July 2021

Version 1.0

Steeling Demand:
Mobilising buyers to bring net-zero
steel to market before 2030

Supported by Breakthrough Energy An analysis by Energy Transitions Commission and Material Economics
for the Mission Possible Partnership's Net-Zero Steel Initiative
 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

Steeling Demand: Mobilising buyers to

bring net-zero steel to market before 2030

Steeling Demand: Mobilising buyers to bring net- Breakthrough Energy

zero steel to market before 2030 demonstrates that Founded by Bill Gates, Breakthrough Energy is
demand signals from steel buyers to steel manufacturers dedicated to helping humanity avoid a climate
can help unlock investment decisions. Such signals disaster. Through investment vehicles, philanthropic
will secure the next generation of breakthrough programs, policy advocacy, and other activities,
technologies needed for primary steel to become truly we’re committed to scaling the technologies we
net-zero emissions. This is significant in an industry that need to reach net-zero emissions by 2050.
globally accounted for 2.6 Gt of direct CO2 emissions
in 2019, representing about one-quarter of industrial Mission Possible Partnership
CO2 emissions and 7% of total energy sector emissions
Led by the ETC, RMI, the We Mean Business Coalition,
(including process emissions). This report provides
and the World Economic Forum, the Mission Possible
the guidance needed to the critical stakeholders in
Partnership (MPP) is an alliance of climate leaders
the automotive, construction, renewable energy and
focused on supercharging the decarbonisation of
white goods sectors on how to seize the associated
seven global industries representing 30 percent of
commercial opportunity for steel buyers in being early
emissions – aluminium, concrete, chemicals, steel,
movers and actively participating in the commercialisation
aviation, shipping, and trucking. Without immediate
of low-CO2 primary steel production technologies.
action, these sectors alone are projected to exceed
the world’s remaining 1.5°C carbon budget by 2030.
This report was developed by the Energy Transitions
Commission and Material Economics on behalf of
MPP brings together the world’s most influential
the Net-Zero Steel Initiative, part of the Mission
leaders across finance, policy, industry and business.
Possible Partnership. This work was supported by
MPP is focused on activating the entire ecosystem
Breakthrough Energy.
of stakeholders across the entire value chain
required to move global industries to net-zero.
The Energy Transitions Commission (ETC)
ETC is a global coalition of leaders from across the energy Net-Zero Steel Initiative
landscape committed to achieving net-zero emissions
Global carbon emissions from iron and steel production
by mid-century, in line with the Paris climate objective
are currently around 2.3Gt per annum – or about 7%
of limiting global warming to well below 2°C and ideally
of global energy system emissions. Business-as-
to 1.5°C.
usual scenarios suggest that this could rise to 2.8Gt
Our Commissioners come from a range of organisations – per annum by 2050. Multiple technology pathways
energy producers, energy-intensive industries, technology to decarbonise steel production are already being
providers, finance players and environmental NGOs – developed, but, in a highly competitive sector, market
which operate across developed and developing countries signals are lacking to unlock further investment.
and play different roles in the energy transition. This
The Net-Zero Steel Initiative aims to mobilise steel
diversity of viewpoints informs our work: our analyses
industry leaders who want to work together to shape
are developed with a systems perspective through
the favourable policy, market and finance environment
extensive exchanges with experts and practitioners.
required to transition to zero carbon emissions in steel.

Material Economics
Learn more at:
Material Economics is a management consultancy firm
advising leading businesses on how to reduce their www.materialeconomics.com
environmental footprints and become more circular.
www.breakthroughenergy.org
The firm has published leading reports on climate
change, heavy materials, and the circular economy, www.missionpossiblepartnership.org
and has experience from more than 100 sustainability- www.energy-transitions.org
related strategy projects in sectors such as heavy industry,
buildings, finance, transportation, manufacturing, and food.

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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

Contents

EXECUTIVE SUMMARY 4

BACKGROUND – THE STEEL INDUSTRY TRANSITION 7

CHAPTER 1. COMMERCIAL OPPORTUNITY FOR EARLY MOVERS IN LOW-CO2 STEEL 9

i. Pressure on supply chain emissions is increasing in major steel-using sectors 9
ii. A few sectors are more likely to be early champions for low-CO2 steel 11
iii. The automotive sector will be a leading sector for low-CO2 steel demand 12
iv. The construction sector could require large volumes of low-CO2 steel 13

CHAPTER 2. TIME FOR VALUE-CHAIN COLLABORATION ON LOW-CO2 STEEL 15

i. A breakthrough around the corner – truly low-CO2 steel at scale is within reach by 2030 15
ii. Value-chain collaboration is required now to make breakthrough steel a reality before 2030 20
iii. Steel buyers have a commercial interest in being early movers 20

CHAPTER 3. DEVELOPING DEMAND SIGNALS TO BRING LOW-CO2 STEEL TO MARKET 26

i. The basic elements of a low-CO2 steel demand signal 26
ii. How a direct demand signal could be set up: The automotive example 29
iii. How a future purchase commitment could be set up: The construction example 31

CHAPTER 4. A CALL FOR ACTION 34

i. Two critical actions for steel buyers 34
ii. Two critical actions for steel producers 34
iii. Four critical actions for policymakers & public organisations 35
iv. One critical action for civil society 35

ACKNOWLEDGEMENTS 36

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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

Executive Summary

Primary low-CO2 (and eventually CO2-free) steel low-CO2 primary steel, seize early commercial
production will be essential for all actors in the opportunities in premium green markets,
value chain, spanning steel production and use, and provide differentiation amidst markets
in order to reach voluntary and regulatory climate characterised by tight operating margins. Acting
targets by 2030 and beyond. Decarbonising steel is early will also allow companies to adapt to
also essential to reach net-zero emissions globally changing policies, such as anticipated regulations
by 2050. From wind turbines to electric vehicles, on lifecycle CO2 emissions, and to market forces,
steel will be an integral enabler of the energy such as rising carbon prices. They will need
transition but it is also a major part of the embodied to engage ‘upstream’ in a way that is new to
carbon in many industrial products today. many steel buyers, but the potential pay-off is
significant. Early movers already include Volvo’s
The pressure to decarbonise is coming from partnerships with SSAB, BMW and BHP Ventures’
a combination of factors, including policy investments in Boston Metal, and Scania, Daimler
action, scrutiny from finance players, and and Kingspan’s partnerships with H2 Green
changes in consumer preferences. As pressure Steel (H2GS). Further examples can be found
grows to deliver deep decarbonisation of as more than ten corporates in the construction
production and products, the world needs and renewable energy sectors such as Landsec,
solutions that reduce emissions associated Multiplex and Ørsted, have signed up to the Climate
with carbon-intensive materials such as steel Group’s SteelZero initiative thereby pledging to
in the short term and provide a foundation secure 100% net-zero steel by 2050 at the latest.
for deeper cuts in the 2030s and 2040s.
Providing low-CO2 primary steel to satisfy the
Early movers in the automotive, construction, demand of early mover corporates will require
renewable energy and white goods sectors breakthrough production technologies to be
can benefit from developing new low-CO2 brought to market. This paper explores the
steel supply chains. For all these sectors, early types of action required to catalyse investment
action on low-carbon steel is attractive as: in these breakthrough technology pathways.
This paper shows how demand signals from
• Steel is a major component of their steel buyers can help unlock these investments
value-chain emissions. for low-CO2 steel. It explores how such demand
signals could be structured while meeting the
• They face significant and rising pressure commercial imperatives of sellers and buyers.
from regulators and customers to decarbonise It is based on interviews and workshops with
supply chains. more than 50 steel manufacturers, steel users,
regulators and finance providers, and extensive
• Low-CO2 steel will be a market differentiator analytical work on low-carbon technologies and
in the next decade and it is hard to stand value-chain dynamics. It provides options to
out with incremental CO2 reductions. help steel producers and buyers to design green
demand signals and quantitatively describes
• The premium for low-CO2 steel is a small the advantages and disadvantages of each.
share of the total product cost.
The good news is that, compared to just four
• Buyers are sufficiently large to effect years ago, these breakthrough technologies have
change in supply chains. been validated. Nearly all major producers, as
well as several new entrants such as Boston Metal
Corporates will need to be proactive if they want and H2GS, are developing low-CO2 production
to access the first (likely scarce) volumes of technologies at an increasing pace.

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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

By 2030, if the right conditions are in place, current need to adapt tenors to provide longer-term
corporate announcements suggest 20 Mt of low- certainty. Ideally, offtake agreements would
CO2 steel could be available to the market – equal to match the tenor of associated debt financing.
approximately two-thirds of the steel used by the EU
automotive sector. The recently released IEA's 'Net • Cover an initial green premium: First-of-a-kind
Zero by 2050' global roadmap to net-zeroi includes investments in breakthrough steel production
the ambitious target volume of 180 Mt of low-CO2 by will cost 15-40% more per tonne of steel,
2030 requiring urgent action from all stakeholders. depending on the technology employed and
local market circumstances. While suppliers
These volumes will only be realised by 2030 if should carry some price risk, buyers will have
investment, supported by the business case to pay more if investments are to be viable.
illustrated in this report, takes place in the next
five years. Today, the higher cost of low-CO2 • Matching supply and demand in specifications
production, the so-called green premium, is the and location: Low-CO2 steel supply and
primary reason holding back the development and demand must match, not only in terms of
deployment of low-CO2 steel technology. With no aggregate volumes but also in terms of
adequate package of policies (e.g., contracts for geography and steel grades, in order for the
differences) yet in sight, steel manufacturers need new trade flows to increase smoothly.
an understanding that the green premium will be
covered in part (or fully) to underpin investment There are multiple ways to design, structure
in low-CO2 steel production routes; otherwise, and deliver demand signals in order to underpin
producers may delay vital investment decisions. and bring-forward low-CO2 steel investment.
Such a delay would make corporate emissions They range from direct offtake agreements to
targets harder to reach and present a headwind broader public commitments to procure specific
to both steel manufacturers and buyers. volumes of low-CO2 steel. They can be broadly
grouped into three forms, although they are not
Defining ‘low-CO2’ steel will also provide mutually exclusive and steel buyers may find that
clarity to the supply chain, and accelerate the the most suitable strategy evolves over time.
transition to a lower-carbon steel sector. Several
steel producers are gradually transitioning to a • Direct demand signals include bilateral offtake
portfolio of lower-carbon assets while exploring agreements, which define the terms of the
breakthrough production technologies that could transaction many years into the future. They
enable production at near-zero emissions. Many can be complemented by co-investment,
of the proposed low-CO2 steel production projects which enables producer and buyer to share
can achieve a footprint of close to 0.1 tonne of risks and rewards. Direct demand signals are
CO2 per tonne of steel – a reduction of 95%. For relevant for buyers that directly procure large
buyers, few other Scope 3 emissions reductions amounts of steel, such as major automotive
will offer the combination deep emissions OEMs, renewable energy OEMs, and large
abatement potential, expected time-to-market industrial manufacturers. Precise and defined,
and marketable value. An ambitious definition of direct offtake agreements are likely to be the
low-CO2 steel, pushing the footprint close to zero most impactful way to catalyse the necessary
emissions will provide a product that can be clearly investment in breakthrough technologies.
communicated to end customers and gives the
suppliers clarity on a market for low-CO2 steel. • Future purchase commitments are commitments
to purchase low-CO2 steel, ideally with specificity
How to unlock the opportunity: on timing and volume, but which are not
directed to a specific producer. Such forward
• Provide certainty of future demand: From the commitments can be deployed by companies
demand side, buyers’ commitments that are who procure steel directly but face significant
firm and precise (on volume, specifications uncertainty in precise the location and volume of
and price) will do most to unlock investment. their demand, such as construction companies.
A short-term purchasing model is unlikely to To maximize the potential impact at scale,
sufficiently de-risk investments by producers in these commitments should be aggregated,
low-CO2 steel assets; procurement models will possibly via a buyers’ campaign like SteelZero.

i International Energy Agency (2020), Net-zero by 2050

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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

