Six major steel industry lenders – ING, Citi, Goldman Sachs, Société Générale, Standard Chartered and UniCredit – have created a new task force focused on decarbonization.
Called the Steel Climate-Aligned Finance working group, the panel will be made up of senior representatives from each bank’s metallurgical and mining teams, as well as sustainability and climate professionals. They will work together to develop a financing agreement, which will be signed by all member companies and other banks and investors, which will be aligned with the Paris Agreement.
In a statement, the Group said the global steel industry “currently lacks commercially viable alternatives” to the target. The idea of the funding agreement is to increase investment in potential alternatives that are not yet commercially mature. Researchers believe that a combination of electrification, energy storage, alternative fuels and circular economy innovations is needed to bring the sector into line with net-zero.
Additional funding could also support carbon capture and storage (CCS) technologies, which could capture emissions from steel mills using coal.
The Group’s trajectory will be aligned with net zero by 2050 and will be applicable globally. Further information on the issuance scopes, methodologies and governance structure of the agreement will be announced at a later date. However, the Group said it would draw inspiration from the model Principles of Poseidon, the first climate-aligned sector financing agreement for maritime transport. The Poseidon principles have been in force for almost two years and now cover nearly 40% of senior maritime debt.
In addition, the Group confirmed that its work will be part of the Mission Possible Platform’s Net Zero Steel initiative. The Platform was unveiled in January, bringing together 400 heavy emitters with the aim of accelerating the low-carbon transition. Bezos Earth Fund and Breakthrough Energy provide financial support, while management functions fall to the Energy Transitions Commission, the Rocky Mountain Institute, the We Mean Business Coalition and the World Economic Forum (WEF).
Editor’s Note: The Mission Possible partnership has nothing to do with edie’s Mission Possible campaign. This campaign is still ongoing and you can read more about it, here.
“The challenge for the steel sector to decarbonise is significant, with alternative technological avenues that are unproven and not yet commercialized,” said Arnout van Heukelem, global head of metals, mining and fertilizers at ING.
“By leading this working group, we are signaling our commitment to helping define what the energy transition means for the sector and our customers. It will also help us define our expectations for change and set an ambitious but realistic trajectory to meet those ambitions.
Late last year, ING released a progress report on its efforts to align its € 600 billion loan portfolio with the Paris Agreement. The Dutch bank uses a methodology called “Terra” to identify the most emitting sectors in its portfolios and to develop specific engagement and divestment targets.
Since the introduction of Terra in 2018, the bank has reduced its direct exposure to coal by 22% and has pledged to cut its financing of upstream fossil fuel operations by a fifth by 2040. It has also stepped up its engagement with the companies it owns in the production of electricity. , shipping, cement, steel, residential real estate, automotive, aviation and commercial real estate.
A global race
News from the banks comes the same week that the Energy & Climate Intelligence Unit (ECIU) published an analysis of the low-carbon transition of the steel sector in various European countries.
The document concludes that the UK is lagging behind virtually every other major player on the continent, with the EU hosting 23 hydrogen-based steel production projects and the UK hosting none. EU projects could produce more than 650,000 tonnes of green steel by 2022, the report said.
While praising the UK government for introducing a Clean Steel Fund, the report describes how none of the £ 250million will be allocated until 2023, and how that figure falls short of what is needed to align the sector on the net-zero. It highlights the recommendation of the Climate Change Committee (CCC) that emissions from the steel sector are reduced by 23% between 2020 and 2030. To meet this recommendation – which is part of the sixth carbon budget – emissions reductions must be done now, insists the ECIU.
“The UK has enviable resources to produce clean hydrogen from renewable energy, using it to support a clean steel industry will bring vast economic benefits across the country,” said the head of the ECIU analysis, Dr. Jonathan Marshall.
“EU countries clearly see the opportunities offered by the decarbonization of their steel sectors; the UK needs to recognize that this is a competitive global market, so sticking to the status quo, or worse, arguing that the industry will remain dependent on coking coal, just doesn’t cut it. “
Dr Marshall here alludes to support for a deep coal mine project in Cumbria on the grounds that the coal would be used for steel production in the UK, potentially replacing imported coal.
Regarding hydrogen, the British hydrogen strategy is expected in the coming weeks after the delays linked to Covid-19. It will build on the ten-point plan commitment to bring 5W of low-carbon hydrogen production capacity online this decade.