Written evidence submitted by European Metal Recycling Ltd

1         Summary

1. EMR is one of the world’s largest metal and plastic recycling companies and the largest in the UK by volume. We collect recycled steel (and other metals) in the UK and supply to steelmakers in the UK and worldwide.
2. Most UK steelmaking infrastructure is old, inefficient, and uncompetitive. We are fast falling behind the rest of Europe and the world in decarbonising our supply chain. 85% of Chinese capacity is less than 15 years old[1]
3. The technology to make low carbon steel using hydrogen is maturing fast. Others are already building at scale in Europe.
4. The UK has great steelmaking skills and easy access to offshore wind, one of the lowest cost low carbon power sources.
5. We can and should rapidly grow hydrogen-based steelmaking at world scale in UK.
6. Global steel recycling rates are already high. Supply of recycled steel globally will double to 1.2 billion te/yr by 2050[2].
7. Most recycled steel collected in the UK is currently processed in UK or overseas to make lower value steel, such as reinforcing bar, which is less sensitive to impurities and chemistry.
8. EMR is investing to develop new recycled steel grades with better chemistry, increased density, and improved yields.
9. Better chemistry means more recycled steel can be used in the manufacture of higher grade flat rolled and structural steel products.
10. Combining high specification recycled steel with sponge iron made with hydrogen from ore in integrated steelworks will produce ultra-low carbon green steel.
11. Our modelling for your committee indicates that state of the art integrated plants of this type will make UK steelmakers internationally competitive again.
12. Collaborative investment between power producers, steelmakers and recyclers can deliver these strategic assets for the UK
13. EMR is ready to invest to deliver large volumes of high specification, low carbon impact recycled steel, sourced both domestically and from abroad, to supplement hydrogen based primary steel.
14. Government can create a policy environment that will encourage private sector investment to decarbonise the sector through escalating carbon taxation, mandated carbon targets for construction and making producers responsible for eco design for reuse and recycling.

2         About EMR

2.1         Our company

15. EMR is one of the UK’s largest private companies and a fourth-generation family business. We are wholly owned by the Sheppard family. Our CEO, Chris Sheppard is a family member. The business started in Rochdale in the 1950s and now operates from 160 sites across the UK, USA, and northern Europe.
16. We operate 60 sites in the UK, including deep sea dock and processing facilities at Glasgow, Liverpool and Tilbury and advanced separation plants at Liverpool, Birmingham, Newcastle, Newmarket, and Worksop. 
17. Our sales in 2021 were about £5 billion, including joint ventures. The family has always taken a long-term view and has reinvested approximately 99% of profits back into the business since it was established.
18. In 2020 we made a commitment to reach net zero carbon across scopes 1,2 and 3 by 2040 and we started a ten-year plan which will get us most of the way towards net zero for scopes 1 and 2 on our biggest impact categories by 2030.
19. Chris Sheppard is an active member of DEFRA’s Council for Sustainable Business. Other EMR colleagues sit on the boards of the British Metal Recycling Association and the Environmental Services Association.

2.2         Our representative

20. Mossan Ahmed, EMR Process and Quality Manager.  Mossan has 12 years’ experience in quality control and melt shop formulation with Corus, Tata Steel and Liberty Speciality Steel and 3 years in steel scrap quality optimisation and product development for EMR.
21. Mossan is heavily involved in EMR’s work with steelmakers in UK and Europe to develop new high grade recycled steel products and mineral-rich ore substitutes to help decarbonise the steel industry.

2.3         Where we fit in the Green Steel supply chain

22. EMR brings a different perspective to this enquiry. We supply steelmakers in the UK and all over the world, including the Americas, the Mediterranean, South Asia and Far East.
23. In the UK we are sometimes described as “exporters”, but this mischaracterizes our role in the supply chain. We in fact, operate a logistics, processing, and fulfilment service. In the UK we export the materials that domestic steelmakers do not currently want.
24. In parts of the USA we exclusively service domestic steelmakers and often import raw materials to them in times of local shortage. Recycled steel is a globally traded commodity, like iron ore, metallurgical coal, and sponge iron.
25. We collect, sort, and process around 4 million te/yr of end-of-life products in the UK and a total of 10 million te/yr world-wide.
26. From these inputs we make low carbon impact, sustainable raw materials which we supply to processors world-wide. Our materials include steel, copper, aluminium, brass, and a range of plastics which we return to the manufacturing supply chain.
27. We are developing a range of mineral-rich raw materials for use in cement and steel making.
28. We buy material for recycling from thousands of sources across the UK. To secure this material we must offer the best prices and service. To stay competitive, we must find the best priced outlets anywhere in the World.
29. We serve the UK steel industry by rail and road. We also operate multiple dock facilities around the UK. We supply by deep sea and short sea routes to customers all over the world.
30. Our dock facilities could equally import for domestic steelmakers. The carbon impact of moving by water can be 15 times less than by road.

