Canadian steelmakers embrace ‘green steel’ as carbon taxes set to rise

TORONTO – The steel industry is at a crossroads, with government policies like carbon pricing to fight climate change hurting manufacturers’ profits and international pledges likely to seek further concessions from fossil fuel burning companies.

And the CEO of Algoma Steel hopes the company’s costly investment in “green steel” production will help shield the company from the industry-wide downturn that previously plunged it into bankruptcy.

“I would never say never, but we are certainly doing everything in our power to definitely minimize, if not eliminate, that risk,” said CEO Michael McQuade, who plans to reduce the company’s carbon footprint by around 70% Reduce percent.

Canada’s steel industry is currently in a position of strength as the economy recovers from a COVID-19 pandemic that reduced demand and emerged in 2019 from a period of punitive tariffs by the Trump administration.

The $ 15 billion industry produces approximately 13 million tons of primary steel, steel pipes and tubes in more than 30 plants in five provinces.

Profits rise as production, which is primarily for sale in Canada and the United States, picks up in prices due to strong demand from rising oil drilling and infrastructure spending. This has not always been the case, as competitors previously flooded the market when transportation costs were lower, which drove the metal’s raw material price down.

Algoma uses the current situation to pursue initiatives that will position it as a low-cost producer in the future.

Only three months after the reorganization into a stock corporation and three years after leaving the judicial bankruptcy protection, the largest employer in Sault Ste. Marie, Ontario, announced a $ 703 million electrical installation plan by converting their greenhouse gas-evacuating blast furnace into an electric arc furnace.

The move, backed by $ 420 million from the federal government and $ 306 million from the merger with Legato, would cut the 120-year-old company’s carbon emissions by about 70 percent.

The new furnace would primarily convert scrap into molten steel using Ontario’s electrical grid, which is largely derived from non-fossil fuel sources.

McQuade said the electric arc furnace is a proven technology that would allow Algoma to match performance to market demand, which is not easily achieved with traditional blast furnaces that heat iron ore with coking coal at high temperatures. The annual capacity would also increase from the current 2.4 to 2.5 million tons by more than 50 percent to 3.7 million tons.

An important driver for this changeover are planned increases in CO2 pricing by the federal government in order to achieve a reduction in Canadian greenhouse gas emissions. CO2 prices are expected to rise from the current US $ 40 to around US $ 170 per tonne of carbon dioxide by 2030.

Spending more now to re-clad your furnace instead of re-clad your furnace would save carbon costs, improve your toughened safety glass profile and become a preferred supplier, he said.

Nevertheless, the switch to electric arc furnaces in the border town, where generations of workers are employed in the factory, is not without cause for concern.

Suspicions have surfaced among local workers that the new technology will further reduce employment, which has fallen to 2,500 due to automation. In Canada, direct steel employment has declined by more than half since the 1970s, standing at around 22,000, compared with 35,000 in 1990.

“It is possible that the impact will be very small if you get it right. The problem was that they did not consult with us and so there is great fear among workers that I will lose my job, ”said Meg Gingrich, Assistant to the National Director of United Steelworkers Canada, Ken Neumann.

McQuade won’t say how many jobs will eventually be cut, but notes hundreds of employees are retiring. He said the company had made transparent why the transition is needed, noting that there will be a hybrid phase where existing and new technologies will converge and it may take until 2029 for a full transition to take place.

Canada’s second largest steel maker is not alone as the industry adapts to what McQuade calls the new paradigm.

The federal government is also tapping into a $ 8 billion program in support of industrial decarbonization by investing $ 400 million in ArcelorMittal Dofasco, which is pursuing a $ 1.7 billion project to turn coal-fired steel production into to phase out its facilities.

Canada’s largest flat steel producer and largest private employer in Hamilton said the project will reduce carbon dioxide (CO2) emissions by up to three million tons per year by 2030.

Canada’s steelmakers are already some of the greenest in the world, but the industry is aiming to be net zero by 2050, when global demand is expected to grow more than a third of current levels. It is estimated that the steel industry currently causes around seven percent of global CO2 emissions.

“With 16 million tons of carbon emissions per year and a carbon price of $ 170, we know this is an issue,” said Catherine Cobden, President and CEO of the Canadian Steel Producers Association.

She said the two conversion projects are part of a journey to net zero that won’t be easy.

“I think it’s almost existential for us. We live in a country that has significant climate goals and strong regulatory and carbon pricing mechanisms to support these goals. ”

Cobden said reaching net zero will require a lot of investment and additional political support from the government. That includes sourcing requirements that help buy low carbon steel and drive the transformation even further, she said.

At the recent COP26 Environment Summit in Scotland, Canada signed the Industrial Deep Decarbonization Initiative, which requires countries to take green factors into account when purchasing materials, including steel.

The United States and the European Union also recently announced that they would negotiate the world’s first carbon-based sectoral agreement to trade steel and aluminum by 2024. The agreement, which is open to other interested countries, would give access to their markets for dirty. constrain steel and restrict access to countries – especially China – that offload steel and contribute to global oversupply.

A carbon-based deal is expected to spur investments in green steel production, while the new $ 1 trillion bipartisan infrastructure deal in the US promises to see demand rise for years to come, provided there are no restrictions on free trade said Cobden.

Steelmakers aren’t currently getting a premium on low-carbon steel, but stricter sourcing rules could drive demand for it, said Sarah Petrevan, policy director of Clean Energy Canada, a think tank at Simon Fraser University.

“As the market becomes more and more competitive, there could certainly be a bonus for whoever could ever produce the cleanest of the highest quality,” she said in an interview.

Achieving net zero will require the adoption of various clean technologies, particularly the use of green hydrogen, which is at an early stage of technology maturity, Petrevan said.

“At the moment, some of these technologies that the steel industry needs are not available or are commercially available, but they are not yet commercialized enough to be easily affordable.”

This report by The Canadian Press was first published on November 21, 2021.

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