University of Toronto making symbolic move in fighting climate change by divesting its fossil fuel investments
TORONTO -- The steel industry is at a crossroads, with government policies like carbon pricing designed to combat climate change hitting manufacturers' bottom lines and international pledges likely to seek further concessions from companies that burn fossil fuels.
And the chief executive of Algoma Steel is hoping the company's costly investment to make "green steel" will help to insulate it from the kinds of sector-wide downturns that previously threw it into bankruptcies.
"I would never say never, but we are certainly doing everything in our power to certainly minimize, if not eliminate that risk," says chief executive Michael McQuade, who has plans to reduce the company's carbon emissions by about 70 per cent..
Canada's steel industry is currently in a position of strength as the economy recovers from a COVID-19 pandemic that diminished demand and having emerged in 2019 from a period of punishing tariffs imposed by the Trump administration.
The $15 billion industry produces about 13 million tonnes of primary steel, steel pipe and tube products in more than 30 facilities in five provinces.
Profits are soaring as production destined primarily for sale in Canada and the U.S. fetches elevated prices amid strong demand from an uptick in oil drilling and infrastructure spending. That has not always been the case as rivals have previously flooded the market when transportation costs were lower, sending the commodity price of the metal lower.
Algoma is taking advantage of the current situation to pursue initiatives it says will position it as a low-cost producer in the future.
Just three months after again becoming a public company and three years after emerging from court protection from creditors, the largest employer in Sault Ste. Marie, Ont., announced a $703-million plan to go electric by converting its greenhouse-gas spewing blast furnace to an electric arc furnace.
The move, supported by $420-million from the federal government and US$306 million from its merger with Legato, would reduce the 120-year-old company's carbon emissions by about 70 per cent.
The new furnace would primarily convert scrap metal into molten steel using Ontario's electricity grid, which is largely sourced from non-fossil fuel sources.
McQuade said the electric arc furnace is a proven technology that would allow Algoma to adjust output to market demand, something that is not easily achievable with traditional blast furnaces that heat iron ore with coking coal at high temperatures. Its annual capacity would also increase more than 50 per cent to 3.7 million tonnes from its current capacity of 2.4 to 2.5 million tonnes.
A big driver for this conversion is planned increases to carbon pricing by the federal government to spur a reduction in Canada's greenhouse gas emissions. Carbon prices are set to rise to about $170 per ton of carbon dioxide by 2030 from $40 currently.
Spending more now to go electric instead of relining its blast furnace would save carbon costs, improve its ESG profile and become a supplier of choice, he said.
Still, the move to electric arc furnaces isn't without concern in the border city where generations of workers have been employed at the plant.
Suspicions have surfaced among local workers that the new technology will further cut employment, which has dipped to 2,500 because of automation. In Canada, direct employment in the steel sector has declined by more than half since the 1970s and stands at about 22,000, from 35,000 in 1990.
"It's possible that there will be very little impact if they do it properly. The problem was that they didn't consult with us, and so there's just a lot of fear among workers, like am I going to lose my job," said Meg Gingrich, assistant to United Steelworkers Canada national director Ken Neumann.
McQuade won't say how many positions will ultimately be shed but he notes hundreds of employees are eligible for retirement. He said the company has been transparent about why the conversion is needed and noted there would be a hybrid phase in which the existing and new technologies will run together and may take until 2029 for a full transition to occur.
Canada's second-largest steelmaker isn't alone as the industry adjusts to what McQuade describes as a new paradigm.
The federal government is also tapping into an $8-billion program supporting industrial decarbonization by investing $400 million in ArcelorMittal Dofasco, which is pursuing a $1.7 billion project to phase out coal-fired steelmaking at its facilities.
Canada's largest producer of flat-rolled steel and the largest private-sector employer in Hamilton said the project would reduce carbon dioxide (CO2) emissions by up to three million tonnes per year by 2030.
Canada's steelmakers are already among the greenest in the world but the industry is striving to become net zero by 2050 when global demand is expected to soar by more than a third from current levels. The steel industry is currently estimated to account for about seven per cent of the world's carbon emissions.
"When you have 16 million tons of CO2 emissions per year and $170 carbon price coming at you we know we need to address it," said Catherine Cobden, president and CEO of the Canadian Steel Producers Association.
She said the two conversion projects are part of a journey to net zero that is not going to be easy
"I think for us it's almost existential. We're living in a country that has got significant climate objectives and strong regulatory and carbon pricing mechanisms to back those objectives."
Cobden said achieving net zero is going to require a lot of investment and additional policy support from government. That includes procurement requirements that support the purchase of low carbon steel and stimulate the transformation even further, she said.
At the recent COP26 environmental summit in Scotland, Canada signed on to the Industrial Deep Decarbonization Initiative, whereby countries would require green factors to be considered for the purchase of materials, including steel.
The United States and the European Union also recently announced a commitment to negotiate the world's first carbon-based sectoral arrangement on steel and aluminum trade by 2024. The deal, which would be open to other interested countries, would restrict access to their markets for dirty steel and limit access to countries -- namely China -- that dump steel and contribute to worldwide oversupply.
A carbon-based arrangement is expected to drive investment in green steel production while the new US$1-trillion bipartisan infrastructure deal in the United States holds promise of increased demand for years to come, provided there are no limitations on free trade, said Cobden.
Steel producers currently don't receive a price premium for lower carbon steel but tighter procurement rules could boost demand for it, said Sarah Petrevan, policy director Clean Energy Canada, a think-tank based out of Simon Fraser University.
"Certainly as the market becomes more and more competitive there might be a premium offered to who could ever produce the cleanest at the highest quality," she said in an interview.
Achieving net zero will require the adoption of different clean technologies, particularly the use of green hydrogen, that is at the early stage of technology readiness, Petrevan said.
"Right now, some of those technologies that the steel industry need are not commercially available or they're commercially available, but they're not commercialized to a point where they're readily affordable."