3         Our evidence

3.1         Low-carbon steelmaking and development of other decarbonising technologies

3.1.1        Scale-up and cost reduction for green hydrogen production

31. Viability of low carbon steel making in the UK will depend on:
1. expanding capacity to generate low carbon power
2. adding resilience to the power grid
3. scaling up technology to produce green hydrogen.
32. Blue hydrogen from natural gas will not help. It must be green hydrogen to deliver full carbon benefits. Natural gas DRI steel plants already convert natural gas to hydrogen and carbon monoxide in the same way as standalone blue hydrogen plants.
33. Green hydrogen electrolysis technology is maturing fast[3][4][5]. Steelmakers in Europe are implementing it at scale.
34. In the appendix to this document, we show the output of our model for your committee of a new world scale integrated green steelworks in the UK.

35. The process makes 3.5 million te/yr of ultra-low carbon hot rolled steel coil for automotive and similar applications.
36. It uses hydrogen made with wind power in the Direct Reduced Iron (DRI) process to convert 3.2 million te/yr of imported iron ore and 2.2 million te/yr of steel bearing materials sourced for recycling in the UK.
37. We estimate that this integrated process will make finished steel with a carbon impact of around 74Kg CO2e/te, competitive with any of the plants planned for Europe or elsewhere.
38. Cost of building the full process, from power generation to finished steel is about £6 billion. It should generate a healthy and steady return for investors. It would create or secure thousands of quality jobs within the UK.

3.1.2        Scale up and grid resilience for low carbon power

39. Steady baseload supply is needed for both hydrogen electrolysis and EAF steelmaking, so hydro or nuclear power are most effective.
40. H2GreenSteel, starting production in 2026 in Northern Sweden, will use hydro power.
41. Analysis by the International Hydropower Association indicates that it is unrealistic to build additional hydro power in the UK at gigawatt scale in the medium term[6].
42. The commercially viable options for UK steelmaking are therefore nuclear or offshore wind.
43. Nuclear presents major technology, permitting and public acceptance challenges.
44. Offshore wind is the most cost-effective and lowest investment risk low carbon power source for the UK. The technology is proven and readily financed. However, it creates serious grid resilience challenges.
45. In the analysis to support our evidence we have compared the costs of offshore wind, plus a pumped storage system to support grid resilience, with Small Modular Nuclear Reactors.
46. Our cost estimate for pumped storage is based on a recent project in Portugal[7]. It’s capacity is 1.1GW. The UK’s largest pumped storage at Dinorwig in N Wales is 1.7GW.
47. The costs of nuclear and offshore wind with pumped storage are roughly comparable in our analysis at about £3.5 billion.
48. Average UK power demand in 2021 was 30GW[8]. UK offshore wind capacity is about 10GW. The world scale green steel process we have modelled would increase total UK power demand by 3% and UK offshore wind capacity by 10%.
49. Although not a zero-carbon solution, the DRI plant could be designed to run on natural gas from the gas grid when the wind is not blowing. This would provide an interim solution until the power grid is strengthened with enough storage to rely fully on hydrogen from renewable power.  We have included a reformer to convert natural gas to process gas in our cost model. This is a standard component of natural gas DRI plants.
50. We suggest offshore wind via the power grid, backed by natural gas supplied direct to the DRI, is the best way to start green steel in the UK today. Later, grid resilience to cut dependence on gas could be delivered by pumped storage or future technologies like hydrogen storage or distributed batteries.
    

