The steel industry is not shaping decarbonization - instead, external forces are driving it, McKinsey & Co partner Benedikt Zeumer said on Tuesday June 24.

“Customer requirements will bolster industry to reduce the CO2 footprint, dramatically and very fast,” Zeumer said. “The industry has realized it will not take 10 years but they will have to be in the next model cycle, which they are developing.”

“Financial markets are looking very focused on what companies are doing. There will be a clear perspective also on financing and debt interest, which has to be considered [when determining] whether this is a 'green' company,” he said.

Since these changes will take time and need to make economic sense, the industry requires funding, Zeumer said.

“Even if you have to do these investments, it’s very clear that it will be difficult for the industry to really get the funds together,” he said, citing high costs for carbon capture and storage (CCS) and electric-arc furnace (EAF) steelmaking.

“In the next few years, there will be a short-term perspective on incremental improvements, how to optimize energy consumption in the fuel mix, blast furnace mix, iron ore qualities... there will also be the first steps of hydrogen injection,” Zeumer said.

Either half of the integrated blast furnaces in Europe are too late in their life cycle for such changes or modification is simply unfeasible, he said.

Increased production of EAF material in the medium term will boost the need for scrap, and for quality scrap in particular, Zeumer said.

Material that had previously gone to the United States from the EU could remain in the EU, crimping supply in the US. This reduction in availability could cause prices there to rise.

Although within 10 years some 15-25 million tonnes of steel can be converted to become more carbon neutral, it will not be zero-carbon material, according to Zeumer. For hydrogen-based steel, it is technically feasible to produce 8-10 million tonnes by 2030-32.

The industry will need to tackle supply chain issues such as the availability of hydrogen and electricity and how fast the necessary equipment can be developed and built.

For steelmakers in Europe, there is more certainty about the regulatory framework of the future and carbon pricing over the longer term, providing more options to steelmakers, Hatch decarbonization technologies lead Gino de Villa said.

This means that European steelmakers can be the first movers on some of these technology options, he added.

Since greater collaboration in Europe will means more cost- and risk-sharing, companies in the steel sector can achieve economies of scale and realize some of these infrastructure benefits at a lower cost.

The next step in financing decarbonization technologies in the European Union will be from pilot scale and demo scale to commercial scale, which will require significant capital investment. Support through the EU's Emissions Trading System innovation fund means that government can cover much of that cost, de Villa said.

John Lichtenstein, principal at Crucible Consulting, asked panelists if they believed that announcements by some companies of a targeted 30% CO2 reduction by 2030 was achievable.

“They need to... there is no alternative,” Zeumer replied. “Even if you start arguing that it’s a challenge, I believe - and the customers believe - that they will not accept this.”

“There are multiple levers they will have to pull; the easy levers might help them get [a] 15% [reduction] in Europe. On the older assets, there is [an] even higher opportunity. Assets which have not been modified over time - you can do this optimization; it might be a bit more costly but the technologies are there," he said.

Additional levers include feedstock for furnaces and the intensity required for steel production.

In terms of scopes one, two and three emissions, Lichtenstein said that scope one green electricity will make a significant contribution. For EAF steelmakers, though, a 30% CO2 reduction will be difficult.

Scope one emissions cover direct emissions from owned or controlled sources; scope two indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company; and scope three all other indirect emissions along a company's value chain.

Lichtenstein also asked whether the industry will be held to scope three standards within 10 years or if it will be sufficient to achieve scopes one and two.

“On climate change strategy projects, people think of a target on its own, but you need to look at scope one-three from different business drivers [such as] carbon pricing exposure, downstream customer requests,” de Villa said.

“Depending on which aspect you're looking at, you'll be looking at scope one, two and three differently - sometimes all together, sometimes not at all,” he said.

Scope three is more relevant for those looking at the impact of the carbon-border adjustment or at customer requests.

“Drivers for scope-three reduction are there but it depends on which business objective you're trying to meet," de Villa noted.

While investments are required in existing assets, panelists said the relocation of assets is unfeasible.

“There are structurally advantaged regions but that was always like this. There is a huge footprint of the steel industry where it has historically grown [but] to move places from here to somewhere else is impossible," Zeumer said.

“You need to maintain value chains; there will be a mix of some offshoring, improving existing assets even in non-favorable locations," he said.

De Villa agreed: “We see more appetite for reinvesting in existing assets and the transformation of those rather than shifting elsewhere.”