Written Evidence Submitted by Liberty Steel

(HNZ0097)

On 29 March 2021, the Chair of the House of Commons Science and Technology Committee wrote to four British steel manufacturers asking for information on:

• what actions they were taking to contribute to the 2050 UK Net Zero target, including:
• if they had set any specific emissions reduction targets;
• if they had produced a roadmap for emissions reductions;
• what role they saw for low-carbon hydrogen in decarbonising the UK steel industry;
• how much they were investing into research on hydrogen currently;
• any ongoing research into this area that they were involved in; and
• what support the Government could best provide to support them in decarbonising their business.

Reproduced below is the response that was received from Liberty Steel, on 16 April 2021.

LIBERTY Steel UK

LIBERTY Steel UK is the third largest steel manufacturer in the country, with a footprint that covers 12 sites across England, Scotland and Wales. It employs nearly 3,000 people and has an annual steel rolling capacity of circa three million tonnes.

Its capabilities range from electric arc, vacuum induction melting, mill processing and value-added services, and the business manufactures and distributes products supplied mainly into the aerospace, construction, automotive, oil and gas, and energy industries domestically and overseas to over 60 countries.

GFG Alliance

GFG Alliance is an alliance of global businesses, structured into three core industry brands: LIBERTY Steel Group, ALVANCE Aluminium Group and SIMEC Energy Group, independent of each other yet united through a shared strategy, values and purpose to create a sustainable future for industry and society. The group is a leader in sustainable industry with a mission to become Carbon Neutral by 2030 (CN30).

Our vision is for an economically, environmentally and socially sustainable business model for industry which is driven by four key trends – increasing demand for steel and aluminium, the urgent need to decarbonise these sectors, the decline of traditional manufacturing industries in developed economies and the need to be competitive in a changing world.

About our response

We have sought to answer questions posed by the Science & Technology Committee and provide additional information that would assist the committee in its inquiry. While GFG Alliance business units sit across three industrial pillars, each with a significant role to play in the transition to a net zero economy, this submission focuses, primarily, on the steel industry (and our LIBERTY Steel Group), which is the largest part of our global and UK business. Where appropriate, reference is made to both SIMEC and ALVANCE.

What actions LIBERTY Steel is taking to contribute to the 2050 UK Net Zero Target?

• If it has set any specific emissions reduction targets.
• If it has produced a roadmap for emissions reductions.

LIBERTY Steel Group has committed to becoming carbon neutral by 2030 (CN30) through its GREENSTEEL strategy, underpinned by major renewable energy projects under SIMEC Energy.

We plan to lead the steel industry, which currently accounts for 8% of global CO2 emissions, to Net Zero through two main routes.

The first route involves recycling and upcycling the growing mountain of scrap steel in developed economies, using electric arc furnaces (EAFs). In the UK, we operate a GREENSTEEL production hub from an EAF in Rotherham, where raw materials and resources are secured locally to make world-class products that sell both nationally and globally. High grade engineered steel and alloys from the process feed operations that make advanced components for demanding sectors such as automotive, aerospace, infrastructure, power generation, and defence.

Steel is one of the most highly recycled materials in use, and steel recycling accounts for 30% of global steel production today.[1] This process emits on average only a third of the emissions involved in traditional production.[2] When powered by renewable energy, these emissions fall to near zero. In mature economies where there is an abundance of scrap steel, such as in the UK, it makes economic and environmental sense to maximise steel recycling to satisfy local demand. In these economies, our strategy is to maximise recycling and combine those processes with low or renewable energy to bring scope 1 and 2 emissions[3] down to almost zero.

In addition, LIBERTY Steel has continuous improvement programmes at each of our major plants to reduce energy consumption and reduce waste. As part of the GFG Alliance, LIBERTY also benefits from renewable power developments pursued by SIMEC Energy.

However, currently there is not enough scrap generated globally to meet demand for steel.[4] Therefore, achieving decarbonisation across our other operating territories (Australia, Europe and India) requires us to address ore-based production. Our second approach, therefore, involves using Direct Reduced Iron (DRI) furnaces. Today, these use natural gas as a reductant fuel to reduce emissions, compared to traditional blast furnace production.

