Steel and cement are responsible for around half of all industrial greenhouse gas emissions^[1] and nearly 14 percent of emissions worldwide.^[2][3] Growing global population and urbanization trends are key drivers increasing demand for steel and cement in the construction industry and transport industry. Advancements in technology have a pivotal role to play in mitigating the effects of climate change by optimizing material use, improving production processes and adopting alternative fuels.
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Technological developments and trends

Demand-side interventions crucial for emissions reduction

A key take-away regarding steel and cement’s climate impact is this: many construction projects use 30 to 50 percent more cement and steel than required when these materials are used more efficiently.^[4]Reducing demand for materials is increasingly recognized as necessary for emissions reduction. Such an intervention for steel and cement requires smarter design, education and changes to building codes.

Many construction projects use 30 to 50 percent more cement and steel than required when these materials are used more efficiently

Technology to mitigate climate change has an important role to play. Modern, lightweight and low-carbon materials, plus computer modelling for climate-smart design, all help reduce over-engineering and waste of resources.^[5] Reuse and recycling technologies further limit demand for primary production. The growing use of electric arc furnaces (EAFs), which are furnaces that produce steel using electricity instead of fossil fuels, is increasing the scrap recycling rate as they can be fed almost exclusively with recycled steel. But this must be supported through better sorting and better availability of quality scrap metals. According to Bataille et al.,^[6] the main route toward decarbonizing steel is by increasing scrap use from 26 to 46 percent of global production by 2050.

The promise of green hydrogen

The single most high-impact climate change mitigation strategy for industry is to switch to cleaner fuels.^[7] Improving energy efficiency is also crucial, but views differ on the extent of its untapped potential within the mature steel and cement sectors. Direct reduced iron (DRI) as an alternative to traditional ironmaking for the steel industry means iron can be produced directly through a solid-state process. The DRI process currently constitutes five percent of global steel production – and has opened the door to replacing fossil fuels as a fuel source. While DRI mainly inputs natural gas, green hydrogen is an emerging and lower carbon alternative whose emission-reduction potential is up to 97 percent.^[8][9]

The downside is that green hydrogen steel and cement plant production and application is not expected to scale this decade. Moreover, it is dependent on an abundance of renewable energy sources. Most steel and cement plants are located in countries whose electric grid systems are fossil-fuel heavy.^[10] This highlights the importance of a dual focus on a general greening of electricity grids.

Alternative fuels and electrification in steel and cement

In the cement sector, a majority of plants already burn alternative fuels – such as used oils, biomass or other waste types – to some extent. However, there is a lack of a consensus on the climate impact of biomass and waste incineration, with environmental organizations working toward limiting their use in cement plants.^[11] Despite this, their use is growing, with countries such as Germany having achieved nearly 70 percent alternative fuel use within its cement sector, mainly by burning plastic, sewage sludge and other waste fractions.^[12]

In terms of electrification technologies, maturity level differs between the steel and cement sectors. Although there are companies in Finland and Sweden developing electric kilns for the cement industry, they have not been piloted at a cement plant. Challenges relate to high cost, stability and the capacity to generate high temperatures. Electric-arc steelmaking has by contrast come significantly further, accounting for almost 29 percent of all steel produced in 2018.^[13]

Leapfrogging with breakthrough technologies

Booming demand for construction materials has stagnated climate change mitigation progress.^[14] Managing demand for materials with a large carbon footprint such as steel and cement is crucial as cities, economies and populations continue to grow. Emerging economies and developing countries face a dual challenge of development, on the one hand, and decarbonization, on the other. An integrated approach is therefore necessary if carbon lock-in and a costly transition are to be avoided.

Managing demand for materials with a large carbon footprint such as steel and cement is crucial as cities, economies and populations continue to grow

Slow progress on decarbonization calls for innovative and transformative solutions. The steel and cement sectors continue to explore breakthrough technologies to reach climate goals. These include carbon capture and storage, green hydrogen and alternative methods for cement production. On the horizon  are Industry 4.0 revolution technologies for interconnected and “smart” plants. Such technologies allow components of steel and cement manufacturing to interact better through process monitoring and energy and material use optimization. They include technologies such as digital twins, internet of things (IoT) sensors and artificial intelligence (AI)-supported diagnostics for operations monitoring.

