Steel industry's pivotal role in turning COP28 declaration into action

Heidi Peltonen, Vice President, Sustainability

COP28 proved that the world should aim to keep climate target at 1.5°C. For the steel industry this means we need to start turning ambition to action - but we cannot do it alone. This marks also a significant opportunity for companies.

At the end of the two-week COP28 climate conference, an historical international agreement was achieved to transition away from fossil fuels in a just, orderly and equitable manner to achieve net zero by 2050. The stocktake recognized that global greenhouse gas emissions need to be cut 43% by 2030, compared to 2019 levels, to limit global warming to 1.5°C. The agreement was historical, but at the same time it left a lot of expectations for the corporate sector to take action and implement the policies to the markets.

The goal is clear, the heavy emitting industries need to decarbonize across their value chains – including steel value chain. Steel industry accounts for 7–9% of global carbon emissions. The surge in global population will lead to rising energy demand and urbanization, which both increase the need for steel. The future of green transition – from renewable energy to hydrogen and electric vehicles – depends on sustainable stainless steel.

The entire steel industry needs to set ambitious targets, continue partnering up with other forerunner companies that share the same values and provide solutions that help end-users to tackle their climate goals. Outokumpu joined COP28, the UN Climate Conference, this year with Finnish climate leaders to showcase how low-carbon stainless steel plays a crucial role in tackling climate change on a global scale.

What is needed for the steel industry to take on the COP28 ambition and what stands in the way?

How can the steel sector reach the COP28 ambition?

To achieve the ambitious COP28 ambition, we will need global pricing for carbon, green investments across public and private sector and demand for green steel.

First, carbon pricing is a promising tool to combat climate change, by providing an incentive to shift to cleaner fuels and redirecting new investments to clean technologies. There is a clear support from the corporate sector for global carbon pricing mechanism, as well as a need to clarify their use to governments and businesses. Although a global carbon pricing system does not exist yet, there are regional carbon prices, such as the EU's emissions trading system (EU ETS) and a new pivotal instrument, Carbon Border Adjustment Mechanism (CBAM), to combat carbon leakage of goods with significant emission intensity being imported into the EU, though it is yet to be seen how successful it’ll be in its mission.

Secondly, both private and public green investment floodgates need to open, and decarbonization should be seen as a long-term investment. The most promising, competitive, and effective green technologies are mostly known and require immediate and long-term funding globally. Investors are now willing to take a greater risk to invest in the green energy and green steel sectors and believe in the long-term payback from those investments. Capital-intensive sectors require substantial green investments to drive the level of transformation necessary, as 60% of global emissions are caused by these global infrastructure sectors. The investments needed cannot be raised solely by the public sector - private investors must also funnel significantly more funds to green investments.

Thirdly, industries need to decarbonize across their value chains. This can only be done through close collaboration with partners and the different stakeholders throughout the value chain. Moreover, the demand for green steel needs to grow through the value chain, all the way from the suppliers to customers. The just and green transition won't happen if the cost of the transition is not shared among the entire value chain – from governments to the private investors, companies and all the way to the end-consumers.

Taking action over words

As the world needs systemic change, Outokumpu has set an ambitious science-based climate target aligned with the 1.5°C degree target. With already today up to 75% lower carbon footprint than the industry average already today, we support our customers in reducing their carbon emissions by 10 million tonnes annually. While our continuous work has brought us today halfway towards our target to reduce our emission intensity by 42% by 2030, we continue accelerate our decarbonization with new innovations and replacing fossil raw materials with renewable alternatives.

Circular economy has been embedded into our business for years already. Over 90% of our raw material comes to us recycled – your old washing machines and door handles can help the steel industry to lower its carbon emissions and mitigate biodiversity loss by minimizing the use of virgin materials. However, to produce stainless steel, we will always need also virgin materials. That is why we need to continue innovating and investing in technologies and processes that reduce our carbon footprint and make our entire value chain more sustainable.

Steel industry also needs a constant, low-carbon energy. Currently, over 86% of the energy we use comes from non-fossil sources – with an aim to switch fully to low-carbon electricity in Europe. Besides solar, wind, and other renewable energy sources the hard-to-abate sectors like ours require the stable energy sourcing and stability from nuclear energy. In the future, small modular reactors could play an important role and will require streamlined permitting processes to accelerate the development.

We will continue reducing carbon emissions by investing in new innovations to replace the use of fossil raw materials, in renewable energy and by collaborating with our suppliers to develop low-emission raw materials. In addition, we are investigating carbon capture as part of our decarbonization journey.

Driving sustainability to the value of business

COP28 negotiation results are pushing the entire world towards the right direction – towards low-carbon economies. As businesses are the biggest CO2 emitters in the world, the corporate sector must take action and to commit to this target.

For the green transition to happen, we need to see an increased demand for green products and solutions among the end-customers. We also need harmonized global regulation to take place, in order to ramp up the private sector green investments. Above all, the entire steel industry is on a journey to transform our business to help provide solutions to solve the climate crisis, through supporting various customer industries in reducing emissions.

We need to prove that accelerating the green transition can be economically viable and create value for customers.