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Europe’s steelmakers risk missing climate targets despite billions in subsidies

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Europe’s steel industry risks missing ambitious climate targets despite pledges of billions of euros in state aid from the region’s governments, warn environmental campaigners.

Since 2022, the European Commission has agreed more than €8bn in grants for some of the bloc’s largest producers to support investment in less carbon-intensive production, says Aria, a non-profit research organisation. 

ArcelorMittal, the world’s second-largest steel producer and Europe’s biggest, has received €3bn in commitments for decarbonisation projects to phase out the use of coal in favour of natural gas and, eventually, hydrogen.

Thyssenkrupp, the German industrial conglomerate, has received €2bn in commitments, while other groups such as Salzgitter have received €1bn.

Tata Steel has received £500mn in UK state support as part of an agreement to invest £700mn of its own money.

Despite the subsidies, climate research groups say Europe’s steelmakers are still not on track to meet science-based emissions reduction targets, enabling them ideally to limit global warming to 1.5C above pre-industrial levels, as set out in the 2015 Paris climate accord.

“The steel groups have set quite ambitious targets, but if we look at how they are performing at this point in time, they are not going to meet these,” said Vicky Sins, of the World Benchmarking Alliance, which measures companies’ progress on UN sustainable development goals.

WBA’s research found that carbon emission intensities, which measure emissions relative to output, from companies in heavy industries, such as steel, needed to fall three times faster than the present rate in the next five years to align with a 1.5C trajectory.

Thyssenkrupp said its steel production should be ‘completely climate-neutral by 2045 at the latest’ © Ina Fassbender/AFP via Getty Images

With global demand for steel forecast to rise more than a third from 2020 levels by 2050, according to the International Energy Agency, industry analysts also stress the shift towards greener technologies needs to accelerate.

“The truth is that we are more on a 2.5C warming trajectory,” said Rachna Mehta, principal analyst for steel and raw materials at data provider Wood Mackenzie.

Outside of power generation, the iron and steel sector is the largest industrial producer of carbon dioxide. Steel alone accounts for 7 to 9 per cent of all direct fossil fuel emissions, according to the World Steel Association.

Wood Mackenzie estimates it will cost about $1.4tn to decarbonise the global iron and steel industries by 2050. 

Most European steel groups are investing in electric arc furnaces, which melt down recycled steel and emit a fraction of the CO₂ of traditional blast furnaces, which use coke to produce pig iron, the smelting product, from iron ore. This is then refined into steel.

To get to net zero emissions, however, the industry is banking on using “direct reduced iron” (DRI) plants in combination with electric arc furnaces.

DRI plants use natural gas, and potentially green hydrogen, which at present is unavailable at scale, to extract pure iron from iron ore. The intermediate product, sponge iron, is then turned into crude steel in the electric arc furnace.

As well as being critical of the steelmakers’ slow progress, climate campaigners say there is a lack of transparency, which makes it difficult to determine how much money is being spent on research and development of lower carbon alternatives. 

SteelWatch, a campaign group launched last year to put pressure on the industry to decarbonise in line with the Paris agreement, argues that ArcelorMittal in particular needs to do more, given its leading position.

It has called on the company to adopt more ambitious climate targets globally, to set clear deadlines for ending the use of coal and gas in its operations and to put more of its profits into decarbonisation. 

“We recognise that policy and market changes do affect companies but this company is the second-largest [steel group] in the world. They are not a market taker. They are a market shaper,” said Caroline Ashley, SteelWatch director. 

Nicola Davidson, vice-president for sustainable development and corporate communications at ArcelorMittal, defended the company’s efforts, saying it had concluded that it was “not able to credibly set a 2030 target according to the [science-based targets initiative] methodology”.  

“We believe it is more conducive to explain what needs to change in order for us to be able to set a science-based target with confidence,” she added.

The group, which is investing in several CO₂ emissions reduction projects including carbon capture, has said it will need $10bn to deliver on its 2030 target to reduce the carbon intensity of the steel it produces by 25 per cent. It expects half of that number to come from public funding.

Despite the sizeable pledges of state aid in Europe, ArcelorMittal points out that it has not yet drawn down on any of the funds. They only become available when project construction starts and are conditional on “transitioning to green hydrogen”.

It hopes to publish an updated climate report, including how it plans to achieve its 2030 targets, before the end of this year. 

“People have woken up to the challenges of limiting the global average temperature increase to 1.5C . . . but it was never going to be straightforward,” said Davidson.  

Thyssenkrupp said the company was “committed to the Paris Climate Agreement of 2015”, adding that “our steel production should be completely climate-neutral by 2045 at the latest”.

Salzgitter, Germany’s second-largest steel producer, received €1bn in government grants and is investing about €1.3bn itself to build up its green steel capacity by 2026. The company said its targets were “science based” and that it was “following a 1.5C climate path”.

Tata Steel in the UK, which plans to build one electric arc furnace at its main site at Port Talbot in Wales, said it planned to establish science-based targets.

Its analysis suggested the company would “achieve a science-based target through the delivery of its transition to EAF [electric arc furnaces]”, it added.

Adolfo Aiello, deputy director-general at Eurofer, the European steel industry trade body, defended the region’s companies, saying they had been the “most ambitious” in trying to lower emissions compared with those in the US and Asia.

European companies, he said, had proposed green transition projects in 2021 — but it had taken several years to secure regulatory approval.

He added that the European sector could not be expected to act in isolation, given that the success of most of the projects depended on the availability and price of green electricity and green hydrogen.

“The speed of this energy availability is not fast and the price of this energy is very high in Europe,” he said.

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