Insights
The steel industry's green transition is vital for Europe’s shift to a competitive and climate-neutral economy. A strategic and carbon-intensive sector, steel is responsible for 5% of the EU’s total emissions. Improved policies are needed to decarbonise the industry in line with net zero.
Steel is a crucial product for other areas essential to building a clean economy, such as construction, transport, and energy infrastructure. Investors also see this as an opportunity for job creation and industrial innovation. The EU is well-positioned to lead globally, setting the standard for other regions to follow.
The next European political cycle will focus on industrial policy and sustainable competitiveness. Re-elected European Commission President Ursula von der Leyen has promised a new Clean Industrial Deal in the first 100 days of her next mandate that will seek to simultaneously decarbonise and industrialise the economy. But success will depend on attracting significant private-sector investment.
Some members of von der Leyen’s own party in the European Parliament have recently called for a new European Steel Pact to be a part of this wider industrial strategy, highlighting how central the sector will be to debates about Europe's green transition and industrial future. With the right policy environment, steel can lead the way in integrating Europe’s climate and competitiveness agendas, attract investment and support prosperity.
Building on IIGCC’s on-going support for members in their engagements with the steel value chain, additionally this year we have worked with investors to identify specific areas where better policy could most effectively unlock the transition of the European steel sector. These recommendations are set out in a new policy paper and fall into four areas.
Read ➡ Investor priorities for transitioning the European steel sector
1/ Improving circularity
Increasing the proportion of steel produced using recycled scrap offers an important and cost-effective lever for emissions reduction. On average, steel made in Europe with an electric arc furnace using scrap produces one-sixth of the CO₂ emitted as compared to traditional blast furnace steelmaking. This can be reduced even further if produced using renewable electricity. However European steelmakers express issues with both scrap supply and quality. Currently, end-of-life steel is mainly down-cycled into lower-quality grades that have more limited end-use applications.
Improving steel scrap recovery and sorting represents a key area where policy can unlock further decarbonisation. This could be achieved by increasing market demand for high-quality recycled steel, which would incentivise investment in these activities. Setting product-level recycled content targets for key off-taking sectors is one policy option to consider.
2/ Clean industrial strategy
The process of making new primary steel also needs decarbonising. This means scaling up emerging technologies to replace blast furnaces, chiefly using green hydrogen and clean electricity to make green steel with potentially near-zero emissions.
Growing this production in Europe will require huge amounts of renewable electricity. Shifting primary steelmaking fully could eventually require over 300 Terawatt hours of renewable electricity a year, equivalent to roughly 30% of all the renewable electricity produced in the EU in 2019. The availability and price of clean electricity will therefore be critical for the European steel industry’s competitiveness.
Prioritising the rollout of renewable power and addressing key investment risks now can help Europe deploy these breakthrough decarbonisation technologies. A potential solution could involve using the promised Clean Industrial Plan to develop a transparent and granular sector roadmap for European steel that reduces policy uncertainty. This could include clarity on the pricing regime for renewable electricity and anticipated green hydrogen availability for key European industrial clusters.
3/ Stimulate demand for green steel
Steel purchasers’ willingness to pay higher prices for lower carbon steel is a well-documented challenge for green steel development. Success will depend on customer demand, support, and acceptance.
Building and operating green primary steel plants will cost more, at least in the near future, due to higher capital and operating expenditures. The shift towards green production will therefore only happen if customers are willing, incentivised or compelled to pay more for low-carbon products.
One policy option is to use public procurement to drive volumes of decarbonised steel to market. Governments could use strategies that preferentially purchase steel based on carbon-related criteria, providing greater demand certainty.
4/ Manage human capital and the workforce
The shift to greener production is expected to continue the current trend of steel’s declining labour intensity and related job losses in the sector. Work and analysis by trade union bodies suggest that increased automation, digitalisation and electrification will also cause the skill requirements for the steel workforce to change.
Furthermore, the steel jobs of the future may not be in the same locations as those of the past, due to different economic and resource requirements – e.g. the need for accessible and cheap renewables rather than proximity to coal fields. Navigating these changes is vital for the sector’s journey to decarbonisation.
For an effective transition, policymakers must enhance their dialogue with companies, workers and communities in the steel sector and develop more detailed roadmaps for the steel workforce. However, discussions about improving the policy environment should not detract from the agency of individual steel companies to engage and consult on their transition plans.
These suggested areas for policy improvements provide a reference point for investors in their economy-wide macro-stewardship activities. This includes direct engagement with policymakers, as well as companies in the steel sector and value chain. We will continue to support our members in doing this.
If you’d like to take part in our working groups and help shape the outputs of our resources, why not get in touch today to learn more about becoming a part of IIGCC?