What exactly is “Green Steel”?

“Green steel” has been THE buzzword in the steel industry and will remain so in 2023. But what does it actually mean? Two novel concepts have been published as a first step towards an industry-wide product definition and they both have their pros and cons. ResponsibleSteel further expands the conversation towards an asset-level approach for fully sustainable steelmaking.

The steel industry is one of the most carbon intensive industries in the world and makes up ~7% of global CO2 emissions. The prevalent solution mentioned in almost every strategic discussion: “Green Steel”. But what does this buzzword actually mean? As of today, there is no universally accepted definition for it and it is mostly used to describe steel products that embody some form of more sustainable production (e.g., high recycling rate or green energy usage).

However, a few approaches towards defining and categorizing it have been published in recent months. In this blog post, we want to introduce these approaches and shine light on some of their pros and cons:

What determines the “greenness” of steel?

On the one hand, the total product carbon footprint (PCF) including upstream scope 3 emissions is considered as the guiding KPI for assessing “how green” a steel product can be. This KPI needs to be determined via a thorough cradle-to-gate life cycle analysis (LCA) along a globally accepted standard (e.g., ISO 14067) and followed by a 3rd party verification of that LCA. 

On the other hand, multiple other ESG criteria (social justice, human rights, no child labour, other environmentally damaging factors like water consumption or land use, circular economy, etc.) should be accounted for to holistically evaluate the “greenness” of a steel product.

Two novel concepts for categorizing “green steel”

Recently, two concepts for categorizing “green steel” have been published: First, a 1-dimensional concept from Klöckner&Co and second, 2-dimensional concept by the German Steel Federation.

Klöckner&Co published a 1-dimensional concept that separates steel products into 5 categories from “start” to “prime” (See Illustration 1). This categorization is solely based on the total PCF of the steel product including scope 1, 2 and 3 upstream emissions. Therein, Klöckner & Co does not accept carbon offsetting or crediting and specifically emphasizes the importance of external certification. The carbon load threshold values were determined by evaluating different production methods and their respective performance limits.

Illustration 1

Image source: www.kloecknermetals.com

The German Steel Federation published a 2-dimensional concept that defines 5 labels for “green steel” from A to E (See Illustration 2). This labeling is based on two parameters: The total PCF of the steel product including scope 1, 2 and 3 upstream emissions and the share of steel scrap (in %) used to produce the final steel product. According to the German Steel Federation, the main reasoning behind including the scrap share is to introduce a control mechanism for the availability of steel scrap. Critics may call this a “punishing effect” for increasing scrap rates.

Illustration 2

Image source: www.stahl-online.de

What are the pros and cons of the two concepts?

Measurability & comparability: The 1-dimensional concept appears easier to understand and makes direct comparisons between steel products more effective. Problematic is that in the 2-dimensional concept, a steel product with a higher PCF but lower scrap share could receive a better label than a steel product with a slightly lower PCF but higher scrap share. Furthermore, the need to measure the scrap share on a product level increases the complexity of the labeling via the 2-dimensional concept. 

Emission reduction: Overall, both concepts primarily focus on reducing the PCF of the steel product. However, in the 2-dimensional concept, increasing the scrap rate, which is known as a simple yet effective emission reduction method, is somewhat “punished”. Therefore, faster short term emission reduction via higher scrap shares may be hindered to some extent while it is promoted more strongly in the 1-dimensional system.

Scrap availability: Scrap supply is expected to increase in the short- to mid-term but not at the rates needed to fully cover the future demand for scrap. Thus, introducing a control mechanism seems sensible and may further help curtail the expected price increase. Hence, the 1-dimensional concept can be expected to more strongly increase the demand and price for scrap as it is the most simple way to reduce the PCF.

Incentive for other investments: Increased recycling rates by itself will not be sufficient to solve the decarbonization challenge in the steel industry. On the one hand, the “punishing” effect for increasing scrap rates in the 2-dimensional concept may spike further incentives for other reduction methods (e.g., adjustments in the production pathways, changes to energy sources or switches to more sustainable raw material suppliers). On the other hand, the relatively high threshold values at low scrap rates may also be a loophole that allows conventional players to continue making profits with legacy technology. Therefore, further incentives for additional CAPEX investments are urgently needed.

And what is “ResponsibleSteel” all about?

ResponsibleSteel is known as the leading global association for driving forward sustainability in the steel industry and recently published a “Version 2.0” of their international standard. Their approach to “green steel” differs in two key areas to the aforementioned concepts: 

First, they take an asset-level rather than a product-level approach. Hence, their standard certifies entire production sites of steelmakers rather than individual steel products. Second, their asset-level standard considers a total of 13 impact categories, only one of which are CO2 emissions (here they also apply a 2-dimensional concept including scope 3 emissions with similar threshold values at low scrap rates). The other 12 categories cover the entire ESG spectrum around governance, social and environmental principles (See Illustration 3).

Illustration 3

Image source: www.responsiblesteel.org

If you want to learn more about “Green Steel” and how Metalshub can help measure & reduce your carbon footprint – reach out to us!

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