Green Steel Is Poised to Change the Auto Industry

The eyes of the car-buying public are usually trained on the flashy new offerings at the New York International Auto Show or, more realistically, on whatever models are on the lot at the nearby dealership. So it’s a good bet that few Americans took note of a virtual event that Volvo Group held in Gothenburg, Sweden, last October. Never mind that the unveiling was anything but flashy, but the vehicle making its debut wasn’t even a passenger car. It was an 8.2-ton hauler that’ll be put to work in the mining and quarrying industry. (It goes without saying: This is not your father’s Volvo.) Since the electric vehicle is also autonomous and requires no driver, the canary-yellow hulk was essentially a dump truck with its cab chopped off. Why would anyone who’s not in the mining business care about an unveiling like this? Because Volvo Group’s cumbrous hauler was also historic: It was the world’s first vehicle made entirely of zero-carbon steel. “Our ambition is to have fossil-free steel across all our products,” evp Melker Jernberg said in a statement at the time. “This machine is proof that we can really make fast progress.” Welcome to the next chapter in the greening of the motor-vehicle business: the adoption of “green steel,” which refers to steel produced in furnaces that don't burn fossil fuels or emit carbon. The promise of 'clean' metal There’s been talk of cleaning up the steelmaking industry, which makes up as much as 9% of global fossil fuel emissions, for years now. But after Volvo Group—which used carbon-free steel produced by Swedish startup manufacturer SSAB—proved the technology could work on the factory level, the rest of the automotive world heard the sound of a starting gun. “What's happened is a bit of a herd mentality,” said Thomas Koch Blank, senior principal at the Rocky Mountain Institute. Volvo took the wraps off its truck, and now “everyone is racing to be second.” In February, for example, BMW pledged that green steel will make up 40% of steel used in its EU plants by 2030. In March, Volkswagen announced that it plans to begin using low-carbon steel in its Trinity1 electric vehicle starting in 2026. Only a month later, Mercedes-Benz proclaimed it would introduce green steel in several of its models as early as 2025. To gear up, the automaker had already purchased an equity stake in Swedish startup H2 Green Steel (H2GS) in 2021. Stateside, both Ford and GM have also made public commitments to incorporate no-carbon or low-carbon steel, too. (In response to Adweek’s interview requests for this story, Mercedes-Benz and Volvo Group sent written statements, and Ford, Volkswagen, BMW and General Motors did not respond.) SSAB’s Hybrit plant in Sweden is among the first to use fossil-free technology in steelmaking. A green halo effect So why are so many automakers suddenly talking about green steel? Basically, industry analysts say, because they have little choice. Now that electric vehicles are decarbonizing the means of propelling a car, “the next frontier is tackling the materials that go into the car,” Christian Hoffmann, a McKinsey associate partner based in Dusseldorf, Germany, told Adweek. The road to adopting zero-carbon steel is going to be a long one. One benefit of talking about it now is the halo effect, a chance for automakers to look like responsible, even moral, corporate citizens. After all, there are few who wouldn’t get behind Mercedes “pulling out all stops to lower emissions and to support a sustainable future,” as the company promised recently in a statement. And when Ford corporate pledged to “build the future of zero-emissions transportation that is good for people and the planet,” what eco-minded consumer wouldn’t feel at least a tingle of warmth? But since green steel has yet to formally appear on assembly lines, is there really a marketing benefit to be gained for brands making public statements about it? “Yes—that’s what the automotive industry would want to think,” said Frank Bekaert, a McKinsey senior partner based in Brussels, Belgium. “That’s why, at least in Europe, [automakers] are making pretty aggressive announcements in terms of CO2 reduction commitments.” Green steel itself may not get consumers excited, but as the latest addition to car companies’ evolving commitment to reduce carbon emissions, it matters, said Stephan Nicoleau, managing director of FullCycle, a fund that invests in sustainably-minded startups. “That's the marketing win that automakers are going for,” Nicoleau said. “Not that one piece is net zero, not that one piece is negative emissions—but the whole thing.” Promises to use zero-carbon steel are all well and good, but implementation is what will ultimately matter, added Simon Fischweicher, head of corporations and supply chain for CDP. “Until you’re providing numbers on the proportion of steel being used that is zero carbon,” he said, “you can be more focused on marketing.” Breaking with the past Today’s steel is made pretty much the same way it was in 1856, when the Bessemer process for its mass production was invented. Relying on a coal-fired blast furnace, it lowered costs and helped usher in the industrial revolution. Unfortunately, according to the World