Talking Trends

Aug 26, 2021

4 min read

Sweden’s SSAB Manufactures and Delivers the World’s First Fossil-Free Steel - Nick Whittle

Photo by Eelco Böhtlingk on Unsplash
Photo by Eelco Böhtlingk on Unsplash

Last month, Swedish steel company SSAB made a breakthrough delivery of rolled steel plate to the Volvo Group: the first commercial delivery of steel without the use of ‘met’ or ‘coking’ coal, which is coal “coked” in ovens at temperatures of 1100 degrees Celsius to remove water and other chemicals. In 2016, SSAB established HYBRIT — Hydrogen Breakthrough Ironmaking Technology — with the aim of developing a technology for fossil-free iron- and steelmaking, in collaboration with LKAB and Vattenfall, among Europe’s largest iron-ore producers and electricity generators, respectively. In June 2021, the three companies were able to demonstrate the world’s first hydrogen-reduced sponge iron produced at HYBRIT’s pilot plant in Luleå, which was then used to produce this first steel for Volvo. The companies’ goal is to deliver fossil-free steel on an industrial scale as early as 2026. The HYBRIT technology could reduce Sweden’s total carbon dioxide emissions by approximately ten per cent and Finland’s by approximately seven per cent.

At the announcement, Martin Lindqvist, the President and CEO of SSAB, commented, “The first fossil-free steel in the world is not only a breakthrough for SSAB, it represents proof that it’s possible to make the transition and significantly reduce the global carbon footprint of the steel industry. We hope that this will inspire others to also want to speed up the green transition.

Almost all steel is produced using iron oxide and met coal. If the cost of producing green hydrogen continues to fall, and the steel industry’s CO2 emissions can be priced for trading and offset, then the cost of technology replacement could be accurately measured, which would encourage steel makers to invest in the new infrastructure at their production facilities.

How close are we to eliminating met coal from the steel industry? While now technically feasible to produce fossil-free steel, it remains an expensive option. Nevertheless, Andrew Forrest, the chairman of Fortescue Metals and Australia’s richest man, has challenged his country to get into the business of making “green steel” from hydrogen and renewable energy. Much of the iron ore that his company now mines is exported to China, which makes the steel and then ships it right back to Australia. In a speech referenced by Financial Review, he stated that fossil-free steel is achievable, and that in addition to SSAB, Germany’s ThyssenKrupp and Japan’s Nippon Steel are both working toward hydrogen based solutions. Dr. Forrest plans a demo project of his own this year to make steel, replacing met coal with hydrogen produced by an electrolyzer which uses solar- and wind-generated electricity.

Steel production remains fundamental to economic activity and is set to expand exponentially. McKinsey calculates that the steel industry accounts for 8% of global CO2 emissions and that 14% of all steel companies could see their values eroded unless they decarbonize. “Surging carbon dioxide prices and decreasing hydrogen prices are crucial to ensuring the economic viability (according to cash cost) of pure hydrogen-based steel production,” says the McKinsey report. “Conventional steel production still retains a cash cost advantage. However, this scenario changes as soon as hydrogen prices drop (driven by the cost of electricity) or carbon dioxide prices increase … Following this logic, pure hydrogen-based steel production is expected to be cash cost-competitive between 2030 and 2040 in Europe, the report concludes.

As usual, the International Energy Agency’s projections are more conservative, and estimate that steel produced from green hydrogen will account for less than 10% of total steel production by 2050. SSAB calculates that green hydrogen would add 20%-30% more to the cost of steel production in the early years. However, that could change rapidly if, as the McKinsey report outlines, green hydrogen production costs fall while carbon emissions offsets are priced to market. As we have seen with the costs for solar and wind power generation, government support could accelerate this cost-benefit equation significantly, so the timeframe for green steel production to become competitive remains flexible, but it is clear that the technological advances can build momentum for change.

Fossil-free steel-making would not eliminate met coal, but it would reduce its use significantly. There is little doubt that Australia would be delighted with a brand-new steel-making industry and its associated benefits, but its coal sector is a powerful incumbent. With that in mind, let’s allow the final word to Dr. Forrest of Fortescue Metals:

Australia is in an absolutely unique position to scale green steel. Our neighbors and customers want to phase out carbon pollution by 2050, and coal — the most carbon-intensive of the fossil fuels — will be phased out, too.

About Nick: Nick Whittle is a financial and investment savvy in global markets. With 25 years of on-the-ground global emerging markets finance expertise, Nick has focused his passion on ethical and sustainability challenges. He advocates for sustainability through raising capital for ESG and green investments. Nick currently serves as the Executive Director of Fountain City Investments Ltd., leveraging his skills to facilitate Indonesian debt financing via cross-border structuring.