Feature: US steelmakers, government investing in decarbonization but consumers reluctant to pay 'green' premium

US steelmakers are investing billions of dollars to move to cleaner production methods and the government has prioritized investment in decarbonizing domestic heavy industry, setting the stage for a "green steel" transformation. However, getting consumers to spend more for cleaner production remains a heavy lift, speakers at the American Iron and Steel Institute's annual general meeting said this week.

The cost of decarbonization cannot be borne by the US steel industry alone, given the investment in clean energy and technologies required of steelmakers, and a price premium for so-called "green steel" is something buyers will need to accept in coming years, Cleveland-Cliffs CEO Lourenco Goncalves said.

"Whatever definition of green steel someone has, it costs a lot of money, and if the clients want green steel they have to be prepared to pay for it," he said.

Cliffs, the first US-based steelmaker to announce a premium for lower-emissions steel products, implemented what it refers to as its "Cliffs H" surcharge last year. The $40/st surcharge is applied to Cliffs' steels that are made using the hot-briquetted iron the company produces at its plant in Toledo, Ohio, which results in lower carbon dioxide emissions than traditional coal-fired blast furnace steelmaking.

However, when asked if market participants have readily accepted paying a premium for cleaner products, Goncalves was quick to answer.

"No. They don't want to pay for anything," he said. "If they could get steel for free, that might happen. It's my business to explain to them that this has a price."

While carbon-accounted steel premiums have yet to take hold yet in the US spot market, they have emerged in Europe amid growing demand for greener steel products. Platts, part of S&P Global Commodity Insights, assessed Northwest European carbon-accounted hot-rolled coil at Eur765/mt ($831.555/mt) ex-works Ruhr on May 16, reflecting a Eur135/mt premium over the Northwest European HRC price of Eur630/mt.

The carbon-accounted premium assessment includes HRC with 2.1 mt of CO2 or less per metric ton of steel, certified by an internationally accepted, independent third-party organization, and reflects any differential achieved for the spot sale of HRC on an ex-works basis.

Crossing the bridge

US President Joe Biden has prioritized investment in decarbonizing domestic heavy industry, White House National Climate Advisor and Assistant to the President Ali Zaidi said during the AISI meeting. He pointed to the $6 billion recently earmarked by the administration for clean energy technologies and reducing metals-making emissions.

Zaidi acknowledged the reluctance of consumers to pay more for materials with a lower carbon profile, but said that will change over time and costs will go down as steelmakers and industrial processes become more efficient in their production.

"What we're learning from our domestic industry is that the innovation that goes into reducing the emissions for producing these materials is the same innovation that reduces the input costs and reduces the energy intensity," Zaidi said. "When you're boosting their efficiency perhaps by an order of magnitude, when you're shifting to maybe capture the process heat from a combustion-based process to an electric process, you are not only reducing the embodied carbon, you are essentially reducing the input cost to produce the materials."

Zaidi conceded that "on the front end of shifting to new processes that harness all of these potential benefits, you have to sort of cross a bridge of new and novel technology."

"And that's where public catalytic investment comes in," he said. "So, the $6 billion that we're investing to accelerate industrial decarbonization is about de-risking the technologies and the processes that go into making cleaner and cheaper materials. When you're on the other side of that bridge, what you've harnessed actually is an opportunity to deliver a better product at a better price."

Zaidi pointed to the emergence of LED light bulbs as an example. "I think that's what the American people want," Zaidi said of products improved through the pursuit of reducing their environmental impact. "They don't want to have to choose between the two, and they shouldn't have to."

'Rigor and transparency'

Another element of the decarbonization push involves proper documentation and databasing of the carbon profiles of steel made in the US versus imported material. AISI President and CEO Kevin Dempsey said his organization has been working the International Trade Commission in an effort to document Scopes 1-3 carbon emissions of the domestic industry and expects a carbon tariff program for imports will be the end result.

"If you don't capture all of those, you can't do a real apples-to-apples comparison of domestic versus imports," Dempsey said. "We're right in the middle of a process with the International Trade Commission that's collecting data on steel and aluminum. Having the right data is critical."

Zaidi echoed the need for bringing "rigor and transparency into the data environment" when it comes to steel production and measuring its emissions.

"We live in an era of greenwashing, and we have to combat that with rigor and transparency," he said.