Steel Association, every ton of steel produced releases 1.85 tons of CO2. (For the sake of comparison, the average human has to exhale for an entire year to produce as much carbon.) In basic terms, cutting the emissions out of the process takes two forms. There's melting down scrap steel in an electric-arc furnace, which reduces carbon but doesn’t eliminate it. The second form is the more ambitious direct reduction of iron method (DRI), which uses hydrogen to cook the ore down to metallic iron to make into steel. With DRI, the only stuff that goes up the chimney is water vapor. These are proven technologies, but they can’t produce steel at the scale required by automakers. Not yet, anyway. “Flat steel, which is to a large extent used for the outer parts of a car, simply is not available in a green format these days,” Hoffmann said. “So the direct-reduction units need to be built up. And, typically, that takes four to five years.” Volkswagen’s dirt Volvo Group’s big yellow dump truck was a one-off build. The brand’s svp of communications Claes Eliasson told Adweek that “the limited factor is the supply of this steel, and mass production is still some three to four years away” and will likely be complicated by supply-chain issues. Blank at Rocky Mountain Institute believes automakers are in a difficult position right now because “customers are getting impatient” to see movement on carbon emissions, but green steel’s viability is still several years off. As a result, he said, automotive companies “are being more conservative in their public commitments,” he said. “My view is there’s real, honest intent to make a difference, [but] they’re scared,” Blank added. “They don't want to come out as someone who made commitments and then not deliver on it.” Automakers are also wary of promising too much, especially in view of a calamity that ensued in 2015. That’s when Volkswagen’s miraculous “clean diesel” engine turned out to be nothing more than a dirty old engine with a cheat device implanted. If automakers don’t make good on even the pledges they’re making about green steel, Bekaert said, it “could be a Volkswagen Dieselgate II.” A slow start Another challenge for automakers centers on cost—to suppliers, to them and, ultimately, to customers. According to the World Economic Forum, 75% of steel is still made in conventional blast furnaces, largely in China and India. Transforming all those sooty old mills to clean-burning new ones means “we need to be allocating capital at a pace we haven’t seen before,” said CDP's Fischweicher. The Biden Administration’s 2022 Inflation Reduction Act contains tax credit incentives to spur this kind of investment. But that’s only in America, and it’s just a beginning. At present, according to the Rocky Mountain Institute’s data, green steel costs up to 30% more to produce than conventional steel. It’s also unlikely an inflation-addled shopper can be easily persuaded to pay a steep markup just for the privilege of driving a car with green steel in the fenders—not least because, according to one Yale study, only 57% of Americans believe that human activities contribute to climate change in the first place. “The question becomes: How do you drive those costs down so that there's less and less of that passing on of the buck?” said Nicoleau, who predicts market forces should, eventually, address the problem. “The more demand [that] is created, the lower the costs,” he added. “So there is a tipping point where we start to have enough demand that supply starts to be something that we can price in.” Principles get a test-drive For his part, Mark Bula, chief commercial officer for H2GS, is not concerned about passing high costs onto customers. “We will leave it to the car companies to determine if consumers will pay for more sustainable products,” Bula told Adweek. “But our research suggests it will represent a 1%-3% increase in the total cost of materials for steel-intensive products such as automobiles.” Bula added that he, as a consumer, is already accustomed to paying a little more for, say, an appliance that’s more energy efficient. When it comes to cars made with green steel, “I am sure I will be looking for the ... CO2 sticker, too,” he said. “Our planet and my kids deserve that level of individual responsibility.” In fact, consumers might get their chance to test-drive those principles sooner than some expect—at least if they’re in the market for a Mercedes-Benz. Spreading its proverbial chips across the felt, Mercedes already has a contract in place with German firm Salzgitter AG to supply low-carbon steel. It was the first company to purchase a stake in H2GS. And it also recently inked a partnership with SSAB. “Together, we are setting the course to bring green steel into our series-produced vehicles as quickly as possible,” Berg said. “The first prototype parts for body shells made of CO2-free steel from SSAB’s plant are already being planned for next year.”

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As Green Steel Revs Up to Change the Auto Industry, Are Carmakers Ready for the Race?

The process is gaining speed in Europe but has its fair share of challenges to address

Robert Klara

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