Industry Updates

Addressing the Environmental Impact of Steel Production

James Turnbull
09/12/2024

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Steel production is the backbone of modern infrastructure, found in everything from towering skyscrapers to cars, appliances, and surgical instruments. Its strength, durability, and versatility make it indispensable to countless industries and an essential component of economic growth and development. However, the steel industry comes with a significant environmental cost.

As one of the largest industrial sources of greenhouse gas emissions, steel production accounts for approximately 7% of energy sector CO₂ emissions, primarily due to its reliance on energy-intensive processes like blast furnace production using coal. It is said that for every tonne of steel produced, two tonnes of CO2 is produced. Balancing the importance of steel with its environmental impact is a challenge that industries and policymakers are working to address through innovation and sustainable practices.

The Importance of Investment In Steel Production

Annie Heaton, the CEO of ResponsibleSteel, has emphasised the importance of transitioning to energy-efficient steel production, saying that significant investments will be needed to reach the IEA’s target of 8% of global steel production to be near net-zero by 2030. The IEA also says that the current emission reduction potential of steel production is limited, therefore innovation in this decade will be vital to commercialise new energy efficient methods of steel production.

On the other hand, these innovations will be expensive, which may prompt businesses to move their steel manufacturing abroad to a country with less comprehensive climate action legislation. This is known as carbon leakage.

Global Policy Changes To Address Carbon Leakage

Luckily, global leaders are beginning to recognise the importance of preventing carbon leakage and are starting to introduce new policies to disincentivise the unethical business practice.

For example, the EU has approved the Carbon Border Adjustment Mechanism (CBAM) which will go into effect in January 2026. The CBAM aims to apply tariffs on imported emissions-intensive goods such as steel from areas with weak or absent emissions policy. Moreover, the UK aims to introduce its own UK-CBAM scheme by January 2027 similar to the EU’s efforts to reduce carbon leakage.

Despite the CBAM not being in effect yet, the benefits are already being seen, with major economies such as Indonesia, Brazil, and India beginning to develop their renewable energy infrastructure as to avoid the import tariffs. Furthermore, it has prompted other countries to consider the benefits of a similar tariff or carbon-based tax. These include Canada, Australia, Malaysia, Morocco, and Ukraine. It is hoped that these schemes will drive innovation in the development of renewable technology. Steel production will inevitably play a pivotal role in this development due to its carbon-intense production and being the 9^th most traded commodity in the world as of 2022.

The Future Of Steel Production

In conclusion, steel remains a cornerstone of modern development, but its environmental impact cannot be ignored. With steel production accounting for a significant share of global CO₂ emissions, innovation in energy-efficient manufacturing processes and the adoption of renewable technologies are imperative. Policies like the EU’s CBAM and similar initiatives globally offer a promising way forward, incentivising cleaner production and discouraging carbon leakage. While these measures bring challenges, such as increased costs and the need for substantial investment, they also drive progress toward a more sustainable steel industry. By embracing these changes and fostering international cooperation, the steel sector can play a pivotal role in meeting global climate goals, ensuring a future where economic growth and environmental responsibility go hand in hand.