Climate Transition Risks Facing Steelmakers by 2035

Green Steel Isn’t Just About Net Zero—It Makes Business Sense. The future of steel is low-carbon and high-profit ! In my last post, we explored India's Green Steel Taxonomy and why steel is so carbon-intensive (link in comments)  Now, let’s talk business resilience & profitability for Green Steel—because the numbers speak for themselves. Let’s break this down !  👉 Current Data - most Indian steel production does not qualify as green steel  • Emission Intensity: 2.6 tCO₂/tonne (38% above global avg)  • Indicative Production Cost: $400-600 per tonne   👉 Impact on EXPORTS - Direct Hit to Margins for Inaction & $100B Growth Opportunity for action • Europe Penalties (2026+) for emissions > 2.2 tCO2/t : $65/MT (till 2030), rising to $145/MT (2030+). • Cost Impact : upto 10% -30 % increase • Margins at risk: current ~10% margins, CBAM could turn them negative. • Growth Opportunity : global green steel market : $4 Billion (2024) to $100 billion (2031), CAGR 60%   👉Impact on DOMESTIC Market - Indian Government Prioritising Incentives for Profitable Decarbonisation • 95% of India’s steel serves domestic market, set to grow 1.5 times by 2030  • India’s ₹15,000 Cr ($1.7B) Green Steel Mission is in development, focusing on : green steel Incentives , Lower financing costs , Boosting R&D • 15% Green Steel in Government Purchases by 2031 • Other Govt. Incentives : Renewable energy discounts, Carbon credit trading, Production-linked incentives The BOTTOM LINE ? If steelmakers stay above 2.2 tCO₂/tonne, they face higher costs, lost exports, shrinking margins, and missed growth. Key SHORT TERM solutions ? to cut energy costs, lower emissions, unlock incentives & growth  1. Energy Efficiency: Waste Heat Recovery  • Captures high-temperature exhaust gases  • Cuts energy costs by 20-25%  • Example: JSW Steel’s Vijayanagar plant utilizes waste heat recovery to cut emissions.  2. Material Efficiency: Biochar Blending  • Replacing upto 15% of coke with biochar can cut emissions by up to 20%.  • Cost competitiveness : Biochar $200/tonne vs. Coking Coal $220/tonne.  • Example: Tata Steel Jamshedpur successfully piloted biochar in blast furnaces.  3. Circularity: Scrap Steel Use  • Scrap-based production cuts energy demand by 15% and water use by 40%.  • India produces 25M tonnes per year scrap & imports 5M tonnes.  • 2026 mandate: 8% of vehicle steel must come from recycling—a massive new market.  • Example: ArcelorMittal Nippon Steel India to increase scrap use to 10% by 2030. Whats Next ? Low-carbon fuels, Hydrogen DRI, CCUS Jindal Steel & Power Ltd. Odisha plant deploying India’s largest alkaline electrolyzer for Green H2 🎯 Lets DISCUSS What’s biggest driver for India’s green steel shift—Policy, Tech or Capital? Naveen Ahlawat Ankit Todi Prasad Dahapute Vidya Basarkod, FICE Asad Mahmood Akshay Tandon RAJEEV GUPTA 'Aanvi Mehta Adarsh Das Juha Roininen Steel Authority of India Limited #GreenSteel #ClimateTech #ProfitableDecarbonisation

