Climate and the Steel Industry
The Big Picture
The United States historically has been one of the largest steel producers in the world, once producing nearly 13% of total world production. There are more than 1,200 firms operating in the U.S., although the absolute number of integrated mills (producing steel in basic oxygen furnaces) is about 20. The U.S. demand for steel products plays a major role in automobile manufacturing and in construction. Due to worldwide overcapacity, steel imports now account for about a fifth to a quarter of all steel used annually in the United States. Global steel production in 2005 was up 6.1% over the year before, sustained by China where production increased by 25.5% and India which increased by 16.6%.
Material use, energy use, and carbon emissions by the steel industry depend on production rates. Increased production rates tend not only to increase input requirements and emissions but are accompanied by higher capacity and profits and the potential for capital investments in new technologies and shifts in the mix of technology, for instance from basic oxygen furnaces (BOF) to electric arc furnaces (EAF). In terms of environmental sustainability, scrap steel is one of the most recyclable and recycled materials in North America, with an overall recycling rate of about 68%.
Steel is a key element of any domestic emissions reduction scenario because the steel industry (including iron production) is among the largest energy consumers in the manufacturing sector. The manufacture of steel involves many energy intensive processes that consume raw or recycled materials, such as iron ore and scrap metal, from around the world. Raw materials with intrinsic carbon contents (e.g., iron carbide, carbon electrodes, charge carbon, or limestone), the primary resources for steel production, can have material significance in the calculation of climate impacts. Virtually all of the greenhouse gas emissions associated with steel production, however, consist of the carbon dioxide emissions related to energy consumption; the primary focus of climate related impacts in the steel industry are those associated with carbon-related energy sources. Energy consumption in steel production represents about 2.5% of domestic energy use and about 8% of all U.S. manufacturing energy use. About half of the steel industry’s energy is derived from coal and a large portion of this is consumed during the reduction of iron ore to pig iron.
Finally, the steel industry is a major consumer of electricity, used to power its substantial production processes. Although there are no direct emissions of carbon dioxide associated with the consumption of electricity, coal and gas fired energy sources are standard factors in the reporting protocols for greenhouse gases and represent a significant component of steel-industry energy usage. All mature industries, including steel producers, can be expected to measure direct and indirect climate-related impacts through the use of recognized, reliable, consistent, and transparent calculation and reporting of greenhouse gases for internal company use and for reporting to the public, as well as to specific audiences such as governments and special interest groups.
Key Players
- Companies in the steel industry. Steel manufacturers are also searching for ways to reduce their environmental impact while maximizing profits:
Mittal Steel Company N.V., headquartered in Rotterdam, is the world’s largest consolidated steel company with shipments of 42.1 million tons and revenues of over $22 billion in 2004. Mittal Steel USA claims to be one of the largest steel producers in the United States, formed from the combination of Mittal Steel’s existing U.S. business, Ispat Inland, with the assets of International Steel Group.
United States Steel Corporation, headquartered in Pittsburgh, Pa., manufactures a wide variety of steel sheet, tubular and tin products; coke, and taconite pellets; and has a worldwide annual raw steel capability of 26.8 million net tons. Largely due to Chinese demand for steel, which boosted prices around the globe, U.S. Steel swung from a loss in 2003 to a $1.1 billion profit in 2004.
Nucor Corporation, which also claims to be the largest steel producer in the United States, had net sales of $11.3 billion in 2004. Nucor is the nation’s largest recycler. In 2004, Nucor recycled approximately 17 million tons of scrap steel, with 5 million of those tons being automobiles.
- Trade associations. Representing individual companies are trade organizations which, among other functions, have the power to negotiate with government agencies on voluntary environmental initiatives.
- U.S. Environmental Protection Agency and other government agencies. The EPA has worked with the steel industry to develop and maintain a voluntary greenhouse gas emission reduction program.
