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Feeling the heat? Tackling the climate change challenge in the heavy industry sector

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A story of two materials

Most people would think of switching to an electric car or reducing air travel as a means to tackle climate change. Few think about the heavy industry:  Close to 30% of global greenhouse-gas emissions come from industry, and two material stand out: steel and cement.

The iron and steel industry is responsible for more than 7% of total global emissions. The cement industry play in the same league, accounting for around 8 % of global CO2  emissions.

And the problem is getting much bigger

Over the last four decades, the global use of materials has almost tripled. And not only has material use increased, but it has also accelerated and is forecast to grow to between 170 and 184 billion tons by 2050 [1] – which is in itself good news and an indicator of growing prosperity in many countries.

The challenge for materials producers is to shrink their massive carbon footprint of materials production whilst at the same time meeting continuing demand growth. This will not be achievable by incremental improvement but will require fundamental changes in the industry. Luckily, these industries have been far from complacent.

A long history of improvements

In the past 40 years, there has been a 50% reduction in energy consumption in the steel industry [2] in Europe. This has mainly been due to the increased use of recycled scrap iron, from a 20% share in the 1970s to around 40% today, while the manufacture of iron from iron ore has declined. However, a complete shift to recycling is limited by the availability and quality of scrap.

This brings us to an interesting point we should investigate a little deeper: in contrast to other industries, the decarbonization of heavy industries is not just about switching to green energy but is also tightly connected with the concept of a circular economy.

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The role of the circular economy

For the vast majority of products and materials we use, producing them from primary materials (think: ore and coal) yields far greater greenhouse gas emissions than producing them from recycled materials (think: metal scrap).

The Swedish sustainability consultancy Material Economics has conducted the most comprehensive analysis [3] to date of how the circular economy could address climate change across a range of sectors in Europe. Its conclusion: the circular economy could reduce greenhouse gas emissions from the four key value chains for steel, plastics, aluminum, and cement by a staggering 56%.

Primary steel production could be cut by 37% [4] through reduced losses along the value chain, reduced downgrading in the recycling process, greater reuse of steel-based products, and a shift on the demand side by switching from car ownership to new car-sharing systems.

Rethinking the steelmaking process

At present, carbon is used as a reductant in the blast furnace to separate oxygen from iron ore as a critical part of the steel-making process. Significantly reducing the emissions footprint of steel will, in all likelihood, require a fundamental change in the steelmaking process itself. These are exciting times to be an engineer.

The circular economy and recycling alone will not suffice, as there is not enough scrap metal to match the steadily growing demand for steel.

Take a look at Worldsteel Association’s 2019 “Steelie Awards“. In the category “excellence in sustainability”, it was a climate action report from a a leading metal and mining company that took the trophy, outlining a strategic roadmap of technologies, considering both viability and social acceptance of each of each.

Leading steelmakers have made pledges to become carbon neutral by mid-century, and continue to share their progress towards climate-friendly steelmaking with customers and stakeholders.

A decarbonized steel industry will have to rely on a combination of multiple technologies and process innovations:

  • Clean power and a shift away from fossil energy sources and reductant
  • Circular economy and alternatives fuels
    • Circular carbon steelmaking replacing coal and coke with waste biomass from agricultural and forest residues as well as waste plastics
  • Carbon capture, usage, or storage

    • Keeping the current method of steel production, but the carbon is captured, stored, and reused, like in the Steelanol project [9] to capture waste gas and biologically convert it into alcohol.

The race is on, and the leaders are investing

In a recent Handelsblatt opinion piece, Bernhard Osburg, CEO at Thyssenkrupp Steel, stressed the urgency to act now and use the stimulus investment and the rebound momentum for transformation: “The race for climate-neutral and resource-efficient production in well underway. This is the key for future competitiveness.”

This statement is equally valid for the cement industry, and if you follow the recent announcements of leading producers, it’s clear that the race is on. Leaders are spending from 50% up to 80% of their research and development budget into the development of low-carbon and more sustainable products and processes.