Carbon neutral steel production is significantly helped, in either route, through the use of renewable energy, whether that is generated using wind, solar, tide or waste disposal. SIMEC Energy continue to innovate and invest in projects worldwide to help realise this ambition for steel making.

There will always be residual carbon from our operations, so investigation and investment in new approaches, such as effective land management, to capture and sequester carbon is also needed. One such initiative is the work JAHAMA is leading in the restoration and management of peatland. This is a large and efficient terrestrial carbon store and grows in perpetuity.

This GFG Alliance symbiosis is essential to our ambition to be carbon neutral by 2030.

What role LIBERTY Steel sees for low-carbon hydrogen in decarbonising the UK steel industry?

As previously stated, the UK is a mature economy with an abundance of scrap steel and is, therefore, perfectly positioned to satisfy demand through greater levels of steel recycling.

Decarbonising primary ore-based steel production by 2035, as recommended by the Committee on Climate Change, is a huge challenge both technically and commercially. The complexity in decarbonising blast furnace steel production is that, unlike in many other industries, the carbon is used for chemical reduction. The challenge is less about heat and power and more about the fundamental nature of the chemical process. Replacing carbon will require a fundamental rethink of the conventional steelmaking processes. The UK currently has two operating blast furnaces in Port Talbot and Scunthorpe that make up 95% of all emissions from the steel sector[5] and Government will need to support the sector in the technologically complex and expensive transition to recycling.

LIBERTY Steel operates an Electric Arc Furnace (EAF) in Rotherham and at this stage GFG Alliance is not actively exploring options for hydrogen steelmaking in the UK. However, we have an interest in other uses of hydrogen in the wider steel production process, including steel re-heating and ancillary heat for steelmaking. It is a potential game changer for the industry as an energy vector, as a zero-carbon fuel and as a zero-carbon producing reductant.

It is often assumed that the majority of CO2 emissions come from the steelmaking stage of the production route. However, when producing GREENSTEEL using a scrap-based EAF furnace, the amount of CO2 emitted is small in comparison to the primary route. The majority of direct CO2 emissions are from two main sources: alloy and carbon additions in steelmaking and natural gas in re-heating and heat treatment processes. Hydrogen will have a vitally important role in decarbonising these elements of our UK operations and we are actively exploring options to switch to hydrogen fuel to reduce the carbon intensity of the process.

We have partnered with a number of initiatives to drive forward the transition to hydrogen, including:

• SUSTAIN’s UK Steel Industry Research & Development (R&D) Project
• Hosting Glass Futures in a pilot programme at our Brinsworth site to explore fuel-switching and low-Nitrogen Oxide R&D
• South Wales Industrial Cluster

The EU, France and Germany have all recently published detailed hydrogen strategies with roadmaps to 2050 supported by significant financial packages from their respective budgets. The UK needs a clear hydrogen strategy supported by financial commitment to drive research, build capacity and develop the critical infrastructure needed to capitalise on this opportunity.

What ongoing research in hydrogen is LIBERTY Steel involved in?

Across our European and Australian businesses, LIBERTY Steel is exploring a range of partnerships with Governments, technology providers and academic institutions to help transform hydrogen steel making from a theory into practice.

Our hydrogen strategy is built on the assumption that steel can be an enabler for hydrogen, accelerating hydrogen’s adoption as part of a new industrial revolution. By bringing the two together, in a joined-up strategy, we can allow them to solve each other’s problem.

Hydrogen has an important role in bringing about carbon-neutral steel production but there are challenges to overcome. It is currently expensive to produce hydrogen and, owing to its volatile nature, it is very difficult to store and distribute. Using hydrogen to make GREENSTEEL on site contributes to solving these challenges and, by investing in onsite renewable generation that directly feeds the hydrogen production process, savings can be made on the overall cost per tonne of hydrogen. When the hydrogen used in this process comes from renewable energy sources, the steel making process can become completely emission-free, creating 100% GREENSTEEL.

LIBERTY signed a Memorandum of Understanding (MoU) with Paul Wurth and SHS – Stahl-Holding-Saar (SHS) in February 2021 to assess the building and operating of an industrial-sized, hydrogen-based steel making plant at Dunkerque in France. When operational, the plant will be one of the first operations of its type in France.

