Green Steel: How to become a low-carbon industry

The third and final in a series of decarbonization-focused webinars, organized by Global Specialty and Swiss Re Institute, focused on steel, more precisely, green steel. What are the implications of changing traditional steel production methods to low carbon technology in the short, medium and long term? And what does it mean for re/insurers, when the steel industry, one of the so-called 'hard-to-abate' industries, has set net-zero emission goals for 2050?

Massimo Ferrari, up first at the virtual podium, gave participants an introduction into the nature of steel production, current methodologies, and the challenges on the path to a greener, less carbon-intensive, future.

Steel has a long history, he explained, with first signs of early steel production dating back to 2000 BC. Massimo showed just how much of a role steel has played in the development of society to this day. From buildings to infrastructure and transportation and much more, steel has been essential – and will continue to be essential, in particular also for the global energy transition. To give a sense of the connection between steel and green energy: The construction of a single large wind turbine requires between 200 and 300 tons of steel.

The steel industry currently accounts for 7% of the global CO2 emissions. To put this into context, it is 2-3 times as much as the emissions of the global aviation industry. Massimo then explained two ways of steel production. Currently, the traditional and more carbon-intensive way still makes up for most of the global steel production – but the second way has huge decarbonization potential for the industry.

Before handing over to the next speaker, Massimo did shine a light on just high massively steel production has increased in just the last twenty-five years – the above chart couldn't be more telling – and couldn't make it more clear just how urgent the decarbonization of this industry is. Massimo pointed to regulation, funding, the availability of emissions-free energy and new technologies as key ingredients to making the transition a reality.

Robert Baron gave a brief overview of his employer's global footprint: Swiss Steel Group, headquartered in Lucerne, Switzerland, is active in seventy locations and thirty countries around the world. Swiss Steel Group is very much at the forefront of green steel, as they exclusively produce less carbon-intensive, EAF-based steel (working with scrap metal and electric furnaces). Because of their operating methods, they have a comparatively low carbon footprint (one tenth of the global average).

Baron talked about the EU's Green Deal commitments and plans, and showed that CO2 emissions by EU steel producers are already far lower than those of producers in the US and, of course, China. He then came to a topic that is often a stumbling block along the path to #netzero2050: definitions. To this day, there is no one agreed-upon definition for what exactly may call itself 'green steel.' For now, any steel that is not produced in the traditional carbon-intensive way, any steel that produces somewhat less CO2 than that traditional method, is called green steel.

Transition efforts are ramping up. Baron showed example projects, such as Sweden's H2Green Steel, as well as Germany's SALCOS and ThyssenKrupp tkH2Steel. However, while a great deal is happening, and while the required paths are clear, Baron also did highlight the obstacles. One is funding, another is the need of a massive ramp-up (and thus investment) of renewable energy that will then help to power green steel. With the above-mentioned SALCOS project, for example, Baron explained that they don't expect that there will be sufficient green power available – hence they are building, as part of the overall project, their own wind farms.

Baron reminded everyone that a low-carbon steel industry is only possible by using far more energy. There is a great deal of hope placed in a green hydrogen. For now, however, it is still in very short supply. If the hoped-for enormous amounts of green hydrogen can indeed be produced within the next two decades, then the global steel industry will indeed be able to make the transition from 'hard-to-abate' to low carbon.

The last part of the webinar focused on underwriting, of course. Massimo Ferrari and Jimmy Keime were on hand to illuminate matters around the changing risk landscape of green steel, such as augmented production methods, new CCUS (Carbon Capture, Utilization and Storage) technologies, increased complexity of supply chains and, particularly, every risk that comes with the large-scale production and use of green hydrogen.

Hydrogen is highly flammable. Because it has very different properties compared to current chemical elements used in steel production, it will demand a great deal of focus on the risks of supply chains, from production to transportation to storage and usage. As the experts showed, the risk of leakage with hydrogen is significantly higher compared to traditional fuels.

Massimo and Jimmy made it clear that green steel needs to be on every underwriter's mind, because global demand for green steel will just continue to rise – an expected 40% by 2050. At the same time this 'hard-to-abate' industry is expected to decrease its emission by 95%. This scale, combined with this urgency, cannot but come with greater risks that must be taken into consideration.

Massimo and Jimmy concluded the eye-opening webinar by affirming Swiss Re's determination to be at the forefront of this transition.

For the summaries, slides and recordings of all three webinars in the series, visit here.