Rethinking steel

Steel production is known to cause high CO2 emissions. A lot of process and energy-related emissions are generated during this production - around 28 percent of total German industrial emissions are attributable to the sector.[1] What approaches has the industry developed to reduce this proportion? What role does green steel play and how can the financial sector support the transition to sustainable production methods?

Is low-emission steel production possible? 

Steel is indispensable in our daily lives - even if we don't always see it directly. It is used in large household appliances, in our cars, in wind turbines and, of course, in our homes. Forecasts predict that the demand for steel could increase by up to 30 percent worldwide by 2050.[2] As a fundamental component of many products in our modern lives, it is therefore difficult or even impossible to replace. The problem is that the energy-intensive production of steel generates climate-damaging CO2 emissions: the production of one ton of crude steel generates roughly 1.83 tons of CO2 emissions.[3] This means that steel production is responsible for around seven to ten percent of greenhouse gases worldwide.

The steel industry has been thinking for some time about how it can significantly reduce its emissions. Several approaches have emerged. The simplest way would be to use scrap steel for production instead of iron ore, i.e. to recycle more steel. It is important to note that steelmaking consists of two steps: iron making and steel making, of which iron making is the most CO2 intensive. The reason for that is that during the iron making process, oxygen is separated from the iron (we call this reduction). As currently coal is used for this reduction, the separated oxygen mixes with carbon to form CO2. Using 100% scrap would allow producers to skip the iron making step and thereby eliminating a significant part of the CO2 emissions. The advantage of recycling steel scrap is that no iron ore is used and therefore significantly fewer CO2 emissions are produced because oxygen no longer has to be split off. However, the supply of scrap is quite inelastic which makes this process somewhat challenging.

Another option is to use natural gas instead of carbon monoxide to reduce iron ore. This can save around one ton of CO2 per ton of steel. Replacing the natural gas with green hydrogen, i.e. hydrogen produced exclusively from renewable energies, can further improve the carbon footprint of steel production. However, this process is associated with high investments on the part of the companies and therefore poses enormous challenges for the industry.

Green steel

ING has been working on the carbon footprint of its steel portfolio for several years now. Together with other banks and partners, the bank has established the Sustainable Steel Principles in order to work with its corporate customers to find ways to reduce emissions in steel production. They allow for direct comparison of the performance of banks regarding the decarbonization of their steel portfolio. In addition, ING has been aligning its steel sector portfolio - like other sectors - with scientifically based net-zero targets since 2019. It publishes its progress every year in the Climate Report.

In order to help shape sustainable change, our greatest lever as a bank is to support the economic transition. We finance companies with clearly defined sustainability goals and support and advise them on their individual path to a more climate-friendly way of doing business. In 2023, ING was one of several banks to support the company H2 Green Steel with project financing for the world's first large-scale plant for the production of green steel in Sweden. More than 20 financial institutions were involved in the EUR 4.5 billion, multi-tranche transaction, with ING acting as Documentation Bank and Senior Mandated Lead Arranger.

This example shows that it is possible to make significant progress in decarbonization even in sectors that seem difficult to transform. Our approach will continue to be to work together with our customers on these solutions and to gradually make business models more sustainable.

Society is on the way to a CO2-neutral economy. This also applies to our customers and to ING: we finance a lot of sustainable activities, but the non-sustainable ones still outweigh the sustainable ones. You can see our progress at ing.com/climate.

[1] Steel industry | Competence Center for Climate Protection in Energy-Intensive Industries (KEI) (klimaschutz-industrie.de)

[2] International Energy Agency, "Iron and Steel Technology Roadmap," October 2020, https://www.iea.org/reports/iron-and-steel-technology-roadmap

[3] https://www.ingwb.com/progress/insights-sustainable-transformation/reinventing-steel-for-a-green-future