View from Brussels: Blessed are the green steelmakers

COP26 may have fallen short in guaranteeing that the Paris Agreement’s topline goal of limiting global warming to 1.5° Celsius is met, but it did throw up one initiative that could retool how some of our most polluting products are made.

The European Union and the United States initially announced that they will suspend the trade disputes over steel and aluminium imposed by Donald Trump during his time in office under the guise of ‘national security’ concerns.

In addition to that pause on tariffs and a reactivation of a quota system for EU imports, the two sides are also setting up a global arrangement that will aim to spur the adoption of green technologies and address the issue of production overcapacity.

“The global arrangement will add a powerful new tool in our quest for sustainability, achieving climate neutrality and ensuring a level playing field for our steel and aluminium industries,” said Ursula von der Leyen, President of the European Commission, during the summit.

Any countries interested in joining the scheme are welcome to sign up and work will now begin on drawing up the architecture of the initiative, as well as the more technical aspects.

“The US and the EU will create a technical working group charged with developing a common methodology and share relevant data for assessing the embedded emissions of traded steel and aluminum,” a joint statement explained.

Earlier this year, Swedish firm Hybrit produced what it says is the world’s first batch of green steel, as part of a long-term plan to produce the metal using renewable electricity and clean hydrogen. Carmaker Volvo is among its list of committed clients. Yesterday, Martin Pei, boss of another Swedish steel giant, SSAB, said that a carbon tax was necessary to make steelmakers more green.

Indeed, imports of steel and aluminium will soon be subject to extra charges under draft EU plans to set up a carbon border tax on certain products, which also includes fertilisers and electricity. 

That instrument still needs to be agreed by lawmakers and national governments, all of whom have different vested interests. The European Commission also has to put the finishing touches on how it will actually measure the green credentials of those products.

Manufacturers are already starting to get the sense that there will be fewer costs involved if an early switch to greener production methods is made, rather than delaying the inevitable and paying higher carbon-related charges later.

One potential stumbling block for the border tax is the World Trade Organisation, which in theory allows for these types of measures so long as they are not unduly discriminatory. That is why this EU-US partnership could prove vital in charting a course through the red tape.

If Washington is on side, Brussels will have a powerful ally if the likes of China, India or Russia challenge the carbon border tax at the WTO. Or so goes the logic.

If rulemakers and steelmakers can crack green production, then any incentive systems or other perks afforded to that industry could be used as a blueprint for other polluting sectors. In terms of sheer emissions, the cement industry might stand to benefit most.

Cement, the main ingredient of concrete, is a CO2 and energy-intensive material to make. Part of the greening can be achieved by using renewables for mining and heating, but the chemical process that is used will still produce emissions.

That is why if the cement industry were a country, it would be one of the world’s top emitters, accounting for about 8 per cent of global output. Demand is only set to grow, so the problem will get worse if not tackled.

Carbon capture is already being trialled in many places. CO2 is siphoned off from the production process and then injected into concrete as either a complement or substitute for water. The resulting material tends to be harder as a result.

CO2 might yet become a valuable and, therefore, tradeable commodity if the right market forces are exerted. Companies will likely be vying to use it to make everything from next-gen aviation fuel to other construction materials.

Carbon capture may get increased financial backing in the coming years after US lawmakers last week finally passed President Joe Biden’s infrastructure bill, albeit in a much scaled-down form. It includes billions of dollars for clean climate tech.

Different sectors will have to get their acts together quickly, though, as many of the decarbonisation options open to them are intrinsically linked. Concrete, for example, can be made using less cement if waste slag from steelmaking is mixed in.

However, there will be much less of that waste product if steelmakers ramp up green technologies quickly. Much like the case of hydrogen, if industries do not claim a stake to what will be a limited supply, they may risk losing out.

Technology is showing time and time again what is possible even in so-called hard-to-abate sectors. Now it is up to rulemakers and investors to channel financing where it is needed so that green tech can be trialled, perfected and scaled up. 

The result of COP26 might be gloom and doom in some regards, but in this case the outlook is somewhat rosier.