As the global economy transforms to mitigate the #climatecrisis, decarbonising the A$2.6Trn global #iron and #steel industry, and the inevitable transition away from coking coal, is on the horizon with global finance beginning to enable this. Australia is the world’s largest exporter of both #ironore and #metallurgicalcoal (met coal). We provide 57% of the world’s iron ore (A$124bn FY23 revenue) and 52% of global metallurgical coal (A$61bn FY23 revenue) and are therefore massively trade exposed as the world belatedly moves to limit global warming to 1.5°C and low carbon steel making becomes a reality. Low emissions iron and steel technology innovation and readiness is starting to move in the right direction, with momentum picking up in finding commercially scalable solutions: ➡ H2 Green Steel raised €5.5bn in debt and equity in Sep 2023 to finance the construction of an integrated new steel plant that will deliver steel with up to 95% less CO2 emissions compared to steel produced with traditional blast furnace technology. ➡ Japan’s second largest steel producer, JFE Steel Corporation, announced plans to replace an ageing blast furnace in 2027 with one of the world's largest EAFs that will accelerate decarbonisation of its operations and the country. ➡ Australia’s largest iron ore producer, Rio Tinto, is investing ~US$6.2bn capex to develop the Simandou iron ore project in Guinea, Africa - the world’s largest untapped high-grade iron ore deposit, which is far better suited to conversion into green iron than Australia’s lower grade haematite ores. ➡ Former Fortescue senior staff at Element Zero patented a method of "electro-reduction" that is one of a number of possible technology breakthroughs in a race with the far longer established Boston Metal, and Japan’s Kobe Steel Midrex Technologies, Inc.) Australia’s #sustainablefinancetaxonomy is codifying an initial set of eligibility criteria for minerals, mining and metals by this year’s end. However, ignoring scope 3 emissions in favour of legal borders that cover only Australia’s scope 1 and 2 emissions is a fool’s errand. Australia’s enormous scope 3 exported emissions (i.e. from reducing iron ore into iron using met coal) are a measure of Australia's exposure to transition risk brought about by a decarbonising #ironandsteel sector. The International Energy Agency (IEA) has repeatedly affirmed energy security is feasible without opening new fossil fuel extraction projects, and that firmly includes metallurgical coal. Steel doesn’t have a climate problem. Iron has a coal problem, and Australia has an enormous opportunity to capitalise on this transformation, or be steamrollered while we procrastinate. Tim Buckley Blair Palese Fiona Deutsch Jasmine Fowler-Morrow Alli Devlin Ben Henry Joanna Kay Zarmeen Pavri Nicolette Boele Marcus Dawe GAICD James Loughridge Greg Liddell Clean Energy Finance Corporation BlackRock First Sentier Investors Australian Council of Superannuation Investors

Thyssenkrupp’s recent warning about its €3 billion green steel plant in Duisburg raises serious questions about the practical implementation of industrial #decarbonization in Europe. CEO Miguel Lopez’s stark admission that this flagship project is “operating beyond the limits of economic viability” should be a wake-up call for industry leaders and policymakers alike. The world’s most modern steel plant risks becoming a stranded asset because of a fundamental oversight: ensuring adequate hydrogen infrastructure BEFORE committing billions to construction. This situation highlights three critical failures: 1️⃣ Planning disconnect: How did Thyssenkrupp commit to a €3B investment without securing viable hydrogen supply chains first? The project requires 104,000 tonnes of hydrogen by 2028, scaling to 151,000 tonnes annually—volumes that Germany’s current infrastructure cannot support at competitive prices. 2️⃣ Public funding questions: German taxpayers provided €2B toward this project. Was this investment made with realistic assessments of hydrogen availability and cost? Or are we witnessing another case of green ambitions racing ahead of practical realities? 3️⃣ Industry transformation challenges: Thyssenkrupp’s predicament reflects a broader issue in Europe’s industrial decarbonization strategy—ambitious targets without the necessary infrastructure to support them. Don’t mistake my criticism for opposition to #greensteel. We absolutely need this transition. But successful decarbonization requires honest assessment of infrastructure needs, technological readiness, and economic viability. For industry leaders watching this unfold: Are your green transition plans built on realistic hydrogen availability projections? Or are you risking similar economic pitfalls? For policymakers: Infrastructure must come first. Hydrogen pipelines, renewable energy capacity, and competitive energy pricing are prerequisites for—not consequences of—industrial green transitions. This isn’t just Thyssenkrupp’s problem. It’s a warning for Europe’s entire industrial decarbonization strategy. #GreenSteel #IndustrialDecarbonization #HydrogenEconomy #EnergyTransition #IndustrialPolicy https://lnkd.in/dEb8V_Xp

