Posted on 08 May 2023
Seungwan Kim is chief executive and founder of NEXT Group, an energy and climate policy think tank based in Seoul, and is a professor of electrical engineering at Chungnam National University in Daejeon, South Korea.
POSCO Holdings, South Korea's leading steelmaker, last month announced a new vision of becoming a "green energy and global business pioneer," with the aim of doubling its sales of "eco friendly" steel by 2030.
This is only the latest such declaration to come out as the world's biggest steelmakers seek to reposition themselves for an existential race to lead the world in green steel production.
Over the last few years, major steel users including global shipping line Maersk, Mercedes-Benz Group, BMW, Volvo Cars and Apple have each publicly declared that green steel will be a key part of their future manufacturing plans.
Maersk, for example, announced last year that by 2050 it will aim to ensure the use of completely net-zero steel in the ships, buildings and equipment it acquires. Volvo and Apple have both signaled their intent to mainstream carbon neutrality across their supply chains by 2030.
As a response to this dramatic shift in demand, POSCO's new vision will be seen as a welcome change. The move builds on several key steps taken last year, including the announcement that the company will invest 52 trillion won ($38.9 billion) in Australian hydrogen and green steel production as well as a plan to operationalize HyREX, an innovative hydrogen-based steelmaking demonstration plant in Pohang, South Korea.
The Pohang plant is being developed with construction company Primetals Technologies. POSCO hopes it will prove the commercial feasibility of hydrogen-based steelmaking by 2030 and enable the company to gradually replace existing blast furnaces around the country by 2049.
But 2049 is far too late. Moreover, POSCO's carbon neutrality road map is incomplete.
Its recently announced transition road map makes clear the intention to phase blast furnaces in Pohang in 2049, but there seems no current plan to phase out those operating in Gwangyang, South Korea.
Accordingly, NEXT Group estimates that POSCO's emissions intensity will only be reduced by 12.4% by 2030, well behind the International Energy Agency's recommended reduction of 29% by 2030. It is not clear how POSCO can even meet its own 2040 and 2050 emission targets without implementing complementary reduction measures over the next decade.
While POSCO has maintained its position among the world's steel heavyweights so far, 2022 was an incredibly challenging year, one in which the company recorded a 47% profit decline. This will make future investment decisions difficult, but with new steel startups like H2 Steel and Boston Metal promising to create net-zero steel by 2025, POSCO may have no choice but to adapt.
Late last year, the European Union introduced the world's first green tariff on imports. The tariff, known as the Carbon Border Adjustment Mechanism, is scheduled to come into trial use as early as October and will significantly increase the cost of high-emission steel imports into the EU from as early as 2026.
The U.S. and EU are also said to be looking to establish a "green steel club" that would set collective standards for carbon intensity in the steel sector and penalize high-carbon exporters.
NEXT Group has estimated that at current shipment volumes, the CBAM alone could increase the cost of South Korea's high-emission steel exports by 299 billion won by 2026. These costs could exceed 700 billion won by 2034, when the EU is scheduled to tighten CBAM rules.
If similar tariffs are adopted by the U.S., South Korea's industry leaders could be put in a difficult position, unless further action is taken to ramp up the country's own national transition.
The South Korean government has a crucial role to play in ramping up a timely industrial transition that will safeguard both major and minor players.
The first priority should be to expand the country's emissions trading system, which currently gives a free ride to the steel industry, leaving it vulnerable to international tariffs such as the CBAM. Without more domestic action, South Korean companies could find themselves effectively locked out of key markets.
But regardless of whether the CBAM is expanded, South Korean steelmakers need to move faster. The government can facilitate this transition through its public procurement policies and by ensuring domestic demand for low-carbon steel.
On the back of significant investor and buyer interest, 2023 represents a critical moment to do just this and to ensure a sustainable future for South Korea's steel industry. It is not just about making eco-friendly steel. It is also about mitigating a strategic risk for steelmakers who can't move fast enough.
Source:Nikkei Asia