• Indirect demand signals are a commitment • Steel producers

to decarbonize supply chains. These much - Engage with high-volume customers in order
broader signals can be sent by a wider pool to establish the necessary supply chain
of organisations, including investors and collaborations. This is a new, complex and more
funds and end-user markets. Such a signal strategic type of customer relationship than
does not provide certainty of offtake to a for conventional steel transactions and will
steelmaker and is insufficient to underpin a likely require senior engagement to get right.
business case for investment. If significant
volumes of aggregated demand can be - Define the specifications in conjunction
demonstrated, it could give steel producers with consumers required to underpin
and their financiers sufficient confidence in the investment in breakthrough low-CO2 steel,
scale of future addressable markets in order and work with steel buyers and regulators
to unlock and bring forward the investment. to establish and adopt a common and
workable definition of ‘low-CO2’ steel.
These challenges present a significant business
opportunity and the next five years will be • Policymakers and public organisations
critical for investment. Long steel project lead - Continue to provide a supportive R&D
times, mounting regulatory interest in and environment to foster innovation and
pressure on supply chain emissions and shifting technology cost reduction in the steel sector.
consumer preferences mean that the time to act - Use public procurement to incubate early
is now. The opportunity is clear and practical markets for low-CO2 steel between 2025 and
options are available for setting up demand 2030. For example, the public sector is typically
signals. It would benefit steel manufacturers, a very large buyer of construction steels.
buyers and regulators to engage even more - Lower the risk for first-mover investments
ambitiously to move the steel industry across into low-CO2 steel. Investments will carry
the low-carbon tipping point and realise the considerable risks that come with making
commercial and environmental opportunities. early commitments and will be challenging to
negotiate. Policy can help by assuming a portion
• Steel buyers of that risk through a combination of financial
- For large, direct steel buyers: Build systematic products and policy such as carbon contracts for
understanding of the options and costs related differences (CCfDs) to reduce the uncertainty
to Scope 3 emissions abatement options, associated with the future price of carbon.
and engage in using significant predictable - Set lifecycle emissions standards for key
demand to unlock upstream investments and steel-using products, to drive the necessary
accelerating the transition to net-zero. technology deployment and uptake.
- For steel buyers not engaged in direct
bilateral negotiations: Engage in the buyers’ • Steel end-consumers
club initiatives that will be set up for low- - Advocate and opt, where possible, for
CO2 steel (e.g., SteelZero), and commit products containing low-CO2 steel over
to as large volumes as possible. comparable products, and demand greater
transparency on lifecycle and embodied
emissions in consumer products.

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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

Background: Steel industry transition

The steel industry has long been a pillar of demand as a result of improvements in the
economic growth and urbanisation. Steel is an recovery and recycling of end-of-life material.
essential component for many sectors, including However, even in a more circular economy, over
construction, energy, automotive, machinery and one billion tonnes per annum of primary steel (using
white goods. Steel contributes 0.7% of world GDP iron ore feedstock as opposed to scrap) will be
and employs 6 million people worldwide, 2 million needed globally by 2050.v Under a business-as-
directly within steel mills.ii However, the production usual scenario, the increase in demand would result
of one tonne of crude steel currently emits on in 2.8 billion tonnes annual CO2 emissions from the
average 1.4 tonnes of CO2. The industry accounts steel sector in 2050. This figure greatly exceeds
for close to 2.6 Gt of emissions which represents the remaining carbon budget for the steel industry
7% of total global emissions from the energy and envisioned by the IEA’s beyond 2°C scenario,vi and
industry system.iii the more stringent net-zero emissions target
advocated by an increasing cohort of observers
Meanwhile, global steel demand is forecast to and countries. Material efficiency and efficiency
grow to 2.5 billion tonnes per annum by 2050 from improvements are important to keep down
current production levels of 1.8 billion tonnes.iv emissions, but new technologies are indispensable
It is anticipated that secondary (scrap-based) to keep within carbon budgets and eventually reach
production will satisfy an increasing portion of this net-zero emissions (Exhibit 1).

Exhibit 1: The steel industry will need new technologies to reach ambitious climate targets.

Source: 1: IEA (2020) Iron and Steel Technology Roadmap; 2: IEA (2017) Energy Technology Perspectives;
3: IEA (2021) Net-zero by 2050: A Roadmap for the Global Energy Sector.

ii World Steel Association (2021) World Steel Association. Available at: www.worldsteel.org (accessed May 2021)
iii International Energy Agency (2020) Iron and Steel Technology Roadmap
iv World Steel Association (2020) 2020 World Steel in Figures
v Material Economics (2018) The Circular Economy – A Powerful Force for Climate Mitigation
vi In the IEA scenarios, the Stated Policies Scenario is constructed by projecting forward current trajectory, shaped by existing and announced policies. The Sustainable Development
Scenario assumes a more sustainable future for the steel industry, in which global absolute direct emissions fall by 54% between 2019 and 2050, while production levels moderately
rise. In the Below 2°C Scenario, the energy sector reaches carbon neutrality by 2060 to limit future temperature increases to 1.75°C by 2100, the mid-point of the Paris Agreement’s
ambition range.

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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

It is therefore critical that low-and eventually zero- If that obstacle is not overcome in the 2020s,
carbon technologies are developed and deployed the commercial availability of low-CO2 steel and
for primary steel production. Such technologies its potential to drive CO2 emissions reduction
are technically feasible and have already been will be significantly delayed. This inertia would
tested, but they are still far from commercialisation. be detrimental for both steel manufacturers and
It normally takes at least five years to bring new steel buyers, who are under growing pressure
technology from laboratory testing to first-of-a- to decarbonise. In sectors that use significant
kind scale operations. Given this timescale and volumes of steel such as automotive and
the long lifetimes of assets in the steel industry, construction, addressing the carbon footprint
breakthrough technologies for primary steel of purchased steel will be central in corporate
production with near-zero CO2 emissions must be decarbonisation strategies, especially as
brought to commercial scale by 2030 at the latest companies are encouraged to address their supply
to enable fast deployment across the world in the chain emissions (i.e., Scope 3 emissions). A delayed
2030s and 2040s. This paper focuses on how to deployment of low-CO2 primary steel production
address this challenge by mobilising steel buyers routes would likely impose a more disruptive and
alongside steel manufacturers. higher-cost decarbonisation in the 2030s and
2040s for the steel industry to reach net-zero
The development and deployment of low-CO2 emissions by mid-century (including risks of
primary steel production technologies is currently stranded assets). These higher costs would in turn
hindered by the associated “green premium” impact all steel-using value chains.
(+15-40% cost increase after typical downstream
processing). This premium results from increased This paper aims to demonstrate that demand
capital and operational expenditures but it is signals from steel buyers to steel manufacturers
expected to decrease with commercialisation, as can and should help unlock investment decisions
greater volumes of production drive economies and secure the next generation of breakthrough
of scale and learning curve effects. At this stage, technologies needed for primary steel to become
however, without favourable policies or a verified truly net-zero emissions. It provides guidance
differentiated premium green market, this premium to critical stakeholders on how to seize the
makes it hard to see the route to market for low- associated commercial opportunity. We first outline
CO2 steel. In that context, it is difficult for steel the commercial opportunity for steel buyers in
manufacturers to develop a compelling business being early movers and actively participating in
case to invest in low-CO2 steel production the commercialisation of low-CO2 primary steel
technologies. Although policies intending to production technologies. This paper then describes
accelerate industry decarbonisation are now being different ways in which value-chain collaboration
deployed in regions such as Europe and the United could be implemented to unlock those investments.
States, including through COVID-19 recovery plans,
they are unlikely in of themselves to be sufficient to
unlock early investment in the 2020s.

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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

Chapter 1
Commercial opportunity for early movers in low-CO2 steel

Sectors that consume significant amounts of raw globally (52% and 12% respectively),vii followed by
materials are under increasing pressure from the machinery, metalware and energy sectors. The
external stakeholders – chiefly policymakers, breakdown of demand in the European Union and
finance players, and consumers – to deeply the United States is shown in Exhibit 2.
decarbonise their supply chains. Corporates in
those sectors will need to purchase lower-carbon The pressure to decarbonise is increasing in key
and eventually zero-carbon materials. Steel will be steel-consuming sectors due to combinations of:
among the key material inputs under scrutiny.
• Growing policy incentives to decarbonise
i. Pressure on supply chain emissions is (including via carbon prices, other forms of
increasing in major steel-using sectors climate regulations, and dedicated financial
support), and anticipation from the private sector
Steel is considered a critical material input in a that a growing number of jurisdictions will impose
broad range of engineering and construction such policies and that carbon-related regulations
applications due to its mechanical properties – will only tighten in future;
strength, stiffness, toughness – and affordability.
The construction and automotive sectors alone • Increasing scrutiny from the financial sector,
account for more than 60% of steel demand with a growing number of equity players and

Exhibit 2: Steel consumption in the EU and the USA by sector and share of those regions in world demand.

Sources: EUROFER (2020) European Steel in Figures; AISI (2020) Profile 2019-2020; IEA (2020) Iron and Steel
Technology roadmap; World Steel Association (2020) World Steel in figures.

vii World Steel Association (2020) World Steel in Figures

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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

lenders committing to climate-aligned portfolios engine vehicle; whereas use-phase emissions for a
and adding carbon-related criteria in their battery-electric vehicle in 2030 will represent less
investment decision frameworks; than 50% of lifecycle emissions.viii Due to this
development, regulators, which have historically
• Changes in consumer behaviour, driven by put strict demands on automotive producers to
increasing awareness of climate and reduce tail-pipe emissions, are now increasingly
environmental impacts of consumption, leading considering lifecycle and embodied emissions in
to the development of new markets differentiated upcoming policies.ix
by climate and other environmental credentials.
As a result, many companies are setting ambitious
Growing attention is being paid to lifecycle targets to reduce their lifecycle CO2 emissions,
emissions, including supply chain emissions. including emissions upstream in their supply chain
Use-phase related emissions (e.g., fuel (Exhibit 3). For example, in the automotive industry,
consumption in vehicles or heating in buildings) both Toyota and Volkswagen are aiming to be
have long dominated total emissions from a carbon neutral by 2050, Daimler and Jaguar Land
lifecycle perspective and have been the main focus Rover aim to reach neutrality by 2039 and General
of decarbonisation efforts to date. But, as those Motors by 2040. Volkswagen has an interim goal to
emissions are reduced due to the decarbonisation reduce lifecycle CO2 emissions by 30% by 2025,
of the electricity sector, the clean electrification of compared to 2015. In construction, Lendlease has
transport and building applications, and improved set out to be ‘absolute zero carbon’ already by 2040.
energy efficiency, supply-chain related emissions, In white goods, Electrolux is aiming to be carbon
in particular emissions from materials production, neutral by 2050. Beyond those few examples, more
represent an increasing share of lifecycle than 1000 companies have now set or committed to
emissions. Looking at passenger cars as an set a Science-Based Target, with the number of new
example: today, use-phase emissions from fuel commitments growing every year.
consumption represent around 80% of total
lifecycle emissions of an internal combustion

Exhibit 3: The number of companies setting ambitious climate targets is steadily on the rise.

Source: International Organization of Motor Vehicle Manufacturers (2017) Correspondents Survey World
Ranking of Manufacturers; Science Based Targets (2021) Companies Taking Action. Available at: https://
sciencebasedtargets.org (Accessed March 2021); company annual reports and public announcements.

viii M aterial Economics & Energy Transitions Commission’s analysis based on Ricardo (2020) Determining the environmental impacts of conventional and alternatively
fuelled vehicles through LCA; WEF(2020) Raising Ambitions: A new roadmap for the automotive circular economy; IEA (2020) World Energy Outlook 2020
ix Embodied emissions are greenhouse gas emissions that have occurred earlier in a value chain. For example, the emissions that occurred when producing the
steel that goes into a white goods product are called embodied (and sometimes embedded) emissions of the product. Embodied emissions contribute, alongside
use-phase emissions, to the lifecycle emissions of the product.

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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

For key steel-using sectors, this increasing manufacturing emissions. For example, steel
pressure to decarbonise supply chains will rapidly represents about one-third of supply chain and
necessitate addressing emissions from steel manufacturing emissions for buildings and cars and
production, as steel generally represents a close to half those of renewable energy equipment
significant percentage of their supply chain and and white goods (Exhibit 4).

