Decarbonizing Heavy Industry
Last month, Swedish Steel producer, SSAB, announced new plans to start selling fossil-carbon-free steel for the European and North American markets starting in 2026, a full 10 years ahead of schedule. The announcement comes as a surprise, given the sector has been hit by a wave of recent profit warnings, in the backdrop of pressure from the automotive sector. Given the significant cost pressures that commodity products face globally, decarbonization of heavy industries, such as the steel sector, has for many years been shrugged off as a “nice to have”. However, over the past 18 months, driven by public and private climate commitments, large industries are starting to act.
This is promising news considering that even a 30 year time window to hit zero carbon is hardly enough time for many of these industries.
CO2 emissions from industrial processes are quite significant. Heavy industry as a whole is responsible for 22% of global CO2 emissions. Half of these emissions comes from four industrial commodities:
CO2 emissions are extremely difficult to abate, due to the high amount of process integration, asset lifetime, commodity competitiveness and inherent temperature requirements. It has been estimated that the total cost to decarbonize heavy industry will range between $11 trillion-$21 trillion through 2050, depending on the development of innovation, policy framework and the cost of renewable electricity.
On the back of country-wide carbon neutrality targets, from nations which heavily feature commodities as a core exports, corporates are beginning to line up with long-term climate strategies and are outlining technology roadmaps. Also, an increasing amount of corporate and government funding is becoming available for industrial decarbonization innovation.
The options available to these players are vast and complex and can be broadly broken up as:
Using alternative feedstocks/fuels, using sustainably produced biomass, or fuel recovered for CO2 waste.
Electrifying processes, either indirectly –by switching to feedstocks or fuels that have been produced using renewable power—or switching to furnaces, boilers, and heat pumps that run directly on zero-carbon electricity.
Increasing energy efficiency of existing systems (via the use of artificial intelligence or machine learning solutions), increasing asset flexibility or designing outputs to utilize less material.
Recovering/recycling waste energy or materials in the form of CO2, heat or waste and reusing it either in the original process or selling it for utilization in an adjacent process.
The effectiveness and economic viability of each of these options depends largely on overall end-cost vs conventional commodities, local availability of resources and feasibility of integration into new and old facilities.
Industries such as pulp, paper, food and beverage—all of which have lower energy requirements and less internal supply links to energy—have an easier pathway, compared to the largest energy users such as cement, iron and steel. Key factors contributing to energy use for these sectors include high temperature requirements (which account for 42% of industrial emissions) and energy-intensive feedstock requirements. In the cement industry for example, 40% of emissions come from heating the cement kilns, which need to be heated to 1,600 C degrees, and 60% come from cement feedstock.
Short-term Decarbonization Pathways
By improving asset utility to decrease energy use, software centric innovation can be a great starting point for industrials on their decarbonization journey. Up to 20% of energy within an industrial facility can be reduced via software which can be quickly implemented and scaled.
Metron, a French provider of industrial energy management services based on artificial intelligence has worked with both the easy-to-abate and hard-to-abate industrial players. By offering both the artificial intelligence optimization and managed service model, the company can connect, detect and then continually reduce energy data. The company raised $11.4 million in a Series A round last June, from NTT Docomo Ventures, Statkraft Ventures, BNP Paribas and Breed Reply, bringing total equity raised to $26 million. Metron has also been sourcing go-to-market partners with players such as Dalkia as a licensor, integrating Metron’s software into their manufacturing facility
Innovators are also helping to reduce industrial energy usage and increase revenue by actively participating in grid-side revenue programs. Innovator GridBeyond is allowing industrial assets to participate in grid revenue programs and enhance energy savings through peak avoidance and trading, providing access to resilience strategies and visibility of energy performance. In the metal industry, for example, the UK-based innovator unlocks flexibility of assets including exhaust fans, induction furnaces and sand mixers. The company raised $12 million in Series B funding in January from EDP Ventures, ACT Venture Capital and Total Energy Ventures to fuel growth into international markets.
The recycling of industrial products can also have potential. Steel scrap, for example, is the most recycled product on the planet, with a total of 40% of globally produced steel coming from scrap. Global alternations in waste policy can tip the needle. The China 2018 Waste Ban saw the country closing off its processing capacity to the rest of the world, which has created an opportunity for developed nations with large slag production to capitalize.
Long-term Decarbonization Pathways
Longer-term reductions require the adoption of technologies that facilitate the integration of low-carbon electricity (directly or indirectly through electrolytic hydrogen). Technological limitations limit the viability of these solutions today, as well as the availability and cost of renewable electricity. Industrial electrification is projected to require ~4x-9x as much clean power as industry compared to business as usual.
Renewable hydogen has gained momentum over the past 2 years for this reason (see our research on this). Industrial players such as Thyssenkrupp, ArcelorMittal and Salzgitter have all stated that the molecule has a key role to role within their long term-decarbonization strategies, and have active pilots underway. German innovator, Sunfire is one of the key players in this field. With backing from industrial players including steel producer Paul Wurth and Total, they are engaged in various industrial pilots including GrInHy 2.0 alongside Salzgitter. Sunfire uses waste heat and renewable electricity as feedstock into the high temperature electrolysis. The hydrogen produced is then used as a replacement for natural gas for processing, such as for metal annealing.
Other innovators are also looking to electrify processes directly within industry. Innovator Boston Metal has raised $31 million in equity funding from Breakthrough Energy Ventures, Prelude Ventures, The Engine and OGCI Climate Investments. The company seeks to commercialize a molten oxide electrolysis solution to produce steel, which forgoes the use of coal to output oxygen instead of CO2. The method has been used in the aluminum sector where temperature requirements are lower, but not in the iron and steel industries, where temperature requirements go above 1,000 C degrees.
From a cost perspective, carbon removal can, in the long-term, prove to be more economical compared to the cost of electrification. In the cement industry, for example, electrifying heat at greenfield cement plants is projected to be more cost-competitive than applying carbon removal to the emissions from fuel only when the cost of renewable electricity is below $50/MWh (and below $25/MWh for brownfield sites).
It is likely that even if the technology develops in parallel with the pace required by the industries’ carbon budget, the end cost for the new products will remain higher compared to the conventional option. Green steel, for example, is projected to cost between 35-100% more than normal steel. Furthermore, in the cement sector, an equity researcher recently downgraded two major cement producers’ investment grades, as the inclusion of new carbon reduction solutions have been projected to result in escalation in the price of cement by approximately 60%.
A competitive market for low-carbon industrial products may only be able to exist with correct supportive policy to ensure a global level playing field. Measures such as a carbon border adjustment, as outlined by The European Green Deal, which included a functional carbon border adjustment mechanism is an example. Carbon markets through trading schemes will therefore be imperative.
When it comes to effort, the global playing field is not even. Europe, driven by national decarbonization targets, is leading the way. Countries such a China dominate large shares of steel, ammonia and cement production, and have yet to follow suit with European counterparts. Big questions remain: can Europe reposition itself in the next 30 years as a global exporter of green commodities? And if so, can it deliver these competitively if global carbon markets are introduced?
Keep an Eye Out For…
- Smarter, economical ways to manage waste heat as a long-term storage medium. Innovators such as Kraftblock, Alumina Energy and Antora Energy are utilizing industrial heat waste to buffer energy demand over long durations and supply processes.
- Opensource asset aggregation platforms such as Opus One, Leap and Open Energy gaining the ability to manage an increasingly complex portfolio of assets types.
- Better accountability of green gas into industrial energy supply innovators such as FlexiDAO and Power Ledger developing renewable certification tracking tools.