CBAM -2026 From 1 January 2026, Indian steel and aluminium exports to Europe will quietly but decisively become more expensive. The reason is the EU’s Carbon Border Adjustment Mechanism (CBAM)—a carbon tax on imports based on emissions generated during production. Estimates suggest CBAM could wipe out 16–22% of net realised prices, force contract renegotiations, and weaken India’s position in the EU—still a key market absorbing about 22% of India’s steel and aluminium exports. The pain has already started. In FY2025, India’s steel and aluminium exports to the EU fell to $5.8 billion, a 24% decline from the previous year—even though CBAM payments haven’t begun yet. The drop followed the October 2023 transition phase, which made plant-level emissions reporting mandatory. Compliance costs, data gaps, and verification hurdles pushed many firms to scale back exports early. Why the EU Is Doing This CBAM extends Europe’s carbon pricing system to imports. EU producers already pay for emissions under the EU Emissions Trading System (ETS). CBAM ensures foreign suppliers face a similar cost, preventing “carbon leakage” to countries with weaker climate rules. The mechanism currently covers steel, aluminium, cement, fertilisers, electricity, and hydrogen, with expansion planned. The UK is moving in the same direction. Why the Numbers Are Brutal Coal-based BF-BOF steel emits about 2.4 tonnes of CO₂ per tonne. At today’s EU carbon price (~€80), that’s €192 per tonne in carbon cost. Buyers are expected to pass back 50–70% of this burden—cutting exporter revenues by €95–€133 per tonne. A €600 sale can quickly drop to €467–€505. Data Is the New Battleground CBAM is not about ESG narratives. It is factory-level carbon accounting. Only Scope 1 and Scope 2 emissions count. If exporters fail to provide verified data, EU importers apply default values 30–80% higher, sometimes nearly double actual emissions. The result: deeper price cuts or lost orders. The Bigger Issue CBAM applies rich-country carbon prices to developing economies. The EU charges ~€80 per tonne; China’s carbon price is about one-tenth of that. India’s future price will be lower too. Steel and aluminium—responsible for ~10% of global emissions—are now among the most protected sectors in the developed world: • U.S. tariffs up to 50% • EU carbon tax on imports Climate policy and industrial protection are clearly overlapping. What India Must Do India needs a CBAM resolution in the EU-India FTA, stronger domestic carbon accounting, and support for cleaner production routes. CBAM is not a compliance footnote. It is a structural shift in global trade. As carbon becomes a trade currency, competitiveness will be measured not just by cost—but by emissions per tonne. My piece in Indian Express

The steel industry is one of the most carbon-intensive sectors globally, and its sustainability initiatives, particularly decarbonization, are facing significant delays due to a confluence of complex and interconnected factors. Here's a breakdown of the key reasons: 1. Exorbitant Costs and Financial Challenges: * "Green Premium": Producing steel with low-carbon methods (like hydrogen-based direct reduced iron, or H2-DRI) is currently significantly more expensive than traditional blast furnace (BF) routes. This is due to the high cost of green hydrogen, the need for new infrastructure (electrolyzers, pipelines), and the substantial electricity demand from electric arc furnaces (EAFs). * Massive Investment Requirements: Decarbonizing existing steel plants or building new green steel facilities requires colossal capital investments. Companies struggle to justify these investments in the face of uncertain returns and fluctuating steel prices. * Investment Plunge: Recent data indicates a significant drop in investment in clean steel projects, reflecting a "perfect storm" of high costs, policy uncertainty, and geopolitical friction. This directly translates to delayed or shelved projects. * Limited Access to Finance: While there's a growing appetite for green finance, the sheer scale of the investment needed for steel decarbonization often outstrips available funding, particularly for projects with longer payback periods or higher perceived risks. * Economic Slowdown and Price Volatility: When global economic growth slows, demand for steel (used in construction, automotive, etc.) decreases. This leads to lower steel prices, squeezing profit margins for producers and making it even harder to allocate funds for costly sustainability upgrades.

By 2034, production costs in the EU could rise by up to 80% due to tightening climate regulations. As free allowances under the Emissions Trading System (ETS) start phasing out in 2026, businesses will bear increasing financial responsibility for their emissions. Meanwhile, the Carbon Border Adjustment Mechanism (CBAM) will reshape the competitive landscape for imports and exports. The EU remains steadfast in its decarbonization efforts, even as other regions, like the US, slow down. For businesses operating in energy-intensive industries, now is the time to act. It’s critical to: 1️⃣ Understand the mechanisms: ETS and CBAM are designed as two sides of the same coin, but there are key differences and nuances that must be understood. 2️⃣ Be aware of financial implications: The tightening of regulations will have cascading effects across supply chains, impacting costs and competitiveness. 3️⃣ Evaluate strategic options: From compliance to supply chain planning, businesses need clear strategies to navigate this evolving landscape. 📖 Read our latest white paper to dive deeper: https://lnkd.in/ebuUU4RM  #Sustainability #EURegulations #Decarbonization #Cement #Steel