Breakthrough technologies could bring leapfrogging opportunities. A number of studies have shown them to be instrumental for the fundamental changes needed to achieve global climate targets.^[15] Yet, although these technologies may be promising, their development and deployment requires high capital investment and progress has so far been slow.

Proven solutions require urgent implementation

Out of 29 active carbon capture and storage (CCS) projects worldwide, only one has been developed commercially at an iron and steel plant. For cement, two projects are under construction and four in early development.^[16][17] Globally, just 0.1 percent of the world’s emissions are currently captured and stored.^[18] Meanwhile, the climate change mitigation potential of emerging technologies is unclear from a life-cycle perspective, for example, for digital technologies. The information and communications technology (ICT) sector can offer tools for industry to monitor and lower its energy usage and emissions. But the ICT sector itself accounts for between 1.8–2.8 percent of global GHG emissions – and by some estimates even up to 3.9 percent.^[19]

Moreover, a heavy reliance on breakthrough and emerging solutions risks overlooking proven technologies and thus missing the window of opportunity to act on climate change. Considering the long lifespan of industrial plants, the steel and cement sectors must adopt and implement new low-carbon technologies this decade. This reduces the risk of stranded assets such as steel furnaces which could become inoperable or devalued as countries seek to reduce their carbon emissions.^[20] While innovation is needed, a first priority must be to implement and scale those technologies proven to be effective for material efficiency and circularity, fuel switching and process efficiency. This chapter presents an array of examples, from proven to horizon technologies.
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Patents and finance

A range of models and forecasts indicate that existing technologies will not take us all the way to net-zero emissions.^[21] Continued innovation and development of technology to mitigate climate change is therefore crucial. Examining trends in the patenting of new solutions points to where innovation is most active. The examples below focus particularly on breakthrough technologies, such as hydrogen and CCS, where significant innovation and scale-up is called for.

Patent trends for decarbonizing steel and cement

A 2022 patent analysis of low-emission steel and iron ore found 4,246 patent families have been filed since 2015 – and the number is growing. While most patents filed related to iron ore processing and transport, production methods for low-emission steel have seen the fastest growth. Patents included CCS incorporation into blast furnaces, substitution of coke with alternative fuels, electric arc furnaces and direct reduced iron (DRI) technologies. This is also where the majority of emissions occur. China had the most patent applicants in this field, accounting for 88 percent of patents filed.^[22]

For cement, the number of low-carbon technology patents have also grown steadily since 2000, with China as a major innovation hub. Research has focused most on substituting clinker – an integral but energy-intensive component of cement production – and less on radical changes to the raw material mix. However, while clinker-substitution technologies and chemical admixtures have twice as many patent families compared to novel cement technologies, few are yet commercialized.^[23] Better performance-based standards could help drive the development of alternative materials within the cement industry.^[24]

Patent trends for carbon capture and storage

As noted by the International Energy Agency (IEA), global patent applications for CCS technologies have lost momentum in recent years. Patents in the CCS sector have declined by almost 7 percent since 2013, after witnessing near 10 percent growth over the previous decade.^[25] This is contrary to the general technology patent application trend. One explanation could be exaggerated expectations in the early 2000s regarding CCS technology scale-up, followed by its financial viability coming into question. That said, the total number of patents is significant. Nearly 42,000 patent families have been filed in relation to CCS since 2015. A majority are in an active state, meaning the patent has been granted and can be used by the owner. Among the top filers are applicants from China, primarily companies, followed by universities.^[26]

Patent trends for hydrogen technologies

Hydrogen technologies and patents are steadily increasing, largely driven by government policies. As of early 2021, more than 30 countries had produced hydrogen roadmaps.^[27] Since 2010, more than 32,000 patent families have been filed globally. Of those, 77 percent are active, potentially indicating a high level of commercial interest. China, the United States and Japan dominate in terms of number of patent filings across hydrogen technology areas. More than half of patents focus on hydrogen production, mainly related to electrolysis, the rest focus on storage, distribution and utilization.^[28]

In terms of hydrogen utilization, a majority of patent filings relate to its application in industrial processes and electricity generation (figure 4.1). This is promising for the steel and cement sectors^[29]

Patent trends for Industry 4.0 technologies

Patent applications for Industry 4.0 technologies – defined in Industry 4.0 chapter – have seen a remarkable development in the past decades. Their growth is five times the baseline growth rate for technologies overall, and accounted for 11 percent of global patenting activity in 2018 (figure 4.2).^[30]

