building a greener and more equitable future. It is a necessary resource for renewable energy infrastructure, public transportation, and climate adaptation infrastructure like sea walls. Unfortunately, the industry is also responsible for 11% of carbon dioxide (CO2) emissions, and 7% of greenhouse gas emissions (GHG) globally. In order to remain below 1.5°C of global heating, the International Energy Agency (IEA) estimates that the steel industry's emissions must be reduced by 25% by 2030 and almost 92% by 2050.
Currently, the steel industry is far off track. As of 2021, 72% of the world’s steel production is coal-based, relying on blast furnace technology to turn iron ore into crude steel. It’s estimated that out of the 3.6 gigatons (Gt) of CO2 that the steel industry emitted in 2019, 3.1 Gt were from blast furnaces. Additionally, even before coal makes it to the steel plant, the methane emitted from metallurgic coal mining can double the warming potential of a batch of steel.
Alongside its climate impact, coal-based steel production causes a wide variety of adverse health effects on workers and communities surrounding steel plants. Communities living in proximity to steel plants are shown to have significantly higher rates of lung cancer, asthma, and heart disease, caused by the dust and chemical emissions released from processing and burning coal.
The steel industry has long been considered a ‘hard to abate’ sector, notably because it is such a crucial resource for other industry sectors and because no commercially viable alternatives were available to decarbonize the production process. However, fossil-free alternatives are now becoming available.
Besides producing less, broadly speaking there are two dominant pathways to reduce the climate impact of steel production. The first is melting down and recycling scrap steel into new steel using an electric arc furnace (EAF). A ton of crude steel produced using an electric arc furnace emits an average of 0.04 ton of CO2, versus blast furnaces which result in 1.2 tonnes of CO2 per ton of crude steel. Replacing blast furnaces with electric arc furnaces, and increasing the proportion of steel that is made by recycling is a strong short term strategy for reducing steel sector CO2 emissions. However EAFs consume a lot of energy, and unless local electricity grids are fully renewable, fossil fuels are still utilised in the process.
The second way is a more recent innovation where hydrogen, rather than coal, is used to convert iron ore into crude steel. In Sweden, there is a pilot plant producing steel that is 100% fossil-free using green hydrogen, and other nations have announced plans to build similar plants. Ramping up recycling, and utilising green hydrogen provide a far stronger outlook for reducing the climate impact of steel production than Carbon Capture Utilisation and Storage (CCUS), which has a history of underperforming.
Even as green production methods become available, making new steel from iron ore has a human and environmental cost. The iron ore industry has a notoriously poor human rights and environmental track record, especially in the Global South. An ecologically and socially just transformation of the steel industry therefore also requires decreasing demand and ending extractivism. Reducing our demand in turn requires reducing demand for the largest buyers of steel, such as the automotive industry and construction. With steel production projected to grow by a third by 2050, banks must ensure that their steel clients are meeting demand using fossil free technologies.
The role of banks
Banks play a crucial role in ending carbon-intensive and pollution-heavy steel production. As providers of finance for steel and metallurgic coal projects, they hold leverage over the world's largest metals and mining companies. While a growing number of banks are committed to becoming net zero by 2050, most do not have specific steel and metallurgical coal policies.
Some banks have started to recognize the steel sector as a priority for their own decarbonization strategies. For example, the recently launched Sustainable STEEL Principles currently include six major banks who have committed to:
Publicly disclosing their financed emissions from the iron and steel industry,
Measuring their financed emissions against a 1.5°C target, and
Engaging with clients to support their decarbonisation plans.
In addition, as part of their obligation under the Net Zero Banking Alliance, around 20 banks have now identified steel as one of the priority sectors to set 2030 financed emission reduction targets for.
What banks must do
This decade is crucial in the transition to fossil-free steel. Before 2030, 71% of existing blast furnaces will reach the end of their lifetimes, and require reinvestments. Rather than financing an extension of coal-based plant’s lifetimes, or carbon capture projects for high-polluting plants, banks must invest in the transition to fossil-free technologies like electric arc furnaces, and green-hydrogen based steel plants.
As the adoption of fossil-free technology increases, the demand for metallurgic coal will decline. Therefore banks must also end financing for new metallurgic coal mines, and work with clients operating existing metallurgic coal mines to mitigate methane emissions, and eventually phase out operations in accordance with a just transition. Banks must also work with their clients to increase the proportion of scrap steel recycling, and reduce the amount of iron ore extraction to ensure the transformation of the steel industry is ecologically and socially just.
Finally, banks with financial links to the metallurgical coal and steel industries should set short-, medium and long-term targets to reduce their financed emissions in line with Paris-compatible pathways.
What BankTrack does
To ensure banks play their role in steel decarbonisation, BankTrack is:
Monitoring and evaluating the steel and metallurgic coal policies of major banks financing the steel industry.
Engaging with banks and industry initiatives to raise standards, either in banks’ own policies or as part of financial sector initiatives, such as the Sustainable Steel Principles, and the Net Zero Banking Alliance.
Campaigning on Dodgy Deals to end financing for projects that perpetuate fossil-fuel based steel production such as metallurgic coal mines, or the expansion and or relining of blast furnaces.
Supporting the growing civil society movement around steel decarbonisation by providing financial research and campaigning support.