Material choices

It’s no longer the question of steel versus aluminum in a car, but rather green steel versus circular aluminum. The eco-design of products will need to take into consideration recyclability, carbon footprint and lifecycle analysis, and, of course, the more classical engineering properties such as weight or strength.

Consumer-facing brands take a serious look at the carbon footprint of their products. As they break down the carbon footprint of i.e. a car, 80% of the emissions are contributed by steel, aluminum and plastics. Leading brand-owners have entered into partnerships with suppliers to re-think metals grades for better recyclability, improve collection and recycling.

Given the many complementary strategies to reduce carbon, we see metal and cement companies increasingly differentiate their product brand by carbon footprint and circularity – be it low carbon and circular metal grades, or resource conserving, climate-friendly cement or concrete with reduced virgin material content.

Measuring and certifying performance

The Aluminium Stewardship Initiative’s ASI Performance Standard and the Responsible Steel Standard, as well as the plan of London Metal Exchange to launch a platform to trade low-carbon aluminium, are clear indications of a shift from custom yearly sustainability reports, to a more standardized, granular and comparable definition of carbon footprint.

The annual greenhouse gas report is no longer sufficient

The World Bank’s carbon pricing dashboard lists 61 carbon pricing initiatives implemented or scheduled for implementation. These initiatives cover 46 national jurisdictions and 32 subnational jurisdictions, and there is no reason to believe that the world of carbon will get any less complex over time.

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Carbon pricing initiatives implemented, scheduled for implementation and under consideration (ETS and carbon tax)

The impact of carbon pricing is visible across the entire metal value chain. Mining companies rethink their portfolio strategy, as well primary metals producers and their customers will need to seriously consider carbon as a cost element, and plan for different scenarios. Considering how fragmented the global map looks, and how dynamically this is changing, companies will require transparency on their emissions in sufficient granularity, first of all. Secondly, they will need to translate this into business decisions across their affected business processes.

Climate 21

A few months ago, Thomas Saueressig, member of the executive board of SAP SE leading product engineering, launched an initiative to understand how SAP S/4HANA and other SAP applications could help customers manage their carbon footprints in such a dynamic environment. The initiative resulted in the Climate 21 program, an initiative that reaches well beyond the classic annual greenhouse gas report.

SAP’s core competence lies in helping companies manage their enterprise resources to drive revenue, reduce cost, optimize asset utilization, streamline supply chains, and improve customer service. The ambition of the Climate 21 program is to minimize CO2 and other greenhouse gases as just an additional factor in an enterprise’s target function and evolve from mere reporting toward operational decision-making with carbon as a key dimension.

For a metals or cement company, this affects sourcing decisions for raw materials and energy sources, as well as where (and on which sites and assets) to manufacture a product. We will need to agree how to consider alternative fuels, industrial or post-consumer scrap, or by-products from other industries, like fly ash, into the calculation of carbon footprint.

If you want to be part of the journey, and want to engage with us in the discussion how to steer a company toward greater sustainability, please join our community for the Climate 21 program.

References:

[1] Circle Economy, Circularity Gap Report 2019, https://www.circle-economy.com/insights/the-circularity-gap-report-2019.
[2] European Commision SETIS (Strategic Energy Technologies Information System), Energy Efficiency and CO2 Reduction in the Iron and Steel Industry.
[3] Material Economics, The Ciruclar Economy – A  Powerful Force for Climate Mitigation.
[4] Energy Transitions Commision. Mission Possible – Reaching Net-Zero Emissions from Harder-to-Abate Sectors by Mid-Centrury.
[5] European Investment Bank. Steelanol Project Summary Sheet, 2020.
[6] World Bank Carbon Markets. https://openknowledge.worldbank.org/bitstream/handle/10986/33809/211586figures.pdf?sequence=5&isAllowed=y

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