Note: Passenger cars: ICE = Internal Combustion Engine; BEV = Battery Electric Vehicle. Use phase included upstream emissions based on EU average
emission factor for electricity, assuming a reduction of 40-50%.

Exhibit 4: Steel represents a major share of materials and manufacturing emissions in several key products.

Source: Material Economics & Energy Transitions Commission’s analysis based on multiple sources.x

ii. A few sectors are more likely to be early applications of low-CO2 steel, and better matching
champions for low-CO2 steel the criteria outlined above.

Certain demand sectors are likely to be better We have identified four sectors with strong
positioned to act as early champions for green incentives to adopt low-CO2 steel which best meet
steel and are already showing the way. These the criteria above. The sectors with the greatest
sectors will be under greater pressure to potential have a combination of volume,
decarbonise, usually purchase high volumes of concentration and pressure to decarbonise – see
steel (making them both more incentivised to Exhibit 5 and can help shape future steel markets:
address steel emissions and more influential on the
steel market), and be able to pass through the cost • The automotive sector accounts for 55 million
of low-CO2 steel to end consumers. They would tonnes of consumption of steel in the EU and
also ideally operate in a relatively concentrated USA.xi In the electric vehicle segment alone,
market and purchase steel directly from producers which is the application with the strongest
(to limit the number of decision-makers involved incentive to decarbonise steel due to the
and the complexity of engaging them in demand importance of green credentials, demand is
creation). Within each sector, there will likely be forecast at 8 million tonnes by 2030.xii Original
specific use-cases that are better suited as first Equipment Manufacturers (OEMs) purchase a

x Material Economics & Energy Transitions Commission’s analysis based on Ricardo (2020) Determining the environmental impacts of conventional and alternatively fuelled vehicles
through LCA; WEF(2020) Raising Ambitions: A new roadmap for the automotive circular economy; IEA (2020) World Energy Outlook 2020; IRENA (2019) Measuring the socio-
economic footprint of the energy transition: the role of supply chains; Siemens Gamesa (n.d.) Environmental Product Declaration SG 8.0-167 DD; World Green Building Council (2019)
Bringing Embodied Carbon Upfront, Reale et al (2020) Environmental impacts of household appliances in Europe and scenarios for their impact reduction.
xi EUROFER (2020) European Steel in Figures; AISI (2020) Profile 2019-2020
xii Material Economics & Energy Transitions Commission’s analysis considering 7 million BEV passenger car units sold in the US+EU in 2030. Based on BloombergNEF (2020) Electric
Vehicle Outlook and Ricardo (2020) Determining the environmental impacts of conventional and alternatively fuelled vehicles through LCA

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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

variety of steel types, and usually deal directly to consume 5 million tonnes of steel in the EU and
with steel manufacturers. USA.xv Most steel used in manufacturing solar
panels and wind turbines is produced via the
• The construction sector accounts for 100 million primary route.
tonnes in the EU and USA.xiii It consumes the
largest volume of steel, although a large share is • White goods represent 7 million tonnes of
secondary steel (70% in the mature markets of steel consumption in the EU and USA.xvi
EU and USA)xiv and the value chain is relatively The sector is highly regulated to address
fragmented. environmental issues. It generally purchases
directly from producers.
• The anticipated growth of the renewable energy
market means that, by 2030, this sector is forecast

Exhibit 5: The markets with the greatest potential have a combination of volume, concentration and pressure
to decarbonise.

iii. The automotive sector will be a leading opportunities. Purchasing low-CO2 materials and
sector for low-CO2 steel demand steel, in particular, could be a differentiating factor.

The automotive sector is undergoing a profound The automotive sector is decarbonising rapidly.
transformation driven by three major trends. First, Automotive OEMs representing 56% of global
consumer sentiment has shifted in favour of annual vehicle production have set long-term
electric mobility, low-emissions manufacturing, and (2040-50) climate neutrality targets spanning
sustainable materials. Secondly, more than half of Scope 1, 2 and 3 emissions. Major OEMs including
all global emissions are now covered by some form Daimler, GM, JLR, Volvo and Volkswagen are
of ‘net-zero’ target. Third, the financial industry is setting bold commitments to transition towards
growing increasingly sophisticated in its approach mass electrification of vehicle portfolios. Large-
to scrutinising the degree of climate alignment of scale electrification, however, will be insufficient to
corporate strategies. Automotive OEMs that can achieve full decarbonisation of vehicles.
adapt to these trends will open strategic

xiii EUROFER (2020) European Steel in Figures; AISI (2020) Profile 2019-2020
xiv Material Economics & Energy Transitions Commission’s analysis based on: Muiris C. Moynihan, Julian M. Allwood (2012) The flow of steel into the construction
sector and Cullen et al (2012) Sustainable Materials with Both Eyes Open
xv Material Economics & Energy Transitions Commission’s analysis based on: IRENA (2020) Power generation costs; Siemens Gamesa (n.d.), Environmental Product
Declaration SG 8.0-167 DD
xvi EUROFER (2020) European Steel in Figures; AISI (2020) Profile 2019-2020

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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

As tailpipe emissions trend to zero with increasing Scania, for example, has stated the investment in
penetration of battery electric vehicles (BEVs), H2 Green Steel provides “good opportunities to,
emissions from vehicle materials are set to among other things, secure future deliveries”.xvii
increase in both absolute and relative terms.
Already, 30-50% of a vehicle’s overall material iv. The construction sector could require
emissions comes from steel and batteries, but large volumes of low-CO2 steel
advances in decarbonised battery materials and
battery production mean relative emissions from Most attention in the construction sector has been
automotive steel will rise. By 2030, steel will on use-phase emissions and much has been
represent 15% of automotive emissions, making it achieved in new builds – a European building of the
the next frontier in the industry’s efforts to reduce 21st century consumes less than half of the energy
its carbon footprint. of a 1970s building of an equivalent area and
function. But as use-phase emissions reduce,
The shift towards platform-based BEV awareness of emissions from construction and
architectures also means that OEM differentiation materials inputs increases. Addressing those
of electric drivetrain or battery will be increasingly emissions will soon be a necessary part of
hard to achieve (relative to engine horsepower, marketing buildings or infrastructure as “green”.
torque, and drive dynamics). Unlike batteries,
where a select number of vendors possess central The premium associated with green buildings is
roles in the battery cell and pack supply, the well documented. According to Dodge Data and
automotive steel supply chain is fragmented. This Analytics, most developers value the premium in
means that low-CO2 steel presents a rare asset valuation over 5% compared to similar
opportunity for genuine brand differentiation from buildings and empirical studies confirm those
peers, but the window of opportunity will be limited values.xviii Although this premium partly reflects
and gradually eroded as its production becomes lower running costs associated with better use-
widespread in the 2030s. phase performance, it also arises from improved
habitability and from the “virtue signalling” quality
Additionally, as vehicle tailpipe emissions fall, of a “green building”, especially from corporates
regulators will look for new approaches to address and the public sector. As use-phase emissions
vehicle emissions. By 2023, for example, the decrease, this premium is expected to shift to
European Commission intends to assess the low-embodied carbon buildings.
feasibility of harmonised and consistent reporting
of full vehicle life cycle emissions, which can then Developers and contractors are increasingly
be tied to targets that will be tightened over time. committing to reduce their carbon footprint.
As with tailpipe standards, a high degree of global Bouygues, Skanska and, Laing O’Rourke are among
harmonisation of regulations should be anticipated. the companies setting Scope 3 targets (related to
Such regulation will necessitate detailed the supply chain and use of products). Private
understanding by OEMs of materials customers are requiring lower embodied carbon in
decarbonisation options, costs, and relative their buildings – Microsoft’s new headquarters aims
timelines of availability, presenting a new set of for 30% less, Atlassian’s new headquarters are
priorities for sourcing strategic materials. designed to save 50%. The public sector – which
represents up to 20% of the construction market in
Those who invest early will be best placed to the US – is also increasingly integrating embodied
capture opportunities for meaningful carbon criteria in public buildings and infrastructure
differentiation on environmental performance and projects.
to meet emissions targets, both voluntary and
regulated. They will also gain access to valuable An expansion of building standards to embodied
materials IP and early specification (e.g., Verband emissions is also being considered in several
der Automobilindustrie) approvals, the opportunity regions. Some European countries are already
to pre-empt and avoid complex late-stage changes embedding lifecycle assessment and embodied
in sourcing strategies, and the option to lock in carbon in their regulations. In 2018 the Netherlands
supply of the first volumes of CO2-free steel. put a cap on embodied emissions in buildings.

xvii V olkswagen (2021) Fossil-free steel a giant step in Scania's decarbonisation. Available at: https://www.volkswagenag.com/en/news/2021/03/scania_fossil_free_steel.html
(Accessed May 2021)
xviii Dodge Data & Analytics (2018) World Green Building Trends 2018

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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

Finland is developing similar regulation to be in The sector has long been a large market for
place before 2025 and France is setting up a pilot secondary (scrap-based) steel – for example, in
with the same goals. The European Commission the form of rebar, which has lower emissions than
has a framework in place, establishing common primary (ore-based) production. Scrap-based steel
language on sustainability and life-cycle has three advantages: it does not require extraction
assessment for the built environment. of new raw material (a carbon-intensive activity), its
production has much lower energy requirements,
Building materials are some of the largest sources and it is produced using electricity, which can be
of global emissions: both steel and cement each decarbonised without reinvestment in the steel
account for 7% of emissions– of which half of the production facilities.
steel emissions can be attributed to buildings and
construction.xix Reducing material usage through But some construction applications – steel sheets
re-use of components and structures, more in composite slabs, roof purlins, plates structures
material-efficient design, and lower construction – require more primary (ore-based) steel. To
waste is likely to be the most cost-effective option develop projects with close to zero embodied
to reduce embodied carbon in the first instance. emissions, the construction sector will need to
However, to significantly reduce embodied access carbon-free primary steel meeting the
emissions, the construction sector will have to shift technical specifications required for those
to lower – and eventually – carbon-free materials. components.

xix World Green Building Council (2019) Bringing Embodied Carbon Upfront

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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

Chapter 2
Time for value-chain collaboration on low-CO2 steel

The automotive, construction, renewable energy technologies to be brought to market. Other

and white goods sectors are all likely to present solutions offer incremental improvements of
early demand for low-CO2 primary steel. However, emissions in primary steel production – for
corporates face a significant challenge: to cut example, retrofitting carbon capture and storage
supply-chain emissions deeply, they will need (CCS) on existing blast furnaces, or replacing
low-CO2 steel products that are not currently on a share of the fossil-fuel input with bio-based
the market due to their low technology readiness. products. These can represent useful steps to
Therefore, steel buyers have a real commercial reduce CO2 emissions from steel production
interest in ensuring that low-CO2 primary steel in the short term and increase the chances of
becomes a reality as soon as possible. not exceeding the carbon budget available by
2050 to keep temperature rise below 2°C and
i. A breakthrough around the as close as possible to 1.5°C. However, they will
corner – truly low-CO2 steel at not provide a way to near-zero CO2 emissions. If
scale is within reach by 2030 the steel sector is to access truly low-CO2 (and
eventually carbon-free) primary steel by 2030,
Providing low-CO2 primary steel to early demand targeted efforts are required to bring breakthrough
sectors will require breakthrough production technology to market (Box 1, Exhibits 6 & 7).

