The threat climate change poses to the long-term sustainability of our planet is widely understood and accepted. The rising levels of awareness and commitment to address the challenge are encouraging. The Paris climate agreement has 185 signatories and a growing number of countries, as well as companies, have ambitions to achieve climate neutrality by 2050.
That is the good news. The harder part is that “solving” climate change poses very complex technical and political challenges. This is clear from the fact that, despite the efforts to date, global emissions continue to grow. And demand for energy, materials, transport and food will only intensify as the world continues to develop and the population further increases.
Clearly it is essential we invent new ways of doing things that don’t rely on fossil fuels. For the global steel industry, that means while it continues to reduce its carbon footprint through energy efficiency, ultimately an energy source other than coal will be required to extract iron from iron-ore, a critical part of the primary steel-making process.
ArcelorMittal is piloting several new technologies, including carbon capture and the use of alternative energy sources such as renewable carbon and clean energy. At least one of these initiatives needs to be viable. As Simon Thompson, chairman of Rio Tinto, noted recently, steel is “essential to human progress” and there are no obvious substitutes for it in a range of applications.
The technology challenge, however, may be the easier part of the problem to solve. The harder part relates to the political complexities, which are considerable. In the developed world it can be hard to persuade current generations to make drastic changes, particularly if these threaten jobs, for benefits they are unlikely to see in their lifetime. No politician in a developing country can pursue policies that threaten economic growth and the fight against poverty.
We are going to have to operate with a mosaic of uneven regional and national approaches and policies for some time to come. But from this leaders will emerge. It is imperative they succeed — not only in reducing emissions in their own countries but also in having a positive impact on global emissions.
Unfortunately, the first does not necessarily lead to the second, so there is a major challenge here. The steel industry is a good example of this dilemma. As it stands, Europe’s mechanism to reduce emissions, the emissions trading system, is only applicable to steel companies producing in Europe. Those who export steel to Europe do not bear the same additional cost and therefore will gain an important competitive advantage.
As an editorial in this newspaper stated last week: “There is little point shifting to low-carbon energy if the costs of the transition lead to more imports of steel from less green sources.” Doing so would have the opposite effect of actually increasing global CO2 generation, taking us further away from our targets. There are no borders in the sky.
That is why ArcelorMittal is advocating the introduction of a green border adjustment to ensure there is a level playing field between those producing in Europe and those exporting to the continent.
If the world is to successfully address climate change, the answer is not for one region to outsource its carbon footprint to another and claim victory. Rather, any country or region that wants to play a leading role in reducing global emissions needs policies in place that build a low-carbon industry.
What this means in practice is that lawmakers must create an environment that fosters innovation and ensures a level playing field. No industry can decarbonise by itself. There must be collaboration and partnership between political, business and civil society leadership to establish a system that supports and enables sustainable decarbonisation, taking into account the unique economics and drivers for each industry.
For example, much of the progress in the energy sector in Europe has been made through government subsidy and support: by our calculations, an annual subsidy substantially above €50 per tonne of CO2 emissions avoided.
In the case of steel, investment to accelerate innovation, as well as access to clean energy and renewable carbon at competitive prices, will be essential. Link that to border mechanisms to ensure domestic producers are not rendered uncompetitive and there will be a structure in place to enable the steel industry to decarbonise in-line with the Paris agreement.
It is this type of action that will be required if we are to succeed in solving one of the greatest challenges of our age. I remain optimistic about human beings’ ability to innovate and transform. But making progress will require a degree of co-operation and foresight, and an acknowledgment that this is a complex global problem.
Unlocking significant contributions from industries like steel will take us all a step nearer to achieving the aspirations set out in Paris in 2015.