The steel industry’s big problem is that the main way iron ore is turned into steel creates a lot of pollution.
“We have been producing steel and improving it for centuries, and now we need to spend more time finding low-carbon ways to make it,” says Johan Hansson, a loan officer at the European Investment Bank.
The steel industry is responsible for about 7% of global carbon emissions. So the European Investment Bank, Europe’s top climate investor, can only back steel investment that is sustainable and innovative.
One deal that did qualify for support in 2024 from the European Investment Bank is a €300 million loan approved in June to help the large Austrian steel company Voestalpine conduct research into innovative steel products and sustainable manufacturing. The European Union’s financing arm backs steel research because it supports the sector’s path to sustainability.
Voestalpine, one of the largest steelmakers in Europe, will use the money over four years to research and develop processes that use less energy, consume fewer raw materials, and extend the life of steel products.
- Watch a video explaining the European Investment Bank’s support for new technologies and low-carbon steel.
How to stay ahead in steel
More research can help the environment, but it also is the main way Voestalpine can compete globally in the steel market, says Gerald Mayer, the company’s chief financial officer.
“We are facing an extremely difficult economic environment, especially for European steel companies,” Mayer says. “Increased costs for energy and labour, along with the massive increase in price pressure from non-European competitors, for example from China, makes it a big challenge to stay competitive internationally. Fortunately, our innovative steel products are highly sought after in the most demanding sectors.”
Voestalpine
Voestalpine has about 800 employees working on research in more than 70 sites around the world. It is one of the biggest investors in steel innovation in Europe. Its latest sustainable steel project is called greentec, which will cut emissions by up to 30% starting in 2027, compared with 2019 levels, by partially replacing carbon-intensive blast furnaces with electric arc furnaces.
The main requirement for these arc furnaces is a big supply of electricity from renewable sources such as wind turbines or solar parks. Voestalpine has signed several contracts with green electricity suppliers and plans to be carbon neutral by 2050. The company also is installing large solar panel networks at its sites.
EIB backing for steel
There are times when the European Investment Bank can extend its support for the steel industry beyond research. The Bank signed a €314 million deal at the start of 2024 for a new H2 Green Steel plant in Boden, Sweden, that will make steel from iron ore with hydrogen and, consequently, 95% less carbon emitted. In 2020, the Bank approved a €75 million loan with ArcelorMittal in Belgium to develop a technique that captures carbon gasses emitted by blast furnaces and transforms them into ethanol.
- The European Investment Bank’s president, Nadia Calviño, explains the need for more investment and innovation in carbon-intensive industries such as steel and cement.
Here are the two main ways to make steel
1) Primary steelmaking: A blast furnace uses coal and hot air to chemically transform iron ore into iron, and then into steel.
2) Secondary steelmaking or recycling: An electric arc furnace uses electricity to create high-powered arcs that melt scrap metal. A lot of steel is recycled this way, and about one-quarter of new steel is made with this method. Steel is one of the most recycled materials, but reusing the scraps will not satisfy demand.
Helping regions that will be hurt the most
Because of innovation and investment, the European Union is the second-largest producer of steel in the world after China. Its output is nearly 180 million tonnes a year, or 11% of global production, compared to China’s roughly 1 billion tonnes.
“A large part of the innovation in the steel industry over the last 20 years has been in Europe,” says Marc Tonteling, a senior engineer at the European Investment Bank and an expert in steel investments. “Just think of why your car rusts much less than it did in the 1990s, and why vehicles are much safer today in car crashes. That’s due to new steel grades and innovation.”
The European Commission and the European Investment Bank are working together to support research and innovation in cleaner steel. Investment programmes, such as Horizon Europe, have funded many billions of euros in research to cut emissions in steel, cement and other carbon-intensive sectors. The Just Transition Fund is helping regions and countries that depend heavily on steel production, coal mining and cement switch to more sustainable societies and economies.
- Read this story to learn more about ArcelorMittal’s investment in cleaner steel.
Better steel means better trains, planes and automobiles
Voestalpine set a company record in 2024 with a research budget of €240 million to keep inventing products that help a wide range of businesses.
“Research and development have significantly improved steel products in so many sectors —automotive, railway, aerospace or energy are only a few examples,” says Mayer, the Voestalpine chief financial officer. “This has enabled lighter, safer, and more fuel-efficient cars, more efficient electric motors, rail tracks that report maintenance requirements to network operators in real time, aircraft components that withstand extreme conditions.”
Voestalpine
Sustainability comes with a cost
Finding more sustainable production processes can raise steel prices a lot. This is because companies must spend millions of euros on research, new equipment and training. One estimate suggests that it is 25% more expensive to make low-carbon steel. A lot of steel research today focuses on making a product that emits less carbon and does not increase costs substantially.
Most of the so-called green steel is not able to compete with cheaper steel made from traditional blast furnaces, but it is still in demand. Industries such as the automotive sector will pay a premium for a sustainable, high-quality product. And new regulations in the European Union and other regions are making it mandatory that companies use more low-carbon steel or pay tariffs.
Tonteling, the senior engineer at the European Investment Bank, says the one thing we can’t do with steel in the future is stop making it.
“Just think about how you got out of bed this morning,” he says. “There is steel in the bed. And think how many times you use steel to leave the home, get to work, ride a bike, drive or take public transport. Steel is everywhere and it can’t be replaced. There is no other method or material that has the same properties and that is this abundant and relatively cheap.”
- Read about a company in Belgium using byproducts of steelmaking to cut carbon emissions.