- Non-governmental organizations. The global challenge presented by climate change and growing energy demands have gained the attention of civil society organizations around the world and have given rise to the WRI/WBCSD GHG Reporting Protocol and the Global Reporting Initiative. Additionally, socially responsible investors and shareholders are actively seeking corporate commitments to energy and emissions management. Civil society organizations and non-governing organizations are now on par with many governments as among the recognized arbiters of legitimacy in corporate social responsibility management and reporting.
The Upside
- Companies can save money by implementing energy efficiencies throughout the lifecycle of steel products.
- The market for recycled steel products is growing and consumers are demanding environmental responsible products. Recycling and reuse activities are valued as the key to sustainability and represent and important environmental service.
- Efficiency and content certification schemes allow companies to gain recognition for their activities.
Reality Check
- Serious questions remain about the role of major materials suppliers in responding to climate change. Both industries have developed voluntary energy and emissions reduction initiatives in cooperation with the U.S. Department of Energy and the U.S. Environmental Protection Agency. However, most voluntary programs harness the possibility for reducing the intensity of environmental impact per ton of product produced rather than calling for actual reductions.
- Companies that engage in emissions reduction and energy efficiency programs must compete in a global marketplace that includes highly polluting inefficient production activities. The environmental impacts of steel production worldwide are more widespread than any one company, and cannot be solved without cooperation among companies, governments and NGOs.
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Action Plan
- Assess your footprint. Determine what the major emissions of greenhouse gases are for your company. These include the supply-chain sources of carbon as well as emissions from direct energy usage and electricity purchases.
- Make a measurable and verifiable commitment to energy efficiency. One of the best ways for steel companies to reduce their climate change footprint and realize significant cost savings, is to increase the energy efficiency of their processes, including manufacturing and transportation.
- Increase transportation efficiency throughout the supply chain. The ocean and ground freight industry is now recognized as a critical link in the supply chain of all industries. Initiatives such as EPA’s SmartWay Tranport Partners are designed to increase energy efficiency while significantly reducing greenhouse gases and air pollution. Corporate commitments to climate management now include tracking and establishing a more efficient transportation future by adopting fuel-saving strategies that increase profits and reduce emissions.
- Demonstrate your commitment through a voluntary emissions-reduction program. The steel industry has developed voluntary energy and emissions reduction initiatives in cooperation with the U.S. Department of Energy and the U.S. Environmental Protection Agency. Most voluntary programs harness the possibility for reducing the intensity of environmental impact per ton of product produced rather than calling for actual reductions.
- Adopt specific policies for responsible procurement to ensure purchasing decisions are aligned with environmentally sustainable principles.
- Commit to the use of biofuels and other renewables to power industrial processes. Sustainable supplies of biofuels are thought to be climate neutral, that is, carbon is being recycled with no net additions to the system. As such, it is an attractive source of “green and clean” energy that is receiving serious attention in energy markets, especially those markets with easy access to biomass supplies.
- Certify recycling content and management practices with an established organization. One of the most significant roles that the steel industry can play in terms of environmental sustainability and corporate climate management is one of continued leadership and innovation with regard to recycling.
- Begin planning energy and technology options for next generation of production. Greenhouse gas targets and commitments for post-2012 should include energy supply — and demand — related milestones, including targets for green power; green heat and advanced biofuels; carbon dioxide capture, transport and sequestration; and energy efficiency and conservation.
Leads
The Bottom Line
Steel companies have many opportunities to improve their management practices and respond effectively to the challenges of climate change. Many leaders in the steel industry, as well as in other sectors, are beginning to adapt their practices to reduce greenhouse gas emissions and minimize overall climate impact. They have, for example, launched voluntary emission reduction programs and participate in emissions trading markets. With the onset of the Kyoto Protocol the industry will be expected to calculate and manage actual reductions in greenhouse gas emissions, as opposed to improvements in emissions intensity levels that occur normally over time. Purchasing and producing renewable energy, investing in low-carbon technologies, working to improve energy efficiency, and offering new products and services aimed at reducing emissions are all meaningful strategies for the steel industry to undertake.