Effective tools for steel sector decarbonization

What is the purpose of Science Based Targets?

Companies have a need for tools with which they can make credible emission reduction strategies – tools to show them how much and how quickly they need to cut GHG emissions to keep the 1.5°C temperature goal within reach, and avoid the catastrophic impacts of climate change.

The Science Based Targets initiative (SBTi) tackles this need by offering science-based target-setting tools and guidance for major business sectors. Since the Paris Agreement only obligates governments, the SBTi was launched in 2015 to drive ambitious climate action within the private sector. The SBTi is a collaboration between CDP, the United Nations Global Compact (UNGC), World Resources Institute (WRI) and the World Wide Fund for Nature (WWF), and one of the We Mean Business Coalition commitments.

The SBTi develops tools to enable businesses and financial institutions to set ambitious emissions reductions targets that are in line with climate science. The initiative provides companies with independent assessment and validation of targets and ensures consistency within GHG inventory reporting. Companies with approved science-based targets must publicly report their emission reduction goals and monitor progress on an annual basis.

In 2015, SBTi developed the Sectoral Decarbonization Approach (SDA), a scientifically-informed method for companies to set targets to stay within a 2°C temperature rise above pre-industrial levels. Subsequently, a well-below 2°C pathway was developed. At present, the SBTi is finalizing a new set of resources – tools, guidance and mitigation pathways – to facilitate the adoption of 1.5°C-aligned emission reduction targets in the steel sector, taking into account the unique context of the industry, its particular barriers and opportunities.

The correlation between the amount of CO₂ in the atmosphere and the global mean temperatures is very strong, as shown by the latest IPCC report. Thus, it is possible to derive the total global budget of CO₂ emissions. The next step is to allocate the global carbon budget between the key business sectors.

For the steel sector, the SBTi is proposing a global carbon budget (scope 1 & 2) of 55 gigatons of CO₂e by 2050. This figure is based on the IEA Net Zero scenario, published in 2021, but adjustments have been made due to differences in the sector boundaries.

The target-setting tool and sector guidance for steel is developed primarily for steel producers, but it is useful to many other stakeholders in the value chain as well, such as investors, raw material suppliers, steel buyers, public procurement, designers, and recyclers. A validated 1.5°C target is a strong signal to investors that a steel company is committed to cutting emissions in an effective manner. Steel buyers and/or users may use SBTi as one criterion when choosing partners. However, it’s important to acknowledge that SBTi’s methodology is based on emission reductions.

The SBTi 1.5 °C steel sector guidance will help the green transition

Updating the steel sector guidance from “well below 2°C” to “1.5°C” is not done overnight. The project was launched in November 2021. For a year, some 30 stakeholders, including WWF Finland, worked on a draft, which was made available for public consultation a year later, between November 23^rd 2022 and January 23^rd 2023.

At WWF Finland, we are strongly supportive of the scrap-share ratio-based methodology creating incentives to decarbonize the primary production, rather than just steering the flows of scrap steel to facilities with SBTi aligned targets. We are less happy with the fact that the short-term (until 2030) emissions reductions are not strong enough. Methane emissions from coal mining are not included in the sector boundary but are covered by a mandatory separate scope 3 target. We recognize the present lack of robust data, but the situation is improving rapidly and the SBTi must be prepared to react. The draft should be improved in several ways: We think companies should disclose their scrap shares fed into the target-setting tool. Thereby stakeholders can assess the credibility of the targets based on the total supply of scrap metal.

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What is SBTi’s relationship to other international initiatives and standards?

There is currently a global race to define what is “green steel” or ”low-carbon steel”. Global Efficiency Intelligence recently published an interesting report on this topic, you might want to take a look at it.

Supporting the steel industry decarbonization of the steel industry requires various actions. These include public and private demand for green steel, major investments both in low-emission energy infrastructure and green steel production technologies, as well as initiatives and standards to clarify the emission reduction goals of producers.

When comparing to other initiatives and standards, the SBTi is not a product level standard, such as ResponsibleSteel™ International Standard V2.0 launched in September 2022. It is neither a public procurement standard such as Industrial Deep Decarbonisation initiative (IDDI), nor a kind of steel buyer stakeholder initiative such as SteelZero and First Movers Coalition. The SBTi provides tools for financial institutions and industrial investors, but it is not a financial agreement launched by banks as the Sustainable Steel Principles. The SBTi steel sector guidance shows how much and how quickly steel producers need to cut their GHG emissions to keep the 1.5°C temperature goal within reach. It will help steel companies to set their emission reduction targets and to build their decarbonization pathways.

Steel sector has the momentum right now. All that is needed is investment plans, wise decisions, commitment, and effective implementation.

There are already effective tools and technologies available for decarbonizing steel production globally. The critical questions now are how quickly will the tools be implemented, how fast will money flow to the right investment projects, and how well will the different stakeholders cooperate. To create optimal conditions for the much-needed transition, we also need governments to ensure that regulations support the green transition within the energy sector. Furthermore, we need to make sure that there’s enough know-how and experts to make the change.