Steel is responsible for around 7% of global greenhouse gas emissions, with almost three-quarters of all steel made in Asia. It’s clear that we need rapid transformation of the sector, otherwise we won’t reach global decarbonisation goals.
In June we brought together leading experts from industry, government, finance and civil society in Singapore to discuss and boost Asia's role in delivering the net-zero steel of the future. You can catch up on our SteelZero Summit, part of Climate Group’s first Asia Action Summit, here.
Frontrunning industry leaders from Ørsted, CIMC TCREA, Siemens Gamesa, Maersk, Lendlease, Volvo Cars, ResponsibleSteel and SKF – and government representatives from South Korea and Australia – candidly shared the challenges and opportunities for decarbonising steel in Asia. What we found is that while the challenges are indeed significant, the opportunities are not only huge, but also within reach.
Several barriers are hampering the rapid scale up
Global demand for steel is predicted to rise by 30% by 2050, especially in Africa, Asia and the Middle East, as these regions build essential services and infrastructure. As a result, steel production is on track to consume 25% of the world’s total remaining 1.5°C carbon budget by 2050. The companies at our summit agreed on the imperative to transition to net zero steel, but they flagged several barriers that are slowing down the transition.
In a closed-door, senior level roundtable organised by SteelZero, buyers voiced the need to establish a low carbon steel supply chain in Asia. Participants reflected on the need for more investment in new technologies to build viable market alternatives, especially where limited scrap supply and technological inertia in steel-producing countries is hindering progress. At the same time, shifting to higher-grade ores and improving steel production processes can reduce steel emissions by 15%, even without technological changes –companies needn’t wait and wholly rely on new technologies to reduce emissions.
Encouragingly, we’re already seeing action from steel manufacturers. In South Korea, POSCO has become the first company in Asia to have a steel manufacturing site – the largest in the world – certified by Responsible Steel. This will stimulate new markets and provide companies with dependable, low-carbon steel that meets increasingly high bar and transparent environmental reporting frameworks.
Varying levels of procurement policy, carbon pricing and market immaturity present challenges to steel decarbonisation in Asia. For example, while Japan and South Korea have long standing green public procurement programmes, they are not implemented at the pace needed, nor do they include criteria for embodied carbon for steel products. And on carbon pricing, China has a cost of around $8-$9/mt CO2e compared to the EU’s roughly $99/mt CO2e, while Japan has yet to implement its carbon price and India is still developing a national emission trading scheme.
Governments can play a crucial role in setting mandates for businesses, and should be central to stimulating new net-zero steel markets in Asia. By mainstreaming net-zero steel procurement, governments in Asia have the demand-power to transform the business case for steel producers and catalyse for sustainable steel in the public and private sector.
The incoming EU Carbon Border Adjustment Mechanism (CBAM) will introduce new tariffs on high carbon goods imported from outside of the EU. Participants noted that this will change the global landscape of cross-border trade, and it’s vital that Asian steelmakers respond with increased supply of low-carbon steel, to remain competitive and continue selling to European markets. Speakers agreed on the need for urgent collaboration between governments and businesses, to ensure that companies are plugged into the potential impacts of the CBAM, and can take advantage of new business opportunities.
Now is the time
Decarbonising steel is not just central to meeting climate goals and tackling runaway climate change, but it makes economic sense too. McKinsey estimates that as the net zero transition progresses, the global industry sector will be worth up to $300bn by 2030, while demand for low carbon assets like solar and wind farms, industrial machinery and ships could trigger “unprecedented capital reallocation” of $3.5 trillion in new spending each year in 2050.
Governments can use their public sector purchasing power and influence to drive demand for green steel. They should set out detailed expectations around decarbonisation investment and support mechanisms, to drastically cut carbon emissions from steel production and create the market conditions for sustainable steel products. Governments should also support the development and implementation of transition plans for steelmakers across Asia.
The more countries who join the Industrial Deep Decarbonisation Initiative and the more financial institutions who sign up to the Sustainable STEEL Principles and Poseidon Principles, the stronger the global market for net zero steel becomes. The transition to a net zero carbon economy is well underway, and companies in Asia who move first stand to gain the most.
To help drive the transition, participants reflected on the critical role of renewable energy for producing net zero steel, the need for countries to plan for an increased demand for renewable energy to power steel’s net zero transition, and the need to produce and procure reliable supplies of green hydrogen. Speakers also highlighted the importance of embedding just transition principles into energy transition strategies – ensuring that livelihoods and jobs are protected throughout the transition.
Lots of momentum
The SteelZero Summit highlighted the scale of momentum behind steel decarbonisation in Asia. Steel manufacturers are thinking hard about how to produce low-carbon steel, governments are recognising their role in stimulating new markets for low-carbon steel and steel buyers are signalling their demand for sustainable steel, saying “if you make it, we’ll buy it.” However, Asia’s steel sector needs to move faster to meet decarbonisation targets and take advantage of the new market opportunities.
By joining SteelZero and committing to procure 100% net-zero steel by 2050 at the latest, companies in Asia can both drive decarbonisation in the region and take advantage of new business opportunities. We were privileged to witness the first Asian company, China’s CIMC TCREA, sign up to SteelZero at the Summit.
The direction is clear. The business opportunity is there for the taking. If you’re a company based in Asia and interested in joining SteelZero, please do get in touch.