Car manufacturers are buying ‘green steel’ that’s far from carbon-free
By Petra Sorge
Auto and steel makers are making green steel deals and using them to showcase their environmental credentials. The problem is that the steel is still forged using fossil fuels and it’s not clear how quickly that could change.
German steelmakers Thyssenkrupp AG and Salzgitter AG are finding buyers willing to pay a premium for green steel, including Mercedes-Benz Group AG, Volkswagen AG, BMW AG and Ford Motor Co. But without large-scale supplies of green hydrogen, much of that steel will initially be made with natural gas.
European steelmakers are looking to a combination of electric arc furnaces and hydrogen to transform an industry that still burns billions of tons of coal and generates about 7% of the world’s carbon dioxide emissions. With production of the green fuel lagging far behind demand in the coming years, automakers acknowledge that this will only be a gradual transition.
A labeling system is needed to demonstrate the emissions performance of different products, as the use of natural gas is only a first step in the transformation of the steel sector, said Oliver Sartor, senior advisor at think tank Agora Industry.
“Steel made with natural gas is not carbon neutral steel and that is the bottom line,” he said.
To prevent greenwashing, the German Steel Federation proposes such a labeling system, whereby only primary steel produced with 100% green hydrogen can be classified as ‘near zero’. There will be a number of different levels of steel depending on how much CO2 is released in the production process, Thyssenkrupp said.
After making its first sales to Mercedes-Benz two years ago, Salzgitter aims to produce 1.9 million tons of low-carbon steel by 2026. Customers are willing to pay a three-figure premium per tonne, compared to steel from a conventional blast furnace, according to Salzgitter chairman Gunnar Groebler.
“People are willing to pay a premium for it, because they have understood that they can also be pioneers with green steel,” says Groebler.
The company’s direct reduction plant will initially be fueled by natural gas, reducing CO2 emissions by 60% compared to coal-fired steel production. The share of hydrogen will be gradually increased until the steel is virtually emission-free in 2033. VW and BMW have already secured future volumes, according to company statements.
“I enter into contracts where I can tell the customers very precisely what the carbon footprint of the steel will be,” says Groebler.
Mercedes-Benz did not want to say what premium it is willing to pay for green steel. As the carmaker aims to use steel produced with hydrogen instead of gas or coking coal, it has invested in start-up H2 Green Steel and collaborated with Sweden’s SSAB AB.
BMW has also signed deals with low-carbon steelmakers and says it is encouraging suppliers to switch from coal-based production to using hydrogen.
Ford Motor Co. said it has pledged that at least 10% of its primary steel purchases will have near-zero carbon emissions by 2030. The company also declined to say what kind of premium it would pay.
However, it is still too early to conclude hydrogen purchase agreements as most projects are at an early stage and the supporting infrastructure is only on the drawing board, Salzgitter’s Groebler said.
Earlier this year, Germany unveiled plans to connect industrial hubs near the Rhine, the south and east of the country with hydrogen pipelines. Hydrogen will play a key role in the country’s shift away from fossil fuels as Europe’s largest economy aims to cut CO2 emissions by two-thirds from 1990 levels by 2030 and reach net zero by 2045.
Thyssenkrupp – which signed a green-steel deal with Mercedes-Benz in June, followed by a number of other contracts – is developing a system for tendering the hydrogen it needs, according to a spokeswoman.
Switching the low-margin steel industry away from cheap coal to more expensive green technologies will require massive government support. Salzgitter and Thyssenkrupp have received a total of around €3 billion to boost investment, while ArcelorMittal SA and Saar Stahl are among the other companies in line for support, Economy Minister Robert Habeck said last week.
The steelmakers are also looking to tap into subsidies for operating costs, with the German government planning to allocate 50 billion euros from next year to decarbonize heavy industry.