The $500 billion stranded asset question

The steel industry could face $518 billion in stranded asset risk, according to Global Energy Monitor’s (GEM) latest Global Steel Plant Tracker.

According to GEM, as countries work towards meeting their long-term carbon neutrality commitments, the risk arises if the 345.3 million tonnes per annum (mtpa) of emissions-heavy blast furnace basic oxygen furnace capacity (BF-BOF) proposed or under construction is fully developed.

In a new report, it says that steel is essential for decarbonising our energy system. We use it to build solar panels, wind turbines, and transmission towers. At the same time, the global iron and steel industry is currently responsible for 11% of global carbon dioxide emissions and 7–9% of global greenhouse gas emissions. In addition to energy projects, we use steel for buildings, bridges, medical devices, and other important applications. As economies develop and build up infrastructure, global demand for steel will continue increasing. 

While there is no single ‘silver bullet’ solution for decarbonising the steel industry, the report suggests, many of the steps that must be taken at iron and steel plants to reduce sector emissions are clear, such as rapidly transitioning from dirtier Blast Furnace Basic Oxygen Furnace (BFBOF) steelmaking to cleaner Electric Arc Furnace (EAF) steelmaking. 

The report serves to provide an assessment of the global iron and steel plant fleet, including capacity that is operating and capacity under development, based on the March 2022 update of the Global Steel Plant Tracker. 

Key points: 

  • Shift away from BF-BOF capacity is too slow: Current proposals and steel plants under construction put the global shift from BFBOF to EAF steelmaking capacity dangerously behind decarbonisation targets laid out in the IEA’s Net zero 2050 report. Currently 31% of operating steelmaking capacity uses EAF technology, but only 28% of capacity currently under construction will use EAF technology. By 2030, at least 37% of steelmaking capacity should use EAF technology, and 53% by 2050. 
  • Asia is the steel capacity development hotspot: 80% of the BFBOF steelmaking capacity under development is planned in China (158 mtpa) and India (123 mtpa). An additional 14% is planned in Indonesia (24 mtpa), Vietnam (16 mtpa), and Malaysia (12 mtpa). 
  • Stranded asset risk is much higher than previously thought: Stranded asset risk is as much as $518 billion, approximately seven times the amount previously thought ($47–70 billion). New pledges to lower national emissions and improved tracking of steel plant projects under development reveal significantly greater stranded asset risk if efforts are not made to cancel or change current steel capacity development plans. 
  • Clear standards, definitions, policies needed: The transition from BFBOF technology to EAF technology will be driven by market demand, policy interventions, and producer incentives for lower emissions steel. In order to create green steel demand and to develop policies and incentives for lower emissions steel production, clear, emissions-based definitions of low emissions vs. near zero emissions vs. net zero emissions are critical. 
  • Underreported emissions from coal mining: The full emissions foot print of steelmaking may be drastically greater than reported when coal mine methane emissions are considered. The steel industry currently emits approximately 2.6 Gt direct CO2 emissions and 1.1 Gt indirect CO2 emissions from the power sector and combustion of steel off gases. Methane emissions from metallurgical coal mining could add an additional 1 Gt CO2e20 to this footprint, a 27% increase. 

PEDAL TO THE METAL 

Since 2021, GEM has provided a publicly accessible database that identifies, maps, and records plant level details such as plant ownership, production capacity, production process/technology, and geolocation for all crude iron and steel plants with capacity of 0.5 million tonnes per annum (mtpa) or greater, covering over 90% of global capacity. GEM’s dataset provides a robust view of the current and developing global iron and steel plant fleet, and the opportunity to examine the status of the iron and steel sector compared to global decarbonisation roadmaps and corporate and country level net zero pledges. 

The majority of operating steelmaking capacity relies on conventional, coal-based steelmaking processes, it says. In order to align with mid-century net zero emissions goals, new investments and reinvestments in coal based steelmaking must be stopped and steelmaking capacity must be transitioned to lower emissions steelmaking technology, according to GEM.

It adds that recent publications of steel decarbonisation pathways show that it is not too late to abate the steel sector and align with mid-century global energy net zero carbon emission plans through the use of material efficiency and novel low emissions and net zero steelmaking technologies. However, based on current steel capacity development plans, the steel industry is not on track to meet goals to shift the fleet away from coal-based blast furnace basic oxygen furnace steelmaking and immediate action must be taken. 

To access the full report, click here.

While there is no single ‘silver bullet’ solution for decarbonising the steel industry, the report suggests, many of the steps that must be taken at iron and steel plants to reduce sector emissions are clear, such as rapidly transitioning from dirtier Blast Furnace Basic Oxygen Furnace (BFBOF) steelmaking to cleaner Electric Arc Furnace (EAF) steelmaking.

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