Exhibit 6: CO2 emissions from conventional primary steel production, tonnes CO2 per tonne of steel. xx

Source: Material Economics & Energy Transitions Commission’s analysis based on multiple sources.

xx Material Economics & Energy Transitions Commission’s analysis based on: Smil (2016) Still the Iron Age

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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

Box 1 – An overview of steel-making technologies

Steel production today The hydrogen production must itself be CO2-

free, either by capturing the CO2 and reducing
Crude steel is produced mainly through two considerable methane leakages in the natural
different routes. The ‘integrated route’, uses a gas value chain from production or by using
blast furnace and then a basic oxygen furnace zero-emissions electricity. To achieve near-
(BF-BOF) to produce iron and then steel from zero emissions, the EAF process must also be
iron ore and coal, is the main route for primary made largely fossil-free. If hydrogen is produced
steel production.xxi The other main production from water via electrolysis, 3-4 MWh of zero-
route uses electric arc furnaces (EAF) to melt carbon electricity is needed per tonne of crude
scrap steel into secondary crude steel. In Europe, steel produced (including electricity for EAF).
59% of production is through the BF-BOF and
the remaining 41% from EAF. The corresponding This route is also well suited to the use of steel
numbers for the U.S. are 32% and 68% . In addition scrap as part of the iron input, as the sponge
to the coal-based BF-BOF route, iron ore can iron from the DRI-process can be mixed with
also be reduced using natural gas through Direct steel scrap and melted in the EAF together. This
Reduced Iron (DRI), which in turn can be further allows the production of primary steel with a
processed into primary steel in an EAF. In this higher share of scrap input compared to the
process, the iron ore is reduced in solid-state BF-BOF route (from ~20% up to ~50/60%).
(rather than in a blast furnace), which together
with the use of natural gas instead of coal makes it Electrolysis route
less emissions-intensive than the BF-BOF route. As opposed to carbon-based reducing agents
used in traditional steelmaking, the electrolysis
Crude steel from these routes is formed into route involves using electrons as the reducing
slabs. These are further processed downstream agent; pure oxygen is the only flue gas produced.
at the steel plant through hot rolling, cold rolling Electrolysis is a mature processing route used
and coating processes. Steel products finally today for certain metals such as aluminium and
sold on the market are mainly flat products (e.g. lithium. However, the electrolysis of iron ore
plate, coil) and long products (e.g. tubes, rebar). has not yet been commercialised due to large
energy requirements and complications with
Low-CO2 steelmaking technologies developing suitable anode and cathode materials
capable of withstanding the extreme process
H2-DRI route conditions (temperatures of over 1500°C). Two
Swapping hydrogen for natural gas in the types of electrolysis routes being investigated:
DRI route, coupled with an EAF powered with
renewable energy sources can push down the 1. Electrowinning (EW) – iron ore grains
CO2 emissions per ton steel to nearly zero. This are suspended in an alkaline sodium
is referred to as ‘Hydrogen Direct Reduced hydroxide solution at a temperature of
Iron’ (H-DRI). Reducing iron ore with hydrogen 110°C resulting in a solid iron product.
is technically feasible. Even in a natural gas-
based DRI process, some 50% of the reduction 2. M
 olten ore electrolysis (MOE) – iron ore is
of iron is done by the hydrogen contained in the dissolved in a mixed oxide solvent (such as
natural gas, with the remainder done by carbon, silicon oxide and calcium oxide), at roughly
which then creates CO2. However, there has 1600°C resulting in a molten iron product.
never been a commercial reason to increase
the share of hydrogen. Further development is As the electrolysis process produces no CO2,
required to bring this option to industrial scale. if the electricity powering it is CO2-free as well,

xxi BloombergNEF (2020) BOF/EAF ratios and primary/secondary supply in crude steel production in major countries and regions, 2018
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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

the whole operation could theoretically become (coke oven, blast furnace, and basic oxygen
zero-carbon. The energy consumption of the furnace) with hydrogen to produce syngas
process depends on several factors including cell for chemicals production (instead of burning
configuration, the chemistry of the electrolyte, them for electricity generation, as is done
and the process temperature. Engineering today). The main advantage of this route
problems remain to be solved before electrolysis would be to find a way to continue using the
can be deployed at a commercial scale in iron existing blast furnaces. However, for this to
ore treatment as sintering or pelletizing. be compatible with net-zero CO2 emissions,
very major additional industrial processes and
Smelting reduction route with CCS strict criteria would be required. Specifically:
& low-CO2 inputs
One fossil-based route to near-zero emissions 1. The majority of inputs must be circular or bio-
would replace the current blast furnace with based carbon. Today, the advanced operation
smelting reduction, coupled with CCS and a of blast furnaces can allow the share of coke
portion of bio-based input. In direct smelting, the to be as low as 50%, with the remainder
coking plant, sinter plant and blast furnace are typically coal or petcoke. Industry experts
all dispensed with. Instead, iron ore is injected hypothesise that the share of coke could be
into a reactor alongside powdered coal. The ore reduced to 25%, and the remaining 75% could
is liquified in a cyclone converter furnace and then consist of end-of-life plastics or biomass
drips to the bottom, and the coal reduces the ore as alternatives to (new) fossil carbon.
to iron in a molten state. The molten metal can
then be reprocessed to steel in a basic oxygen 2. Integration of all main processes. For deep
furnace, as in the standard BF-BOF route. CO2 cuts, the gases from the coke oven, blast
furnace, and basic oxygen furnace must all
The rationale for a switch from BF-BOF to smelting be diverted for reprocessing to chemicals.
reduction has historically been to reduce energy
consumption by up to 20%, to replace expensive 3. L
 arge-scale carbon capture to offset fossil
coke with much cheaper coal, and to find a carbon input. The residual CO2 would have to
production route with lower CAPEX intensity. be permanently stored (not used), in order to
Direct smelting also has features that make it a offset the fossil carbon used. This could amount
good match with carbon capture. By replacing to 25% of the total, depending on how much
several processing steps with a single reactor, it hydrogen is added, but it may need to be more.
creates a single source of CO2 for nearly all the
emissions from ironmaking. In total, some 90% 4. O
 utputs restricted to circular products. The
of emissions could be eliminated through CCS. chemicals produced would need to be used
The fuel flexibility of the process also makes exclusively for products that themselves are
it possible to introduce a share of biomass nearly fully recycled. If used for single-use
instead of coal, for a lower-carbon solution. chemicals or fuels, or if plastics were only
partially recycled as happens today, emissions
BF-BOF Route with CCUS & low-CO2 inputs would only be postponed briefly until end-
The final option for nearly CO2-free production of-life plastics were incinerated (almost half
is to substantially modify the operation of the of plastic has a lifecycle of just one year).
current blast furnace route, combining it with both
carbon capture and utilisation and carbon capture 5. Other inputs must be fossil-free: The
and storage. The idea is to combine the gases processes would rely heavily on hydrogen,
produced from the main carbon sources which must come from a CO2-free source.

17
 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

Exhibit 7: Several steel-making technologies can reduce CO2 emissions, but only a few breakthrough
technologies can reach near-zero emissions.

Note: Scope for crude steel according to IEA definition including raw material & input preparation
(coking, sintering etc.), iron making, steel making and continuous casting. These numbers are estimates
and the exact emission factor could vary for different set-ups.

Source: Material Economics & Energy Transitions Commission’s analysis based on multiple sources.xxii

Two fundamental technology pathways complemented with other technologies. Carbon

can reach near-zero-carbon emissions use can be deployed as a transitional option only,
in primary steel production: as it does not allow for reach net-zero emissions.

i. Carbon avoidance, either through direct Breakthrough technologies need to be deployed

reduction of iron ore using green hydrogen at scale before 2030 to enable both steel
coupled with an electric arc furnace or manufacturers and buyers to meet their climate
via direct electrolysis of iron ore. targets. Costs and therefore the most cost-efficient
production technology among the available options
ii. Carbon capture and storage, for emissions will vary greatly by geography. They will depend on
from blast furnaces and other fossil-fuel-based local energy prices and on external factors, such
production. This approach cannot achieve as whether the development of a wider hydrogen
emissions close to zero on its own (given that economy would drive down hydrogen prices.
capture levels cannot reach 100%), so needs to be Geographies with access to cheap, clean electricity

xxii M
 aterial Economics & Energy Transitions Commission’s analysis based on; IEA (2020) Iron and steel Technology roadmap; Milford et. Al. (2013) The last Blast Furnace; Van der
Stel (2013) Development of the ULCOS blast furnace; Thyssenkrupp (2019) Hydrogen instead of coal. Thyssenkrupp Steel launches pioneering project for climate friendly steel
production at its Duisburg site; Expert interviews.
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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

are likely to prefer hydrogen-based technologies or As of March 2021, by 2030, around 20 Mt of

electrolysis. CCS could potentially be more cost- low-CO2 steel could be available if the right
effective for steel plants located in geographies conditions are put in place equal to 1% of global
with higher costs of renewable electricity, with production, and 8% of EU and USA production
easy access to carbon sequestration capacity, combined (Exhibit 8). Most of the more defined
and where it is beneficial to retrofit an integrated plans are from European players (over 90% by
steel plant to leverage existing downstream announced volume). A large portion of existing
production capacity. In order to reduce risks of primary steel assets come to end of life by 2030
path dependency, these different technologies in the region, and a combination of high policy and
need to be proven by several companies and societal pressure to decarbonise is incentivising
preferably in several geographies. This will manufacturers to consider low-CO2 options in
take time, and the sector does not have a long this investment cycle. Early announcements
time to transition due to long asset lifetimes. from other regions show a growing interest in
net-zero technologies outside Europe, especially
The good news is that those technologies are now as new countries join the cohort of net-zero
in sight for the first time. This is a complete change commitments. Many announcements focus
from the perspectives of only 3 or 4 years ago. on the Hydrogen Direct Reduced Iron (H-DRI)
Both incumbents and new entrants are developing route, but other near-zero technologies are
low-CO2 production technologies at an increasing being announced. Most projects are driven
pace: Planned investments into low-CO2 primary by incumbents, but new entrants focusing
steel production capacity would see growth from solely on low-CO2 steel, like Boston Metal or
3.2Mt in 2025 to 8.2Mt in 2026. H2 Green Steel, are also starting to appear.

1 If hydrogen is not available in sufficient quantities by production start, then plant will be operated using natural gas
2 Initially mixture of natural gas and hydrogen eventually 100% hydrogen
3 Production initially using natural gas and transitioning to hydrogen, as production technology becomes cost effective
4 70% hydrogen concentration in reduction gas. Hydrogen is to be extracted from the co-products of a natural gas-based process to make vinyl acetate
5 Hydrogen fraction unclear.

Exhibit 8: As of Q1 2021, a range of companies are preparing to make investments in low-CO2 steel.

Note: Initially utilising only natural gas or a mixture of natural gas and hydrogen as the reducing agent.
These commitments include varying degrees of a shift to hydrogen ranging from when hydrogen
technology becomes cost-effective to commitments to shift to 100% hydrogen as the reducing agent.
Hot Briquetted Iron (HBI). Polymer Electrolyte Membrane (PEM). Fortescue Metal Group (FMG).

Source: Company targets and public announcements.

