Why steel companies should be more concerned about Scope 3
Is the ‘green’ advantage held by steel companies in the US at risk as the market adopts a more rigorous approach to reducing Scope 3 emissions?
When it comes to the level of greenhouse gases (GHG) emitted through the steel production process, United States (US) steel companies are relatively ‘green’ on the world’s stage. But could that be all about to change as the market adopts a more rigorous approach to reducing emissions that occur along steel companies’ value chains?
SEC disclosure rules
Until recently, many steel companies would have viewed the indirect emissions along their value chain as less of a priority than Scope 1 and 2 emissions. So, what has changed? Earlier this year, the Securities and Exchange Commission (SEC) proposed new rules to enhance and standardize climate-related disclosures for Investors.
This proposal includes a change in the emissions reporting requirements, asking publicly traded companies to not only disclose Scope 1 and 2 emissions — but in some cases, to report on the upstream and downstream Scope 3 emissions from activities in the value chain.
The proposed disclosures would provide Investors with the information to assess a company’s exposure and management of climate-rated risks. If implemented, this move will place a lot of pressure on the shoulder of steel companies whose Scope 3 emissions are often the largest source of emissions. Representatives of the steel industry have voiced concerns about the proposed rule.
Learn more about what the SEC disclosure really means for steel companies and their investors in our ultimate steelmaker’s guide to tackling Scope 3 emissions.
When the proposed SEC rule is finalized, it is likely to require publicly traded steel companies to disclose Scope 3 emissions if those emissions are material to the financial performance of the company or if the company has set a GHG emissions target or goal that includes Scope 3 emissions.
Why steel companies must address Scope 3 emissions
Steel leaders are concerned about the fair implementation of the new SEC rules and what it could mean for the steel industry.
Steel companies must start obtaining cooperation from their suppliers sooner rather than later to accurately measure and provide the required Scope 3 emissions data. Considering that most companies have little to no control over how green the operations of their customers and suppliers are, steel companies must act now by optimizing their value chain for total efficiency, including:
- Reducing emissions by relying on direct iron reduction (DRI) to produce hot-briquetted iron (HBI) like many of the top integrated steel companies are doing
- Shifting to a pelletizing process rather than a sintering process to turn iron ore fines into pellets to be fed into a blast furnace or a DRI facility, thereby reducing emissions by 85%
- Increasing the share of steel produced by electric arc furnaces can reduce overall carbon emissions for Scopes 1, 2 and 3, as EAF emissions per ton of steel produced in the US are less than half the global average for steelmaking
- Improvements in the efficiency of steelmaking through investments in new equipment and machine learning systems to reduce energy needs and the volume of iron, scrap and alloys needed per ton of output
- Steel companies can also work with suppliers to create commercial incentives for emissions reduction.
Learn how the top steel companies are addressing Scope 3 emissions by optimizing their upstream value chain in our ultimate steelmaker’s guide to tackling Scope 3 emissions.
Rather than tackle everything under the broad umbrella of Scope 3 emissions, many US steel companies focus on their upstream suppliers, including raw materials suppliers like scrap, iron, alloys and coal. Steelmaking raw materials are a significant source of greenhouse gas emissions, so steel companies should partner with their suppliers to help lower Scope 3 emissions.
With climate pressure mounting from all sides, soon, many steelmakers may have no choice but to initiate the voluntary reporting of Scope 3 emissions. The easiest and most effective way for steel companies to approach their Scope 3 emissions targets is to first target specific upstream segments before moving on to the more complex matter of tracking the downstream activities of the end-user market.