This massive growth in applications is dramatically bigger in the United States compared to Europe, Japan, China and the Republic of Korea, respectively. Patenting activity is also highly concentrated. The United States and China have the largest digital platforms, host half the world’s biggest data centers and have the highest 5G adoption rates. In terms of research and development, the United States and China account for 70 percent of the world’s top AI researchers and 94 percent of AI start-up funding in the past five years.^[31]

Certain technologies have seen an even more explosive patent growth. Blockchain patent filings have grown by between 140–230 percent annually since 2013.^[32] Artificial intelligence and machine learning filings increased four-fold globally between 2012–2016, 92 percent of which were active in 2019.^[33]

Figure 4.2 Global growth in patents for Industry 4.0 technologies (dark green) compared to all technology fields (green), 2000–2018

Source: EPO, 2020.

However, by no means do all the patent applications in question relate to the manufacturing industry. For blockchain, applications mainly relate to payments and transaction systems, financial services and e-commerce.^[34] For machine learning, of the 36,740 patents filed since 2012, only 1,549 relate to industry and physical manufacturing applications, but instead include sensors for optimizing performance and monitoring, supply chain optimization and the use of machine learning for better product design.^[35]

ICT technologies in the manufacturing industry have the potential to reduce GHG emissions. They can do so by enabling better energy monitoring and management. Yet, the rate of innovation within the energy-saving ICT sector slowed over the past decade. On a more positive note, the slow-down in energy-saving ICT innovation has been less marked than for other climate change mitigation technologies.^[36]

Significant investment gap for steel and cement decarbonization

Mitigation technologies in the steel and cement sectors have to contend with complex and long-term investment cycles. This means that only significant and urgent upfront investment can help avoid a carbon lock-in effect. For steel, adopting low-carbon solutions will require close to USD 200 billion globally until 2050. In addition, USD 2 trillion is needed for necessary infrastructure such as CO₂ pipelines and storage facilities.^[37] According to a report by research and consultancy company Wood Mackenzie, decarbonizing steel  will require a USD 1.4 trillion investment by 2050, together with “nothing less than a revolution at every stage of the value chain” in order to get us there.^[38]

Mitigation technologies in the steel and cement sectors have to contend with complex and long-term investment cycles. This means that only significant and urgent upfront investment can help avoid a carbon lock-in effect

Despite a growing number of announced investments, a concert of interventions is needed if low-carbon technologies are to be significantly accelerated. For steel, there is a 855-metric tonne capacity gap between what is planned for low-carbon steel production and potential investment in high-carbon steel production this decade.^[39] For decarbonizing cement, a cost assessment of low-carbon technologies per tonne of CO₂ reduced serves to highlight the range of costs associated with the various options. Interestingly, certain technologies such as clinker substitutes show a negative abatement cost, indicating their high-impact potential if scaled and promoted.^[40]

Governments play a key role

Major steel and cement producers are simultaneously investing in proven technologies while funding research and development into breakthrough technologies. Government grants play a key role in these sectors’ climate transition. In March 2023, the US Government announced USD 6 billion funding directed at decarbonizing heavy industries, such as steel, cement and aluminum, through competitive grants to cover projects led by technology providers, industry and universities.^[41] Countries including France, Germany and the United Kingdom (UK) have likewise pledged significant funds to these same sectors. In 2022, Germany provided more than USD 700 million to fund steel producer Salzgitter’s low-carbon initiative to build two direct reduction plants and three electric arc furnaces. Earlier that year, the French Government announced a USD 1.7 billion investment pledge by 2030 in support of ArcelorMittal’s low-carbon program.^[42] The European Union’s (EU) Green Deal and the United States’s Inflation Reduction Act are likely to incentivize further support, while the EU’s new Carbon Border Adjustment Mechanism putting a carbon price on imported goods is expected to incentivize emission reduction in internationally-traded commodities like steel and cement.