3.2         Supply of recycled steel

51. 2 billion te/yr steel is used worldwide. 800 million te/yr of recycled steel is collected and processed. Of this, 200 million te/yr is home scrap produced internally by steelmakers.
52. The total volume of scrap available for collection is forecast to grow steadily over the next 30 years to around 1.2 billion te/yr[9]. Most of this growth will be in the developing world:

53. All recycled steel is already sold and used. Growing demand for recycled steel for decarbonisation in UK and Europe will increase competition with established end markets and increase both scrap and ore prices
54. Today, much of the recycled steel produced in the UK is Heavy Melting Scrap (HMS). HMS is made by shearing material rather than shredding. It looks like this:

55. HMS is purchased by overseas EAF steelmakers and some UK steelmakers because it is less expensive. They can tolerate the relatively high proportion of contaminants that it contains because they make lower specification products, such as reinforcing bar.
56. Shredded steel is made by processing mixed lighter scrap material plus end of life vehicles and the lighter components of HMS
57. Shredded recycled steel contains less residual contaminants, particularly copper, nickel, and chrome. This is because the shredding process separates more effectively the components in the metal products that are recycled.
58. Shredded steel is denser than HMS. This increases productivity and reduces operating cost of the EAF.
59. A shredder processes mixed light scrap, which looks like this:

60. There are two benefits to shredding. You make a cleaner steel, and you recover copper, nickel and chrome which are otherwise lost.
61. In the USA, where most steelmaking has been done by the DRI/ EAF route for 30 years, HMS has virtually disappeared as a grade. Most of the material that would be graded as HMS in the UK is instead put through shredders to make higher purity recycled steel.
62. At EMR in the UK, we are developing new, higher-specification grades of shredded steel in anticipation of increased demand from European strip and long product steelmakers. We are using advanced separation techniques, including robotics with artificial intelligence. Our high purity shredded steel looks like this:

63. As demand grows for these materials from European steelmakers, EMR will invest £50-100 million to expand our UK metal shredding capability. This will allow us to process most of the material that we currently export as HMS.
64. We will invest a further £50-100 million in advanced separation facilities for the 35% non-steel by-products. Recovering full by-product value is essential to stay competitive when buying input material.

3.3         Timescales to achieve fossil fuel feedstock and energy replacement

65. Technology to replace fossil fuel feedstocks is available today at the scale required for green steel production in the UK.

3.4         Targets Government should set for low carbon steelmaking

66. To remain competitive with other steel making nations, the UK steel industry should decarbonise fully by 2030. This would match timetables announced recently in Europe by:
1. Thyssen Krupp[10]
2. SSAB[11]
3. Arcelor Mittal[12]
4. Hydrogen Green Steel[13]
5. Iberdrola[14]
67. The UK Government must set a regulatory and policy environment that encourages long-term investment in low carbon power, gigawatt scale green hydrogen production and modern hydrogen DRI and EAF steelmaking.
68. The UK has excellent finished steelmaking skills and strong local demand. However, our steelmaking processes are outmoded and uncompetitive internationally. If we fail to invest, we will drop out of this market.
69. There is a flood of global investors looking for decarbonisation investment opportunities.
70. If Government creates a stable long term regulatory framework, then investment will come.

3.5         Policy support for low-carbon steelmaking

71. We recommend measures to increase demand for low carbon steel:

1. Carbon taxation, escalating each year over an extended period, by an amount set in law, giving certainty to investors in low carbon technologies and materials.
2. mandate targets for embodied carbon in buildings, vehicles, and other products
3. Producers should be made responsible for sustainable design for reuse and recycling. Products should be mandated to minimum recycled content

72. Government should create an economic environment which encourages product development and investment in higher quality steel recycling technology in UK. In the USA, where EAF mini-mill steelmaking is well-established, 60% of obsolete/waste metal is processed through a shredder compared to less than 30% in the UK.
73.               Higher quality recycling, such as shredding, generates by-products which are more expensive to separate and dispose in the UK than abroad.
74. This encourages export of ~90% clean recycled steel in the form of products like HMS, avoiding the shredding process that gives ~99% clean steel. The cause is a waste cost arbitrage. This waste cost could and should be the responsibility of the producers of the goods rather than the recycler.
75. Support for R&D into design for recycling, enhancing reuse, and addressing challenges in processing recycles steel including, cleaning, chemistry and dealing with by-products. 
76. Government should enforce stronger definitions of what is waste and what is a recycled raw material as defined in Basel Convention and Waste Shipment Regulations.
1. Recycled raw materials should be free from anything that could cause pollution and should be able to substitute virgin raw materials. This requires:
1. Clear recycled raw material specifications
2. Certification that materials meet “end of waste” definitions
2. We could look to countries like China, which historically imported large quantities of lower-quality recycled raw materials. They radically changed the game on imports in a very short space of time by:

1. Classifying imported materials more tightly
2. Pushing the cost of regulation to exporters by issuing import permits subject to inspection and certification by a third party (CCIC)

3.6         How effective will the Clean Steel Fund be?

77. The Clean Steel Fund rules are not yet published so we cannot comment on its effectiveness.
78. The fund should support:
1. early-stage project development for one or more state of the art integrated steelmaking facilities in the UK.
2. development of gigawatt scale green hydrogen. The UK has technical strengths in electrolysis and bulk hydrogen production. Today, other countries lead in this field.
3. high TRL collaborative R&D between players in the UK circular supply chain for steel.
4. development of the skills required to deliver low carbon impact steelmaking.

3.7         Additional policy support needed to encourage low-carbon steelmaking

79. There are regular calls from smelters in Europe to ban export of recycled materials. The UK Government should not fall into this trap. It will drive us to the lowest standards by reducing competition for recycled materials.
80. We operate in a global market for materials and the UK manufacturing supply chain must stay competitive. To encourage development of the circular economy, recyclers like EMR must offer the highest possible values for end of life products. We can do that if we can supply to the highest value end markets.
81. The UK should keep global markets for recycled materials open. In future we may need to import recycled steel for our steelmakers, as other countries do now.

3.8         Desirability of establishing a low carbon steel making pilot in UK

82. The technology for green steelmaking has already moved beyond the pilot stage. We see no need for a UK pilot facility.
83. The UK should support immediate implementation of world scale facilities in the UK as other countries in Europe are doing, particularly Sweden, Germany, and France.
84. This will support the Government’s levelling-up agenda

3.9         Consequences for UK steel making of failure to invest in alternative technologies

85. If the UK steel industry fails to respond to this accelerating technological step-change, it will rapidly become uncompetitive globally.
86. If this happens, UK metal recyclers like EMR will continue to offer the best prices to recycle end of life steel-containing products including packaging, vehicles, electrical equipment, buildings, wind turbines and oil rigs. We have well developed, cost and carbon-efficient distribution routes for our finished recycled materials.
87. As the European steel industry starts to decarbonise, we expect our recycled steel flows to move from the Eastern Mediterranean, USA, and South Asia to new destinations in mainland Europe, where the demand for recycled steel will increase rapidly.
88. We would, of course, prefer to supply our recycled material within the UK to a revitalised UK steel industry.

Appendix

In preparing our submission, we ran over your word limit. For your committee, we modelled the costs, benefits, and carbon impacts of establishing a new world scale integrated steel mill in the UK, combining hydrogen-based steelmaking with recycled steel sourced in the UK. This could be useful information. We have included it here as an appendix.

4         Green steel technologies

4.1.1        Recycled steel with coal or natural gas DRI and EAF to reduce carbon impact

89. Most steelmakers that EMR supplies outside the UK operate this process route.
90. Adding recycled steel to the electric arc furnace reduces the carbon impact of existing steel making processes.
91. It is impractical to make new steel 100% from recycled because:
1. there is only enough recycled steel available in the World at present to match about 30% of steel making demand. However, McKinsey forecasts recycled steel to account for 60% of steel production by 2050.
2. typical bulk recycled steel includes inherent copper, chrome, and other impurities, within the steel from its original formulation. For most high-performance applications these impurities must be diluted with new iron to meet the requirements of end customers.

4.1.2        Recycled steel addition to blast furnace and Basic Oxygen Steelmaking (BOS)

92. Most UK steel is currently made by this route.
93. Adding recycled steel at both blast furnace and BOS creates immediate carbon reductions by diluting the carbon-intensive conventional processes with low carbon impact recycled steel.
94. We are also exploring adding iron-rich by-products from metal recycling to substitute iron ore at the sintering stage, reducing carbon impact of the blast furnace.