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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

ii. Value-chain collaboration is a significant expenditure for governments, so

required now to make breakthrough investment support is likely to be time and volume-
steel a reality before 2030 limited and insufficient to support the current
pipeline of 20 Mt of low-CO2 production by 2030.
It is imperative for both steel suppliers and
steel buyers that the low-CO2 steel projects For steel buyers, access to low-CO2 steel before
listed above are carried through to validate 2030 will require further forceful intervention.
new production technologies at commercial Value chain collaboration can play a major role
scale by 2030, make initial volumes of low-CO2 in bringing these breakthrough technologies to
primary steel available for early movers across market. Steel buyers can strengthen the business
the steel-using markets, and enable a faster case for investment by demonstrating a critical
decarbonisation pathway in the 2030s and 2040s. volume of stable future offtake and willingness
Given investment cycles of around 20 years in the to recognise and pay a premium for a product
steel industry, these breakthrough technologies differentiated by its very low-CO2 emissions.
need to be proven at scale by 2030 if the entire
industry is to transition to net-zero by 2050. iii. Steel buyers have a commercial
interest in being early movers
However, realising these announcements depends
on investment decisions in the near term, as Early movers will reap the benefits of
lead times to bring technologies to first- and their support for the development of new
second-of-a-kind commercial-scale production low-CO2 material supply chains. Taking
are at least 5 years. Final investment decisions proactive action will enable them to:
for these projects have often not yet been taken.
The large investments that lie ahead for steel • Secure access to the first (scarce) volumes
suppliers need to be de-risked in order for the of low-CO2 primary steel: Based on analysis
steelmakers (and their financiers) to pursue for this report, demand will likely exceed the
them. A commercial-scale low-CO2 production supply of low-CO2 steel in the near future. In the
plant, with a capacity of 1Mt/year, can cost automotive industry alone, the climate targets
somewhere between $600-800 million,xxiii which of 8 large OEMs already imply a demand as
is a major investment in a steel industry currently much as 20 million tonnes of low-CO2 steel by
characterised with low margins and under intense 2030xxv or the total output of all low-CO2 plants
international competition. As a comparison, a full currently in the pipeline. Additional demand
retrofit of an existing conventional plant of similar from other sectors is likely to accentuate that
size would cost around one-third of that.xxiv scarcity. Corporates that lock in low-CO2 steel
supply will have an edge over their competitors.
To invest, steel manufacturers need to be
confident that they will be able to sell the • Seize early commercial opportunities in
low-CO2 steel at a premium price, reflecting premium green markets – and differentiate
the cost production premium. Indeed, a first- themselves from competitors: The marketing
of-a-kind investment can expect to incur +15- potential of being a value chain collaborator
40% cost increase, depending on technology focused on reducing emissions can often be
and local circumstances (Exhibit 10). Policy leveraged from the date of the announcement,
developments may narrow and eventually close even before the actual low-CO2 product is used
this cost differential and make low-CO2 steel commercially. As described in Chapter I, the
cost-competitive in wholesale steel markets, commercial value attached to “green markets”
either through carbon pricing and provision for varies but has been demonstrated in key steel-
creating a level playing field between high and low using sectors like automotive and construction.
carbon production. It is unlikely that policymakers
will create such conditions in the very near term • Anticipate rather than react to upcoming
to underpin an initial wave of breakthrough regulations: By structuring new supply chain
steel technologies. The projects will represent and procurement practices early, proactive

xxiii Material Economics & Energy Transitions Commission’s analysis based on investments needed per tonne crude steel capacity. Sources: Eurofer (2013) A steel roadmap for a
low carbon Europe 2050; Global CCS Institute (2017) Global Costs of Carbon Capture and Storage; Vogl, V., et al (2018) Assessment of hydrogen direct reduction for fossil-free
steelmaking; Schmidt, O., et al. (2017) Future cost and performance of water electrolysis: An expert elicitation study; Fischedick, M., et al. (2014) Techno-economic evaluation of
innovative steel production technologies; Expert interviews with representatives from steel producers
xxiv B ased on investments needed per tonne crude steel capacity in Eurofer (2013) A steel roadmap for a low carbon Europe 2050
xxv The scope 3 percentage reduction goal is assumed proportional to the percentage reduction in emissions from steel (i.e., scope 3 emission sources are abated equally).

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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

steel buyers will be better prepared than their which only enable partial emissions reduction
competitors to adapt to changing policies, (as described in Exhibit 7 on the next page).
including rising CO2 prices and potential new
regulations on lifecycle CO2 emissions. This would allow short-term emissions reductions
for both producers and users but would fail
Steel buyers should not compare the purchase of to accelerate investment in the breakthrough
low-CO2 steel with other decarbonisation options technologies that will be indispensable in ultimately
purely on a short-term CO2 abatement cost basis. reaching net-zero emissions. Only a stricter definition
There will likely be lower-cost alternatives to – agreed bilaterally between a producer and a buyer,
achieve incremental CO2 reductions (both in steel or underpinned by a standard recognised across
and other materials) in the short term, but these the industry – can achieve this objective.
will be limited in scale and are unlikely to offer
the value proposition associated with offering Challenge 2: Enabling an initial green premium
a product with low-CO2 steel. Most importantly,
focusing on incremental improvement will not 'First-of-a-kind' investments in breakthrough
help to progress the availability of low-CO2 steel steel production can expect to incur +15-40%
products that they will need in the longer-term. cost increases per tonne of steel, depending on
technology and local circumstances (Exhibit 10).
To provide a clear commercial opportunity for The first production units will usually see increases
the steel buyers and to be effective in unlocking in both capital expenditures and running costs,
investment from steel manufacturers, these given the increased cost of equipment for immature
collaborations must address three challenges: technologies, higher financing costs due to higher
risk, and less optimal operational profiles for first-
Challenge 1: Providing certainty of future demand of-a-kind plants. The total cost increase referred to
as the “green premium”, will be site-specific, as the
Steel buyers can play an important role in enabling cost implications will depend on local conditions
final investment decisions in breakthrough (such as energy costs, proximity to iron ore sources
technologies by providing steel manufacturers and customers, labour costs, etc.) and the overall
and their financiers with greater certainty development of input prices such as the cost of
around a future market for low-CO2 steel. renewable electricity and green hydrogenxxvi,xxvii.
This additional cost is equivalent to an abatement
This can be achieved through different mechanisms, cost of $50-$120 per tonne of CO2 avoided,
described at more length in Chapter III, including assuming the low-CO2 steel is replacing steel
direct bilateral offtakes or public announcements produced in a blast furnace emitting 2.3 tonne
of future purchase. The more buyers’ commitments of CO2 per tonne of steel. It is expected that this
are firm and precise (in volumes, specifications, cost will be reduced to $20-$95 per tonne of CO2
and price), the more effective they will be in avoided in the long term, as the technologies mature
unlocking investment. By lowering risks, demand and full-size production plants are established.
signals could also enable steel producers to
access a lower cost of capital for those projects, However, when looking at the end-consumer
with a favourable impact on the cost differential products, the use of breakthrough steel will
between low-CO2 and conventional steel. represent only a modest cost increase as a
percentage of the overall product cost as per Exhibit
To support the development of breakthrough 11. Using breakthrough low-CO2 steel in a passenger
technologies that can reach zero emissions, any car, a building or a wind turbine is likely to increase
demand-side commitment must be coupled with the cost of the final product by 0.5%, 0.7% or 0.8%
a narrow definition of low-CO2 steel (Box 2 and respectively. Given the magnitude of these costs and
Exhibit 9). If the definition is too broad, it could given the additional potential to market a premium
enable steel manufacturers to meet this new green offer to customers, it is highly likely that this
“green demand” with volumes produced via the additional production cost can be passed on to the
scrap-based EAF route or via production routes end consumers without disrupting the economic
model of companies operating in those value chains.

xxvi  he actual price of steel products is dependent not only on the cost of crude steel but on the level of downstream processing where the crude steel is processed into flat and long
T
products through hot rolling, cold rolling and coating. For example – crude steel costs can range around $400-$500 per tonne (highly depending on the cost of iron ore, coking
coal and other inputs). An automaker can see a price of $750-850 per tonne for a cold-rolled coil of galvanized steel, and a construction company can see a price of $500-550 per
tonne for rebar.
xxvii MEPS International (2021) Europe steel prices
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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

Box 2 – Defining low-CO2 steel

Today, several definitions of ‘low-CO2’, ‘green’ or options. The emissions factor considered should
‘sustainable’ steel are being used interchangeably be adjusted based on the amount of scrap
across the industry. It is important to recognise that steel that is used in production. This “sliding
there is no right or wrong definition, but that each scale” methodology is already proposed by
definition will serve a different purpose. Exhibit 9 ResponsibleSteel: the ResponsibleSteel standard
outlines different approaches and indicates what calculates emissions intensity limits as a weighted
impact those different definitions are likely to average between emissions intensity targets for
have on technology deployments in the 2020s. iron-ore based steel and scrap-based steel.

Definitions based on company-level commitments In this report, we therefore define low-CO2 steel
encourage steel manufacturers to adopt climate- as primary steel which emits less than at least 0.5
aligned decarbonisation strategies but are unlikely tonne of CO2 per tonne of crude steel. Such a low-
to provide enough clarity on future demand for CO2 threshold enables participants to distinguish
low-CO2 steel to underpin early investments in breakthrough technologies from incremental
breakthrough technologies. Various product-based improvements of ore-based technologies and
definitions are likely to support a maximisation of develop targeted interventions to support them
scrap-based production as well as incremental while acknowledging that first-of-a-kind projects
improvements in existing production technologies might not yet reach complete decarbonisation.
in the 2020s but would only support breakthrough This threshold should eventually be tightened,
technologies in the longer term once the potential with a potential sliding scale for low-CO2 steel that
for lower-cost emissions reduction is exhausted would be based on a threshold of, for example,
and carbon-intensity thresholds are tightened. In 0.25 tonne of CO2 per tonne of crude steel for
addition, standards – among them the standard ore-based products to 0 tonne of CO2 per tonne
being developed by ResponsibleSteel – have of crude steel for scrap-based production.
been developed to encompass not only carbon-
intensity and climate criteria, but also broader The carbon-intensity thresholds defined in
environmental, social and governance criteria. this report could inform bilateral agreements
between producers and buyers. They could also
To support the early deployment of breakthrough be reflected in commonly used standards – and
low-CO2 technologies in the 2020s, we believe possibly combined with other sustainability
there is value in focusing some demand signals criteria. ResponsibleSteel has, for instance,
specifically on a narrow definition of low-CO2 suggested for consultation an ambitious A+++
steel, defined by a threshold of tonne of CO2 standard, which could potentially meet the
per tonne of crude steel. This is technology- criteria defined in this paper. This standard
agnostic and continues to encourage competition has, however, not yet been agreed upon.
between different breakthrough technology

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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

Exhibit 9: Possible definitions of low-CO2 steel and suggested approach for breakthrough demand signals.

The demand for green products is indeed The precision with which the price point is defined
increasing in several relevant market segments, between producer and buyer will vary, depending
even if the willingness to pay extra for low-CO2 on the nature of the demand signal (as described
steel remains untested. in further details in Chapter 3).

Market surveys in the construction sector show Challenge 3: Matching supply and demand in
an expected increase in asset value for green specifications and location
buildings. Consumer surveys in the automotive
sector indicate that consumers are prepared to Low-CO2 steel supply and demand must match
pay more for electric vehicles and that the shift not only in terms of volumes but also in terms of
to electric is mainly for environmental reasons.xxviii geography and steel grades in order for the new
We therefore expect that corporates using low- trade flow to increase smoothly. The volumes of
CO2 steel may benefit in terms of a higher price, low-CO2 steel need to be physically delivered to
increased market access or increased consumer the buyers, with co-location of steel production
loyalty as focus shifts over to embodied emissions. and sector-specific manufacturing processes
in the same region likely preferred to avoid
An effective signal from steel buyers to steel additional transport costs. Moreover, to enable
producers will therefore entail an acknowledgement a buyer to put a low-embodied-carbon product
of and commitment to pay for this “green premium”. on the market, the steelmaker must be able to

xxviii A
 utomotive: Deloitte (2020) 2020 Global Automotive Consumer Study (Market study including 35,000 consumer responses across 20 global markets). Construction: Dodge Data &
Analytics (2018) Results of owner's survey

23
 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

Exhibit 10: Cost of production is higher for low-CO2 production routes.

Note: These estimates are highly dependent on input costs, geography and local conditions. The main
conclusion is the range of the expected cost increase. Price assumptions for a selection of key inputs:
Coke $360/t; Coal $85/t, Electricity $70/MWh; Iron ore $75/t; Pellets $125/t; Steel scrap $320/t. Alternative
input refers to replacing fossil-fuel based reductants and fuels with bio-coal or hydrogen.