High-income countries and China are responsible for most low-carbon steel projects (for primary production).^[43] At the same time, China relies on high-emitting blast furnaces that are still relatively new. Much will depend on China, producer of more than 54 percent of the world’s steel.^[44]

Avoiding conventional primary production may be even more important in India, the second largest steel producer and the country with the biggest estimated growth in steel demand.^[45] While a number of large high-carbon steel plants are planned ^[46], certain companies are leading the transition. For example, Indian steel company JSW Steel recently raised USD 1 billion in sustainability-linked bonds.^[47]

Innovative funding mechanisms at exploration stage

New initiatives are arising to innovate the deployment of low-carbon technologies. Many are still in the exploration phase. Financing Steel Decarbonization is a USD 1 billion funding mechanism proposed by company Smartex and the National Renewable Energy Laboratory (NREL) in the United States to promote the adoption of a wide range of technologies within the Indian steel sector. Funds must first be pooled from donor grants, private investors and other sources; half will cover the implementation of commercial technologies, and half will go toward piloting breakthrough technologies.^[48] This is key considering breakthrough technologies, such as green hydrogen and carbon capture technologies, are still at the pre-commercial development stage.

Other innovative initiatives to finance industrial decarbonization include carbon contracts for difference (CCfD)– a financial instrument in which a fixed carbon price is set over a given period of time, to be shared between a public and private entity with the aim of reducing investment risk for companies. Green public procurement is also growing in relevance. For instance, the Industrial Deep Decarbonisation Initiative (IDDI) is a global coalition of private and public sector organizations whose aim is to encourage at least 10 governments to commit to the public procurement of low-carbon steel and cement within the next three years.

Green steel assurances are yet another approach pioneered by a few large steelmaking companies in Europe. This involves issuing CO₂-saving certificates for low-carbon initiatives. These can then be traded as premiums to customers who are eventually able to claim the equivalent reductions in their Scope 3 emissions (see box 4.6) according to GHG protocol standards. A yet unsolved challenge is third-party verification and the risk of double-selling certificates in the downstream value chain.^[49]

Meanwhile, the interest of venture capital firms and banks in steel and cement decarbonization startups has increased, with more than USD 7 billion raised within the past two years. Swedish startup H2 Green Steel alone has secured nearly USD 5 billion in debt financing from public and private banks.^[50]

More international collaboration needed

To avoid carbon lock-in, developing countries need to adopt climate technologies alongside the rest of the world. International cooperation through technical assistance, technology transfer, grants and loans has an important role to play, but has fallen short so far.

A large proportion of international climate finance goes toward climate change mitigation projects. However, few of these have benefitted the steel and cement sectors

A large proportion of international climate finance goes toward climate change mitigation projects. However, few of these have benefitted the steel and cement sectors. In fact, international finance institutions have limited exposure to either sector and their green industrial strategies are at an early stage.^[51] However, they have a key role to play in emerging and developing nations in terms of de-risking investments for early adopters, stimulating demand, strengthening value chains and investing in enabling technologies.

Carbon credits and pricing schemes

In terms of carbon credits, the steel and cement sectors are both included in major schemes. These include the EU emission trading system, as well as China’s carbon market, which became operational in 2021 and is three times the size of the EU emissions market. Furthermore, India has now announced its plan to start a carbon trading market for major emitters within the energy, steel and cement industries.^[52] We are already seeing the impact of carbon credits. Following the Canadian Government’s declared intention to increase the carbon price from USD 30/tCO₂ to USD 130/tCO₂ by 2030, Algoma Steel announced a USD 529 million investment into converting its high-emitting blast furnace into an electric arc furnace – a move that could reduce the company’s emissions by 70 percent. More than half of the funds needed to cover the transition were provided by the government in this case.^[53]

Carbon markets are, however, riddled with free allowances and exemptions for key emitters. In reality, they cover no more than 20 percent of global steelmaking capacity. Moreover, current pricing levels are not sufficient to achieve 2050 net-zero targets

Carbon markets are, however, riddled with free allowances and exemptions for key emitters. In reality, they cover no more than 20 percent of global steelmaking capacity. Moreover, current pricing levels are not sufficient to achieve 2050 net-zero targets. International cooperation is central to creating a level playing field within these industries and ensuring that a loss of competitiveness does not continue to be a barrier to more ambitious carbon pricing.^[54]

Rules to govern the international carbon market proposed under Article 6 of the Paris Agreement have now been agreed upon. It is envisaged that countries’ carbon markets will be linked together and a central United Nations (UN) mechanism created for emissions trading through the implementation of specific projects. When in place, such funding mechanisms are expected to help implement low-carbon projects within the steel and cement industries in the medium to long term.^[55]
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