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One outcome of the so-called Dieselgate scandal – in which German automaker Volkswagen, among others, admitted to manipulating the results of US diesel emissions tests, resulting in $4.3 billion in fines and prison sentences for some former executives – was a concerted shift by VW to battery-powered mobility.
“It has triggered all over the automotive industry a real push towards electric vehicles,” Van der Hoeven said, adding that it had resulted in an acceleration of the transition.Carmakers suffered a loss of credibility with customers, shareholders and authorities, forcing them to reinvent themselves, he added.
“With the focus on climate change, [VW] took the radical decision to become a brand of electrical vehicles – a very drastic decision [that] in the end was followed by the whole industry,” he also said.
“As the automotive industry is showing that in the end the CO2 emissions of their cars will disappear when they go to battery electric vehicles, the focus is more and more coming on the supply chain and how you make a vehicle,” he added. “Once you have solved the issue of the engine and the emissions from the engine, then the focus comes on the supply chain – then the link to steel is very quickly made,”
An estimated 20% of the automotive industry’s emissions come from the manufacturing stage, which includes steel suppliers, according to the CDP, an international non-profit organisation that enables companies to disclose their environmental impact.Such emissions fall under an automaker’s scope 3 emissions, according to the GHG protocol.
The steel industry is in the spotlight as one of the largest emitters in the world, accounting for 7% of global emissions.
“It is important for [auto producers] to show their supply chain, not only that these vehicles have zero emissions from tailpipe but also their supply chain is as clean as possible,” Van der Hoeven said. “[VW and fellow German automakers BMW and Daimler] are among the most demanding in terms of sustainability. The psychological impact from the diesel crisis has shocked the whole German automotive industry.”
“Some of these companies are members also of Responsible Steel – BMW, Daimler. This is not just for fun – they want to label their cars in future as being made with steel produced in plants that are Responsible Steel-certified,” he added.
Some automotive producers require action on sustainability from their suppliers; this includes the setting of CO2 emission reductions in their sourcing criteria, green supplier requirements and the use of renewable power, he also said.
The automotive and steel sectors face a combined challenge in reducing emissions due to the requirement of blast furnaces (BF) to create high-quality steel grades that often cannot be replicated via the electric arc furnace (EAF) route through the use of recycled scrap.
“With an EAF using scrap as input material, this seems nice on paper [but] it’s not so nice in reality. It’s nice on paper because you have circularity but circularity and decarbonization are two different things. Circularity is also a very noble goal as you want to re-use materials and turn them into the same applications,” Van der Hoeven said.
While scrap is currently regarded as CO2-free, proposed European legislation – the Product Environmental Footprint (PEF) – could charge scrap with CO2, diminishing the current environmental advantages of the EAF recycled scrap route.
“Scrap is limited in the world – scrap is not available in the volumes you want to have. Another problem is that you cannot make all the high-tech steel grades via the secondary route that the automotive needs,” he added.
“But the fancy steel grades you need to make a modern car that is safe and light, and all the advantages that steel offers – you don’t find with the EAF scrap route,” he said, referring to the steel grades of hot-rolled coil, hot-dip galvanized and cold-rolled coil, which are used in automotive applications.
The primary method of steelmaking using a BF also results in higher carbon emissions per tonne of steel compared to an EAF at an industry average of around 2,000kg of CO2 per tonne of crude steel.
Carbon emissions from the EAF DRI route, using natural gas, is around half of this. Using green hydrogen instead of natural gas in future is ultimately one of the methods that will bring about industry transformation, Van der Hoeven said.
For Europe, a period of transition is needed, he says. There are small wins to be made by making BFs more efficient and cleaner and by converting to the EAF DRI route. But this will take time.
“There are new technological innovations to be done and a lot of funding needed as well. This is not done overnight,” he added.
“We have to wait for the conversions of a few of our BFs to DRI-EAFs, which will give rise to physical products. Customers will jump on that for sure,” he said.
He points to Europe transitioning to the DRI-EAF route, which will be new for many steelmakers; however, these materials are not new in the world or to ArcelorMittal. The company’s overseas operations already use this steelmaking method at its Mexico site to make slab for ArcelorMittal Calvert in the US.
Currently, ArcelorMittal’s Hamburg plant is the only DRI-EAF plant in Europe. It is part of a multi-million-dollar investment to produce the material via hydrogen from 2025.
“Once the customer has a choice between buying certificates to reduce scope or buying physical low CO2 steel, they will favor a physical product,” Van der Hoeven said.
There may be competition between automotive producers for volumes of reduced carbon steel, which will be limited at first. Partnerships are already forming between automotive producers and steel companies to lock in tonnages, with some announcing deliveries from 2025.
“I expect automotive companies will jump on the physical products when they are there. It will not take a very long time until car companies will be willing to make reservations on those steels. They will understand there will be a limitation – they need these solutions. There might be a race between OEMs to reserve quantities,” he said.
For some industry sectors, the cost of sustainability is worth the additional outlay.
“Customers are paying a premium price – it’s a decent premium on top of the normal physical steel price,” Van Der Hoeven said, without disclosing figures. “When you speak about green steel solutions, you have two possibilities today: either physical green steel or CO2 savings sold under the form of a certificate. There are no other possibilities.”
“Physically lower CO2 steels on the BF route don’t exist – we have to wait 5-7 years until customers will have physically lower CO2 steels coming from the BF [or DRI-EAF] route, which is the primary steelmaking route automotive needs,” he added.
Until then, ArcelorMittal offers its XCarb green steel certificates, launched earlier this year, which are linked to the CO2 savings from its decarbonization projects.
The company aims to have potentially more than 1 million tonnes of the green steel certificates by 2025.
“The green steel certificates that we have today are our first step on our journey towards decarbonization,” Van der Hoeven said.
The CO2 savings are measured and certified by an accreditation body and sold to customers for use in their scope 3 reporting.
“It’s clear the value of eliminating CO2 is increasing. The value for a customer to show a zero scope 3, or reduced scope 3 – this value is more and more important, which is why the price of our certificates is increasing,” he added.
“Today from the BF route nobody can say they have physical products available. You can improve BF today with currently technologies and lower the CO2 level from 2,000kg to 1,800kg but you cannot really go lower with the current state of technologies,” he added.
But carbon capture and storage (CCS) or utilization (CCU) allow for further improvements, he said.
For now, ArcelorMittal is constrained by the availability of its CO2 certificates, which are sold out for this year, and by the progress of its decarbonization projects.
This is a positive sign that demand exists and will continue to grow while CO2 savings increase and new technologies come into being.
“These certificates are a success… with various customers, in all kind of sectors, from construction, energy, white goods and automotive,” Van der Hoeven added.