Source: Material Economics & Energy Transitions Commission’s analysis based on multiple sources, see endnote.xxix

produce the specific steel products its buyer needs. downstream production capacity to meet their
‘Steel’ is a homogenous term for products of over clients’ requirements but may find that demand
3,500 different grades, with unique physical and for low-CO2 steel comes from new rather than
environmental properties. This is partly why there old customers, and therefore need to adapt their
is no universally accepted benchmark reference production accordingly. New entrants face another
steel price traded on an exchange, as there is challenge: they can customise a greenfield plant
for aluminium and other base metals. Moreover, to match customer groups that are likely to pay
procurement practices differ significantly from one a premium but need to develop new commercial
sector to the other – from direct negotiations between relationships with a suitable mix of customers. Value-
mill and consumer to the indirect purchasing of steel chain collaboration will likely be essential to facilitate
contained within a semi-fabricated object. this matching process. In a recent example, the
vehicle and machinery producer Volvo Group and the
A steel manufacturer investing in a new production steelmaker SSAB signed a collaboration agreement
technology must make sure it can provide the on research, development, serial production and
types of product that potential low-CO2 steel commercialisation of products to be produced in
buyers will need in the right location. Incumbent the HYBRIT project which aims to produce steel
producers can choose to continue using existing through the hydrogen direct reduction route.

xxix M
 aterial Economics & Energy Transitions Commission’s analysis based on: CFR Qingdao (2018) Iron-ore index (MBIO); Vogl, V., et al. (2018) Assessment of hydrogen direct
reduction for fossil-free steelmaking; Fischedick, M., et al. (2014) Techno-economic evaluation of innovative steel production technologies; Metal Consulting International (2018)
Electric Arc Furnace Steelmaking Costs viewed May 2021, steelonthenet.com; Metal Consulting International (2018) Basic Oxygen Furnace Route Steelmaking Costs viewed
May 2021, steelonthenet.com; Eurofer (2018) Annual Report 2018; BP (2018) Statistical Review of World Energy June 2018; Metal Consulting International (2018) Met Coke Prices
– Europe 2014-2018 viewed May 2021, steelonthenet.com; Eurofer (2013) A steel roadmap for a low carbon Europe 2050; Global CCS Institute (2017) Global Costs of Carbon
Capture and Storage; Johnsson,F. et al (2020) Marginal Abatement Cost Curve of Industrial CO2 Capture and Storage; Jackson, S., et al. (2017) Optimization of the Energy
Consumption of a Carbon Capture and Sequestration Related Carbon Dioxide Compression Processes; Mandova, H. et al (2018) Possibilities for CO2 emission reduction using
biomass in European integrated steel plants, Biomass and Bioenergy; Van der Stel, J., et al. (2017), Hisarna, an Opportunity for Reducing CO2 Emissions from Steel Industry;
BloombergNEF (2020) Hydrogen Economy Outlook; Slutrapport HYBRIT (2018) Hydrogen Breakthrough Ironmaking Technology Genomförbarhetsstudie Energimyndighetens
projektnr; Elementenergy (2018) Cost analysis of future heat infrastructure options; Schmidt, O., et al. (2017) Future cost and performance of water electrolysis: An expert
elicitation study; Expert interviews.

24
 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

Exhibit 11: A shift to low-CO2 steel in viable sectors can lead to a significant reduction of emissions at a modest
cost to the consumer.

Source: Material Economics & Energy Transitions Commission’s analysis based on multiple sources.xxx

An alternative to this matching process would be product while providing certainty to buyers that the
to ‘dematerialise’ the low-CO2 steel transaction. volume of low-CO2 steel purchased has truly been
The development of a low-CO2 steel certificate produced and used somewhere in the steel value
would allow the associated CO2 abatement to be chain (similar to renewable energy certificates).
traded separately from the physical delivery of the

xxx  remium considered for a cost increase in steel of $130/t of steel. Source: Cullen et al (2012) Sustainable Materials with Both Eyes Open; Allwood et al (2012) The flow of steel into the
P
construction sector; BloombergNEF (2020) Elevtric Vehicle Outlook, Siemens Gamesa(n.d.) Environmental Product Declaration SG 8.0-167 DD, Vestas (2017) Life Cycle Assessment of
electricity production from an Onshore V136-3.45 MW Wind Plant, IRENA (2020) Power generation costs; IEA ETP (2020) CCUS in clean energy transitions, Steel Construction Institute
(n.d.) The free encyclopedia for UK steel construction information. Available at: www.SteelConstruction.info (Accessed May 2021)

25
 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

Chapter 3
Developing demand signals to bring low-CO2 steel to market

The previous chapter outlined the need to bring A direct signal involves an actual agreement
low-CO2 primary steel to the market at scale between a steel buyer and a specific steel
and the rationale for steel buyers to proactively supplier, intended to give the steel company the
support this development. Demand signals, certainty needed to invest in a breakthrough
when properly structured, can address the key production route and the steel buyer the
obstacles that currently slow down investment in assurance of access to a particular volume of
breakthrough technologies while allowing buyers low-CO2 steel meeting its specifications.
to reap the benefits of early access to low-CO2
material input in a fast-moving market. Multiple • Direct demand signals can take the form of
ways of signalling demand for low-CO2 steel can bilateral offtake agreements which, in the case
be envisioned – from direct offtake agreements of new steel production technologies, define
to a more general public statement of intent the terms of the transaction several years in
to address CO2 emissions in the supply chain. advance. This type of agreement is frequently
Buyers’ commitments that are firm and precise used in the energy sector, where large electricity
(in volumes, specifications and price points) will consumers commit to purchase electricity
generally be more effective to unlock investment in from a certain plant, through Power Purchase
breakthrough technologies – and will likely benefit Agreements (PPA), years before it is built. For
the companies that issue them more extensively steel, such a clear and actionable demand signal
by enabling them to secure access to initial can likely be sent only by certain companies that
volumes in a scarce market, negotiate potential directly procure large amounts of steel, such as
commercial upsides directly with producers, and automotive OEMs, some renewable energy OEMs,
achieve greater marketable value. However, the and companies in industrial manufacturing.
nature of the demand signal that steel consumers
can send to producers will depend on the value • In the case of direct steel purchase, procurement
chain and each stakeholder’s position within it. teams typically enter direct negotiations with
multiple mills, covering aspects including
This chapter describes three possible technical specifications of the steel product,
models of demand signals, before exploring price premium, credit terms and logistics. Early
how they could be implemented, taking the procurement of low-CO2 steel would likely
examples of the automotive and construction have to be defined as a strategic priority within
sectors. In practice, corporates may adopt the company to drive changes in procurement
an evolving hybrid approach starting with practices. Indeed, as highlighted in earlier
an indirect demand signal and progressing sections, low-CO2 steel will initially have a
toward a more direct intervention model. green premium attached to it, which could
deter purchase under normal circumstances.
i. The basic elements of a low-CO2 steel Generic CO2 emissions reduction criteria could
demand signal be insufficient to orient procurement toward
breakthrough technologies, as there can be
A demand signal for low-CO2 steel can take three CO2 emissions reductions alternatives in the
basic forms – direct offtake, a future purchase supply chains with a lower short-term cost,
commitment and an indirect demand signal. These but less strategic upside potential. Only a
are complementary and steel buyers can engage specific strategic commitment at executive
in a combination of all three; however, some level can incentivise procurement teams to
demand sectors are more likely to use more direct focus on a narrow definition of low-CO2 steel.
signals as they have the pre-requisites in place.

26
 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

• Direct demand signals can also take the form of private and public stakeholders) across complex
a co-investment between a steel manufacturer value chains, even if they do not purchase steel
and a steel buyer in a joint venture. This would directly from steel companies but rather purchase
represent a higher initial risk, but a greater ability steel-made components from intermediaries.
to shape the market and a bigger potential for
future upside for steel buyers making an early • As this signal does not provide certainty of offtake
strategic move into low-CO2 steel. There have to a steelmaker, it is not as firm as a direct signal
been recent announcements of co-investments to underpin the business case for investment.
in breakthrough steel technologies, including for However, this approach can help grow the future
instance in early 2021 from Scania and BMW. Joint market for low-CO2 steel more rapidly than
venture models between material producers and would be feasible by leveraging direct offtake
buyers have been successfully implemented for agreements from major direct steel purchasers
other materials and components in the past years, only. If significant volumes can be demonstrated
including for aluminium and batteries (Exhibit 13). (ideally volumes as high or higher than the total
production of low-CO2 steel currently foreseen
A future purchase commitment, on the other for 2030), it could give steel producers and
hand, is not directed to any specific supplier, their financiers enough confidence in the scale
but instead indicates a willingness to buy low- of future markets to unlock investment.
CO2 steel, to the supply market as a whole.
• This confidence will be raised if indirect
• This model will likely be used by companies commitments down the value chain are combined
purchasing steel directly to send an early with dialogues with suppliers to encourage
demand signal ahead of evaluating their needs a greater number of direct steel buyers even
precisely, assessing different supply options in complex value chains (e.g., equipment
and entering direct purchasing agreements with manufacturers) to send direct demand signals.
their preferred vendor(s), which will enable them
to lock in volumes, specifications and prices. • It will generally be more difficult for a consumer
in a fragmented supply chain to impose a narrow
• Future purchase commitments enable companies definition of low-CO2 steel on their suppliers
that still face significant uncertainty with unless they have a high purchasing power and/
regards to the scale and characteristics of their or a particular importance in the value chain. An
future steel demand – for instance, white good example of this is Apple’s recent directives on the
producers with rapidly evolving product lines use of secondary metals within its supply chain.
– to call on steel manufacturers to anticipate However, full transparency on lifecycle emissions
an increase in future demand for low-CO2 steel across those value chains can help consumers
while keeping flexibility in their procurement. navigate the market and orient their purchases.

• To be effective in unlocking investment in low- Buyers’ initiatives – both private-sector initiatives
CO2 steel production, though, those commitments like SteelZero and public-sector initiatives such
should be made public and ideally aggregated as the public procurement effort being shaped
with commitments from other producers, via by the Clean Energy Ministerial – will play an
a buyers’ campaign like SteelZero,xxxi to create important role in orchestrating indirect demand
enough confidence on the scale of future markets. signals. These initiatives can aggregate dispersed
committed volumes to provide a stronger signal to
Finally, indirect demand signals can be sent by a the steel market. Furthermore, they can serve to
much broader pool of organisations that operate align stakeholders on a joint definition of low-CO2
across complex value chains to indicate a willingness steel which establish a clear goal for breakthrough
to decarbonise their supply chains and encourage technology developments. As shown in Box 2,
their suppliers to engage in green steel demand. this definition of low-CO2 steel would be ideally
framed as <0.5t CO2 per tonne of crude steel and
• This type of market signal can be sent by a much trending towards the target level of <0.25t CO2.
broader pool of organisations (including both

xxxi S teelZero is an initiative run by Climate Group in partnership with Responsible Steel to drive demand to low-CO2 steel together with companies that purchase large
amounts of steel. Corporates joining SteelZero must commit to procure 100% low-CO2 steel by 2050 and to procure a share of certifies steel by 2030.

27
 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

Exhibit 12: There are various options for orchestrating demand signals across value chains for low-CO2 steel.

Exhibit 13: Value-chain-based industrial partnerships have already been demonstrated in a number of markets.

Source: Company public announcements and news reports.

28
 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

To give concrete examples of how direct offtake 4) Optionality to handle uncertainty

agreements and future purchase commitments
5) Nature of the transaction
can be set up, we delve into more detail in the
automotive and construction sectors below. These design parameters will need to be defined
Those examples present commonalities with and negotiated in bilateral discussions between
other sectors and are meant to inspire action a steel buyer and a steel supplier. They should
from a range of stakeholders, even outside of be defined not with a zero-sum mindset, but
those value chains. The white goods sector has one seeking mutual benefits. There are several
strong similarities with the automotive sector options within each design parameter, and no
(industrial processes with closer relationship with strict ‘one size fits all’ solution. They will generally
steel manufacturers, relatively stable demand for entail a deviation from standard procurement
steel and geographically tied to a manufacturing practices and will therefore require buy-in and
location), while the renewable energy sector steering from the companies’ leadership.
operates more like the construction sector (project-
based industries with a distant relationship with 1) Demonstrable climate benefit
steel manufacturers, volatile demand for steel). of commercial value

ii. How a direct demand signal could The bilateral offtake agreement should set out a
be set up: The automotive example narrow definition of low-CO2 steel. As discussed
in Box 2 above, a clear definition of low-CO2 steel
Five design parameters should be considered when with a low-CO2 emissions threshold (in the order
developing a direct demand signal to maximise initially of <0.5 tCO2 per tonne of primary steel
benefits for both steel supplier and buyer: but trending over time to below 0.25 tCO2) will
be more effective to bring forward breakthrough
1) Demonstrable climate benefit
technologies and yield marketing value for the
of commercial value
buyer. The exact emissions limit can be the subject
2) Offtake to enable investment certainty of a discussion between supplier and buyer and
3) Premium proportional to production would ideally be as close to zero as possible.
cost increment The steel delivered as part of such a contract
must bear proof of the CO2 intensity of the process

Exhibit 14: Five design parameters for efficient direct demand signal set-ups.