4.1.3        Hydrogen Direct Reduced Iron (DRI) and Electric Arc Furnace (EAF)

95. Several European steelmakers are moving rapidly to implement this technology. Direct hydrogen reduction is similar to reduction with natural gas.
96. It is a bigger technical step to produce green hydrogen at gigawatt scale.
97. Combining recycled steel with hydrogen DRI sponge iron in an EAF reduces the cost and carbon impact of the finished product. This is because:
1. Hydrogen sponge iron is expensive to produce so recycled steel cuts cost
2. the carbon impact of moving iron ore from mines overseas and processing by DRI is greater than the carbon impact of the full steel recycling supply chain.

4.1.4        Re-used steel

98. The lowest carbon impact option is to re-use steel sections and other steel products that have reached end of life.
99. EMR estimates that constructional steel which is re-used in this way has a carbon impact of around 15Kg CO2eq/tonne of steel. This is a huge carbon saving over any other route.
100.                     EMR is developing a new business in re-used steel sections, but it will always be small compared to the overall demand for steel products in the UK.

4.2         Economics for low carbon steelmaking

4.2.1        UK steel supply/demand balance

101.                     A 2021 report by Warwick University for DEFRA[15] provides a good summary of the supply/demand balance for steel production and recycling in the UK.
102.                     In the UK we consume 12 million te/yr of semi-finished and finished steel products.
103.                     The UK produces 11 million te/yr of recycled steel. 2.5 million te/yr of that is used in domestic steel making, which is a mixture of blast furnace – basic oxygen furnace and electric arc furnace production. The remaining 8.5 million te/yr of recycled steel is exported for processing in other countries, with Turkey being the biggest consumer.
104.                     This illustrates the scale of the opportunity for UK steelmakers to include recycled steel in their products.

4.2.2        World scale green steelmaking in the UK

105.                     We have used a range of sources[16][17], including our own metal recycling experience, to estimate the costs and the material and energy requirements of a world class integrated hydrogen steel making facility in the UK, specifically to support our evidence to your committee.
106.                     The size of our facility is set by a world scale direct reduced iron plant of 2 million te/yr output, producing sponge iron by direct reduction of iron ore (DRI) with hydrogen. It comprises:

107.                     We have estimated the scale and likely cost of each component of the process:

108.                     The input and output materials are:

109.                     Capital expenditure is dominated by power generation:

110.                     The overall gross margin generated by the full process before operating costs, is about £1.5billion/yr:

111.                     After operating costs, primarily people and maintenance, this should provide a satisfactory return for investors.

4.2.3        Carbon impact of Hydrogen steelmaking

112.                     We have estimated the carbon impact of our example process using 40% recycled steel.
113.                     Our estimate uses public data for carbon impacts of offshore wind power[18], iron ore extraction[19], bulk sea and rail transport[20] and a Carbon Trust study of EMR’s recycling operations.

114.                     With 40% recycled steel the carbo9n impact of the finished steel will be about 74Kg CO2e/te finished steel. Iron ore contributes 50% of the carbon impact. The recycled steel contributes 17%.
115.                     We also modelled a scenario with no recycled steel input. This:
1. increases carbon impact of the finished steel by 30% to 97KgCO2e/te.
2. reduces capital cost by 15% to £6.7billion but reduces gross margin by a third from £1.5billion to £1.0billion
3. cuts finished steel output from 3.5 million te/yr to 2 million te/yr
116.                     This demonstrates the importance of recycled steel to both the commercial viability and carbon impact of green steelmaking.

4.3         Carbon impact for steelmaking process routes

117.                     Below, we compare our estimate of carbon impact for a hydrogen steelmaking facility in the UK with alternative routes, including re-use. We use data from BHP Billiton,[21] the World Steel Association[22] and the Carbon Trust.

118.                     Each of the cases above assumes the current energy mix for today’s steel supply chain, apart from 100% ore-based hydrogen steelmaking, which assumes all low carbon energy.
119.                     If steel is made from 100% recycled steel by the EAF route using all low carbon power, the carbon impact will be lower than hydrogen DRI steelmaking from ore. However, making steel 100% with recycled steel is not viable because there is insufficient supply of recycled material.

March 2022