29
 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

(e.g., through a certificate, an Environmental million tonnes of steel. The necessary volume
Product Declaration (EPD) or verification by an commitment for one plant could come from a
appropriate standard setter). Using an industry- single company, or a small group of companies,
defined standard is in principle preferable, if that each agreeing bilateral offtake agreements with
standard provides a level of certification with a low the same steel producer. The latter option is more
enough CO2 threshold to incentivise breakthrough likely as few companies would have the capacity
technology developments, as it provides greater to absorb 1 million tonne of low-CO2 steel a year
clarity and comparability to buyers and end – this tonnage would equate to the production
consumers. Moreover, a standard like Responsible of at least 2 million cars per year.xxxiv Having
Steelxxxii would have the additional advantage of multiple off-takers also constitutes a risk-sharing
including other dimensions of the sustainability mechanism for these low-CO2 steel projects.
agenda (including socioeconomic issues).
The purchase commitment should have a
In addition, for a steel buyer to be able to long, clear timeframe. By agreeing on a future
market its products as “using carbon-free purchase at least 5 years in advance, the steel
steel”, the steel manufacturer needs to be able supplier can make sure that the lead time for
to meet the technical specifications for most investment in the new steel production process
components in the product. For automotive, is appropriately planned for, the buyer can
the priority is likely to be body-in-white,xxxiii as build the introduction of low-CO2 steel into its
that steel is generally procured directly by the product launch cycle, and supplier and buyer
OEM and makes up 40-50% of total steel use in can jointly ensure that all necessary product
a car. However, the body-in-white in a car can development and testing is done ahead of time.
contain up to ten different grades of cold-rolled For steel buyers, marketing benefits might be
steel. The steel supplier would also ideally be reaped even before the product launch.
able to provide appropriate grades required for
the other steel-made components of the car. The purchase commitment should ideally last at
least seven years from the start of production.
An additional difficulty arises for products with For OEMs, this corresponds to a normal
complex manufacturing processes: automotive model cycle timeframe. For steel producers, it
OEMs source roughly 70-80% of the steel used corresponds to the possible duration of a long-
in a car indirectly, through their component term bank loan. Lenders to breakthrough steel
suppliers. This adds a layer of complexity for the mills will consider the offtake agreements as a
development of an offtake agreement that brings key de-risking mechanism ahead of a financing
maximum commercial value to the steel buyer: agreement. After entering such a bilateral offtake
to meet its goal of a truly low-CO2 car, the OEM agreement, the automotive OEM will therefore need
would have to work closely not only with the steel to give up the flexibility in pitching several suppliers
manufacturer but also with component makers against each other for a certain period but will
to direct them to buy low-CO2 steel. Fortunately, be able to maximise the commercial opportunity
OEMs have a tradition of close collaboration related to strategic purchasing of low-CO2 steel.
with suppliers and can set requirements
on origin of and CO2 limits on components 3) Premium proportional to
through ‘house standards’ for suppliers. production cost increment

2) Offtake to enable investment certainty To underpin investment in breakthrough

technologies that will be costlier than the
A direct offtake should ideally include a volume high-carbon alternative, at least initially, the
commitment giving the steel producer sufficient agreement between producer and supplier should
certainty of future demand to invest in the new include a premium price. As an example, for the
production technology. In total, this volume automotive industry, the introduction of low-CO2
should be sufficiently large to invest in a plant steel will likely represent an additional cost – or
of commercial scale, which can be around 1 “green premium” – on a vehicle’s bill of materials

xxxii R  esponsible Steel is an organization developing new standards and certification on responsible and sustainable steel. Responsible Steel standards are developed in close
collaboration with industry and environmental, social and governance issues, including climate action.
xxxiii Body-in-white (BiW) is the name given when all the components of a car—barring moving parts or chassis subassemblies—have been welded together but not yet painted.
xxxiv O n average ~1 tonne primary steel needs to be procured for a medium sized car, assuming 50% to be low-CO2 primary steel. Based on WorldAutoSteel (2017) UCSB Energy &
GHG Model v 5.0

30
 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

of around $100-$250 per finished car. At the low-CO2 steel certificate being sold to the buyer
consumer level, this would represent less than irrespective of physical transactions. For most
1% of the Manufacturer Suggested Retail Price buyers, physical delivery is likely to be more
of a typical compact battery electric vehicle. attractive: it ensures that the material used in their
product is low-carbon and facilitates marketing.
There are several options for producers and However, stakeholders with a strong interest
buyers formulating such a premium in a contract. in the decarbonisation of the steel industry, in
The price could be agreed on a fixed long-term particular public policymakers, could be open to
basis, based on a steel index with an agreed dematerialised transactions. These would enable
green premium on top, or it could entail a “cost- them to encourage emissions reduction in steel,
plus” model with an open book approach. Price by leveraging public procurement of infrastructure
linked to a steel index with a green premium on projects, without being constrained by the
top could be an attractive model for both buyers geographical limits of a physical transaction.
and suppliers. Prices on high-end steel products
can already be based on a market price for a basic iii. How a future purchase commitment
product (such as hot-rolled coil), with a premium could be set up: The construction example
depending on the quality and content of the final
product (alloys, coatings, etc.). This model ensures Future purchase commitments can de-risk
that the price paid by the buyer is somewhat linked investment decisions for steel producers.
to the price that their (non-green) competitors Many steel users, in particular those operating
pay. This could, however, result in an increased in fragmented value chains purchasing steel
risk for the steel producers, which would face a indirectly and with relatively low or variable
different cost base than competitors operating purchase volumes, would be unable to deliver a
based on conventional technology. As explained direct demand signal as described in the previous
below, optionality can help mitigate that risk. section. What a future purchase commitment
would lack in specificity, it can make up for in
4) Optionality to handle uncertainty scale. It enables a demand signal for low-CO2
steel to come from a potentially much bigger pool
The pricing mechanism agreed between supplier of steel users, including stakeholders down the
and buyer could be complemented with a price value chain that are several steps removed from
adjustment based on important input parameters the steel purchase stage (such as corporates
(e.g., electricity and hydrogen costs, available owning or renting newly built office buildings).
policy support). This would both enable the steel The nature of the signal sent by corporates to
supplier to hedge against increases in input prices the steel market may evolve – from an indirect
and the steel buyer to benefit from any upside (for statement of intent to secure low-CO2 steel
instance if public financial support schemes were into a direct bilateral offtake as clarity of the
put in place after the initial purchase agreement mechanics of a supply chain is achieved.
was established). The parties can agree on a way
to divide both potential risks and benefits. Given The construction sector offers such an example.
that price and premium negotiation will take place As the biggest market for steel globally, it could
several years ahead of the actual steel purchases, offer a significant volume of transaction of low-
a higher level of uncertainty on future input costs CO2 steel. However, it is a fragmented market with
would justify such optionality. As mentioned above, long supply chains, where a direct demand signal
a direct demand signal can also be combined is unlikely to emerge. From the moment that steel is
with the buyer taking an equity stake in the low- melted at the mill to the point it reaches the end-
CO2 steel venture, which would entail greater consumer (the developer or owner of the building),
exposure to both potential risks and likely upsides. steel can be transacted many times: from the mill
to stockholders, then to steel fabricator who welds
5) Nature of the transaction the pieces and components, to a subcontractor that
works for the main contractor who finally delivers
The nature of the transaction between producer the building to the developer. The structure is often
and buyer should be defined in the contract. designed, and the steel specified, by an external
The transaction could take two forms: physical consultant, following design guides from a public or
delivery of the low-CO2 steel to the customer non-profit organisation. In most cases, the ability
or dematerialisation of the transaction, with a to extract a commercial value from low-CO2 steel

31
 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

sits with the developer, whereas the purchasing incentivise the use of lower-carbon materials
decisions sit with the contractor, influenced by adapting their public procurement criteria
by specifications from external consultants, accordingly and encouraging similar practices
engineers, and architects. As a result, few players from public organisations that depend on
would hold both major steel purchase volumes them (such as transport authorities). Some
and the ability to shape the market by imposing governments have already taken initiatives to
the use of costlier low-carbon materials on address steel emissions in their procurement
downstream players. Stakeholders up in the value practices (for instance, California through its
chain might be most incentivised to use “green Buy Clean programme, or the Swedish Transport
materials” (public procurement departments, Administration – Exhibit 16). However, most of
leading global corporates owning or renting these initiatives incentivise energy efficiency
buildings, etc.), but rarely purchase steel directly improvement, incremental emissions reductions,
to manufacturers and do not alone represent a and increased use of recycled steel; we are not
sufficient volume to create a strong demand signal. aware of public procurement policies targeted
to incentivise investment in breakthrough steel
However, combined action from a critical mass technologies. Such practices could take the form
of stakeholders across the construction value of commitments on quantities of low-CO2 steel
chain could send a powerful demand signal by purchased for specific construction projects. To
demonstrating the existence of a significant represent a relevant volume for steel producers,
market for low-CO2 steel. Many stakeholders though, commitments from several public sector
could send the signal to their supply chains organisations would have to be aggregated. The
that they value low-CO2 steel (Exhibit 15). Swedish Transport Administration example in
Exhibit 16, even though not singling out low-CO2
• In this value chain, public procurement can play primary steel, have set a CO2 price in tenders that
a major role in creating markets for innovative is sufficiently high to incentivise low-CO2 primary
products. Governments committed to climate steel (compare to the CO2 price corresponding
targets have a strong interest in helping the to the green premium described in Chapter II).
steel industry decarbonise, while also ensuring This is a method that individual organisations can
that production and jobs remain local. As use to send a strong indirect signal as it signals
major buyers of buildings and infrastructure, there is a willingness to pay a green premium
national and local governments alike can and thus a market for early low-CO2 steel.

Exhibit 15: Demand signal can come from across the entire construction value chain.

32
 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

Environmental Product Declaration (EPD)

Exhibit 16: The Swedish Transport Administration has built strong incentives into their procurement process.

Source: The infrastructure sector climate transition, Trafikverket (2021) and Expert Interviews.

• In parallel, developers, designers, contractors, already done as part of the SteelZero initiative).
and subcontractors can also commit to lowering They can also play a key role in creating the
their embodied emissions – and, if they are big necessary tools and capabilities to provide
enough to shape contractual relationships, traceability of CO2 emissions across a complex
to purchase certain volumes of low-CO2 steel supply chain and facilitate green procurement
produced via breakthrough technology routes. practices, and in establishing sectoral
decarbonisation roadmaps that can inform
- Developers, in particular, are key decision- both steel producers upstream and developers
makers, as they set the brief for designers downstream about the potential pace and
and the tender for contracts and can therefore scale of low-CO2 purchase in the value chain.
operationalise commitments by setting design
requirements and/or tender incentives. The To increase the effectiveness of the future
tender incentives can initially be in the form of purchase agreement, coordination within
a price on CO2. This would offer flexibility to value chains would be recommended. Industry
bidders, as those without access to low-CO2 steel consortia, private buyers’ clubs or green public
could still apply, and would incentivise emissions procurement campaigns would usefully aggregate
reductions in steel production; but, it would demand for low-CO2 steel and provide a headline
not provide targeted support to breakthrough number to the steel sector. They could also
production routes. However, requirements on establish an agreement across the value chain
the share of low-CO2 steel in total use could on a single definition of low-CO2 steel and
also be envisioned if they were announced with influence voluntary standards like LEEDxxxv and
enough notice for bidders to anticipate those new BREEAMxxxvi to include incentives for low-CO2
requirements in their own purchasing practices. steel. LEED and BREEAMare voluntary green
building standards that certify buildings in grades
- Contractors, designers, and steel fabricators based on varied sustainability criteria. In the past,
are less likely to have the power to set precise incentives for the usage of natural materials in
low-CO2 purchase requirements for the projects LEED v4 was, for instance, a major lever for the
they are involved with, but they can advertise adoption of cross-laminated timber (CLT) and
more general climate commitments (many have glue-laminated timber (Glulam) in construction.

xxxv Leadership in Energy and Environmental Design

xxxvi Building Research Establishment Environmental Assessment Method

33
 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

Chapter 4
A call for action

As the need to deeply decarbonise becomes from a criteria-based sourcing exercise to a

increasingly pressing for both steel producers strategic supply chain development approach.
and steel users, both sets of stakeholders will This approach will enable corporates to develop
look for solutions to reduce their CO2 emissions an innovative “green value proposition” for
in the short term and prepare for deeper cuts customers and shape the longer-term competitive
in the 2030s and 2040s. Primary low-CO2 (and edge of the company. In many cases, this
eventually carbon-free) steel production will be strategic direction needs to come from executive
essential for all stakeholders to reach voluntary management to procurement teams that would
and regulatory climate targets by 2030 and otherwise struggle to address breakthrough low-
beyond. This challenge represents a significant CO2 steel purchase through existing practices.
business opportunity and the next 5 years are a This strategic direction can be communicated
critical window to invest, given the lead time of broadly to steelmakers and be the basis for direct
technology development. Early movers among offtake agreements.
producers and buyers, stand to benefit from
proactiveness. Steel buyers in particular will be • For steel buyers not engaged in direct
able to secure access to a scarce high-value bilateral negotiations: Engage in the buyers’
commodity, seize the commercial opportunity of club initiatives that will be set up for low-
a “green premium market” before competitors CO2 steel (e.g., SteelZero), and commit to
catch up and pre-empt regulatory changes thereby as large volumes as possible. Steel users in
avoiding potentially costly disruptions in supply complex value chains will require access to
chains. However, as the technologies are not yet low-CO2 steel production to meet voluntary
available and remain higher-cost than the high- and regulatory embodied emissions targets.
carbon alternative, action is needed. Direct offtake They will struggle to access low-CO2 steel
agreements and future purchase commitments without some form of coordination with other
are critical to provide the confidence needed to stakeholders to send a sufficiently strong
unlock the flow of investment and technology. signal in terms of volumes, and to establish a
consistent mechanism for tracing embodied
Based on interviews and exchanges with CO2 emissions and to standardise procurement
stakeholders across the steel-using value practices. Aggregating demand in this fashion will
chains, we believe that a small number of increase the volumes demanded from the steel
critical steps must be taken in the next few industry and hence support the business case
years to realise the commercial opportunity of the necessary investment. Individual indirect
that low-CO2 steel represents: steel buyers can also send a strong unilateral
signal through supply chains by demonstrating
i. Two critical actions for steel buyers a willingness to pay the green premium.

• For large, direct steel buyers: Engage in bilateral ii. Two critical actions for steel producers
value-chain cooperation initiatives, using
the significant predictable demand to unlock • Engage with high volume customers to develop
upstream investments and accelerating the the necessary value-chain collaboration. Better
transition to zero. This report has described the understanding of the context, challenges and
expected commercial benefits for early movers opportunities across key value chains and a clear
in the demand sectors who can secure the first articulation of what steelmakers need to see from
(scarce) volumes of low-CO2 steel ahead of their the demand side to bring investments forward in
competitors. Seizing those opportunities requires time are required first steps for demand signals
a transformation of procurement practices, to be developed. Through long-term strategic

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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

fact-based discussions, the joint benefit of a announced, bringing forward and aggregating
new way of procuring steel can be established. commitments from governments and public
agencies across several regions of the world.
•D
 efine, in conjunction with customers, the
specifications required to underpin investment • Decrease the risk for first-mover bilateral
in breakthrough low-CO2 steel. To be effective agreements on low-CO2 steel. We have in this
in unlocking investment in breakthrough paper described models to set up bilateral
technologies that can reach near-zero-emissions, offtake agreements. These will entail handling
demand signals need to be designed to considerable risks that come with making
specifically support projects with high emissions early commitments and will be challenging
reductions potential – rather than just incremental to negotiate. Policy can help by assuming a
emissions reductions. Many climate targets from portion of that risk. Two clear such actions
downstream players are at risk of being too broad would be to: 1) Give CAPEX support that would
to create demand for low-CO2 steel. Agreeing correspond to the public innovation value of
on a joint definition of such a stringent CO2 bringing these technologies to commercialisation.
emissions threshold – possibly via the definition 2) Decrease the OPEX risk in taking a forward
of a new standard level within the existing position (what happens when commodity
ResponsibleSteel framework – would facilitate the prices such as CO2 prices, etc. fluctuate) by
implementation of appropriate demand signals. introducing Carbon Contracts for Difference.

iii. Four critical actions for policymakers • Set lifecycle emissions standards for key steel-
& public organisationsxxxvii using products, with ambitious targets from
2030 onward. Although voluntary demand
• Continue to provide a supportive R&D signals will be essential to bring breakthrough
environment to foster innovation in the technologies to market by 2030, the scale-up
steel sector. Disruption of the steel industry of low- and eventually zero-carbon primary
on the scale required to produce the low- steel production in the 2030s will depend on the
CO2 steel volumes required in pathways creation of a much wider market for low-carbon
such as the recent net-zero by 2050 IEA materials. Lifecycle emissions regulations on just
reportxxxviii will require innovation derived a few steel-using value chains, in particular, the
from both public and private R&D efforts. automotive, construction and white good value
chains – for which energy efficiency standards
• Use public procurement to create early markets already exist and could be expanded relatively
for low-CO2 steel between 2025 and 2030. easily – will likely be a key instrument to fast-
National governments, local governments and track deployment of low-carbon materials.
public agencies represent a significant share of
total demand in key sectors like the construction iv. One critical action for civil society
sector. Existing commitments to reduce lifecycle
emissions of public works and buildings will • Customers advocating and opting, where
be insufficient to unlock investment in the possible, for products containing low-CO2
required steel breakthrough technologies. The steel over comparable products would serve
public sector can play a critical role in providing to send a clear signal across the steel value
demand at a premium price for the very first chain. Increasing awareness among end-
volumes of low-CO2 steel by committing to consumers of the benefits of low-CO2 steel
purchase certain volumes of primary steel and of the embodied emissions in buildings,
with narrow carbon-intensity specifications vehicles, white goods, etc. could increase
between 2025 and 2030. Alternatively, demand for products differentiated based
applying a CO2 price in tenders that would be on the emissions of the contained steel.
sufficiently high to incentivise breakthrough This will serve to increase the investment
primary steel in that narrow carbon-intensity rationale for breakthrough technologies.
band. COP26 offers an opportunity for a major
“green steel procurement” campaign to be

xxxvii A  broader set of policy interventions is required to drive the decarbonisation of the steel industry at an appropriate pace to meet the climate objectives set in the Paris
Agreement. Those will be addressed in a separate brief from the Net-Zero Steel Initiative. This paper focuses exclusively on how policymakers can create higher volumes
of demand for low-CO2 steel.
xxxviii IEA (2021) Net-zero by 2050 – a Roadmap for the Global Energy Sector

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 Steeling Demand: Mobilising buyers to bring net-zero steel to market before 2030

Acknowledgements

The team that developed this report comprised: Matthew Pelletier and Soledad Reeve (Government
of Canada); Maria Sandell (JM); Gökçe Mete
Faustine Delasalle, Alasdair Graham, Martin (LeadIT); Cate Harris (Lendlease); Alberto
Naughton, Francisco Pereira, Caroline Randle and Xodo (LME); Stephan Smith (Multiplex); Hitoshi
Andreina Perez (Energy Transitions Commission) Dohnomae (Nippon Steel); Ivan Guschin, Nikita
and Per-Anders Enkvist, Per Klevnäs, Anders Ahlen, Vorobyev and Pavel Trunin (NLMK); Anders Holst
Anders Falk and Leonardo Giustiniani (Material Nymark, Anders Kirkeby Larsen, Maria Virginia
Economics) with support from Julia Reinaud, Dundas and Simon Juul Toft (Ørsted); Göran
Trisha Miller, Philipp Offenberg, Cristina Shoffner Nyström and Katarina Kangert (Ovako); Robin
and Krzysztof Ignaciuk (Breakthrough Energy). Bergstrand and Simon Downes (Rio Tinto); Yvan
Chastel (Renault); Jonathan Grant (RTHQ); Ivano
The team would like to thank the experts who Miracca (Saipem); Alexander Heck (Salzgitter-
have contributed to the steering of the project: Ag); Agrafena Kotova, Elena Korotkova, Maxim
Semenovykh and Olga Kalashnikova (Severstal);
Chris Poirier and Cooper Rinzler (Breakthrough Ben Taylor, Charlotte Blommestijn, Enno Ogniwek
Energy Ventures); Christian Spano (CIFF); and Oleksiy Tatarenko (Shell); David Mason
Rebecca Dell (Climate Works); Ben Jones and Steve Clem (Skanska); Rodger Schwecke
(CRU); Chris Beauman (EBRD); Chris Bataille (Socalgas); Jesper Kansbod, Jonas Larsson,
(IDDRI); Alison Lucas and Matthew Wenban- Martin Pei and Thomas Hörnfeldt (SSAB);
Smith (ResponsibleSteel); Lucy Kessler and Louise Goding and Marta Berglund (Swedish
Thomas Koch Blank (RMI); Jenny Carson and Government); Andreas Jensen (Swedish Pension
Jenny Chu (The Climate Group); Tomas Wyns Fund); Håkan Johansson, Sofia Miliutenko and
(VUB); Eleni Kemene, Jörgen Sandström and Susanna Toller (Swedish Transport Authority);
Renée Van Heusden (World Economic Forum). Annemarie Manger, Ashok Kumar, Debashish
Bhattacharjee, Nick Silk, Madhulika Sharma,
The team would also like to thank the many Paul Sanjeev, Peter Hodgson, Peter Quinn, Pieter
industry experts from across the steel value chain Roelofsen, Samar Snokhla, Sander Heinhuis
who have contributed to this project, including: and Serkan Sarioglu (TATA Steel Europe); Erika
Mink-Zaghloul, Gunnar Jungk and Sandra Reus
Frank Peter and Oliver Sartor (Agora (Thyssenkrupp); Pascal Siegwart (TotalEnergies);
Energiewende); Catarina Paulson (Alfalaval); Calum Alex Dinsdale, Christopher Diskin, David Casey,
Baker and Richard Herselman (Anglo American); Felicity Martindaly, Mateus Mendonça and Phoebe
Alan Knight, Annie Heaton, Carl De Mare, Javier Bendall (UK Government); Juliana Ferreira,
Bonaplata and Nicola Davidson (ArcelorMittal); Marcio Senne and Ricardo Montealto (Vale);
Alexander Cruz (Baker Hughes); Amit Agrawal Anna Denell (Vasakronan); Mikael Nordlander
and Justus Loebler (BMW); Adam Rauwerdink (Vattenfall); Allan Korsgaard Poulsen, Lisa
(Boston Metal); Nicola Grady-Smith (BP); Ian Malmquist Ekstrand and Rasmus Boizas (Vestas);
Hayton, Jules Besnainou and Louis Brasington Arne Lummerzheim, Daniel Goehler and Rainhold
(Cleantech Group); Katrin Bauer, Rasmus Troester Reisich (Volkswagen); Pär Jacobson, Rahand
and Sebastian Heibel (Daimler); Cecilia Nord and Nawzar, Richard Johansson and Simon Buckingham
Karl Edsjö (Electrolux); Claudia Baerwolff and (Volvo Cars); Eva Bennis and Gustav Svärd (Volvo
James Shih (Fluor); David Ollier, Ed Heath-Whyte, Group); Åsa Ekdahl and Clare Broadbent (World
James van der Graaf and Tiziana Defeo (GFG Steel); Diego Phillips (WSP); Christine Betz (ZF).
Alliance); Caitlin Swalec and Ted Nace (Global
Energy Monitor); Benedikt Krings, Fabian Lenz
and Lukas Romanowski (Goldbeck); Jon Makar,

36
July 2021
Version 1.0

Steeling Demand:
Mobilising buyers to bring net-zero
steel to market before 2030

Supported by Breakthrough Energy An analysis by Energy Transitions Commission and Material Economics
for the Mission Possible Partnership's
Partnership Net-Zero
Net-Zero
Steel
Steel
Initiative
Initiative