This pan-European partnership and project aims to incorporate a 2 million tonne Direct Reduced Iron (DRI) plant, with an integrated 1 GW capacity hydrogen electrolysis production unit, next to GFG’s ALVANCE Aluminium Dunkerque site. The DRI plant will initially use a mix of hydrogen and natural gas as the reductant to produce DRI and hot-briquetted iron (HBI), before transitioning to using 100% hydrogen once the electrolysis production unit is complete. The DRI/HBI produced will primarily be used in the electric arc furnace of LIBERTY Ascoval in France but any surplus will be used at LIBERTY’s Czech (Ostrava) and Romanian (Galati) integrated steelworks as well as the SHS-group’s Dillinger and Saarstahl plants in Germany.

LIBERTY has been working with Paul Wurth and SHS on the technical and economic viability of the project since early 2020. With the initial feasibility work proving successful, the MoU encompasses the next two phases:

• Phase 1 – will improve the accuracy of the project’s commercial and technical feasibility including reducing the gas mix; exploring opportunities for partnership with, for example, energy suppliers, operators involved in hydrogen production, suppliers of DRI/HBI equipment; and assessing funding opportunities. This phase is expected to take around 12 weeks.
• Phase 2 – deliver the level of detail required (technically and financially) for the effective implementation of the project. The timeline for this phase will be determined as part of Phase 1.

The partners and the project are strategically focused on developing technology which will allow the steel industry to achieve ambitious green targets, with LIBERTY undertaking carbon neutral programmes worldwide as part of the GFG Alliance ambition to be carbon neutral by 2030.

We are progressing with plans in Romania to develop a DRI plant with a 2.5 million tonne capacity and two electric arc furnaces, one of which will be dedicated to cast slabs for LIBERTY Steel’s Galați’s plate mill and the other for direct casting of hot rolled coil production. This will be supported by a major wind and solar renewable energy programme developed by SIMEC. The electric arc furnaces will reduce CO2 emissions per tonne of steel when compared with the traditional blast furnace process, with emissions dropping to almost nothing once the DRI plant uses green hydrogen rather than natural gas as the reductant fuel.

Another development project announced in 2020 was LIBERTY’s Australian (Whyalla) GREENSTEEL Transformation Plan. This includes plans for a sophisticated EAF – utilising cutting edge technology for energy optimisation – and a DRI facility to produce low-emission GREENSTEEL from GFG’s abundant South Australian magnetite resource and domestic steel scrap.

The new DRI plant will be fed by natural gas, in time transitioning to green hydrogen produced from GFG’s own renewable energy projects including Cultana – one of Australia’s largest solar farms currently being built in Whyalla. Combined, these new facilities will produce advanced steel long products for the Australian construction, critical infrastructure and mining industries for generations to come.

This plan will not only transform the Whyalla business into an internationally competitive steel manufacturer, but it will also be LIBERTY’s first primary steel plant to be transformed to GREENSTEEL, helping fulfil our ambition to become the world’s largest carbon-neutral steel producer by 2030.

As a British-based and headquartered alliance, our pilot projects and work across the continent and Australia will provide an internal expertise and knowledge base that can be applied to our UK business and to the wider economy. This creates an opportunity to establish a global innovation hub for this exportable expertise which, can, ultimately, determine the future sustainability of the wider industry. Although hydrogen steelmaking is in its infancy, it could, if successful, drastically cut CO2 emissions from one of the most polluting sectors and make a significant contribution towards global climate goals.

What support the Government could best provide to support LIBERTY Steel in decarbonising its business?

The UK currently has two operating blast furnaces in Port Talbot and Scunthorpe that make up 95% of all emissions from the steel sector.[6] Government will need to support the sector in the technologically complex and expensive transition to recycling and secondary production by incentivising investment in EAF technology and scrap processing. EAF-produced steel represents 22% of total UK steel production per year,[7] yet annual scrap availability is approaching a point where it can meet all of the UK’s steel production needs with a reduction in two-thirds of total carbon emissions.[8]

The UK produces 10 million tonnes of scrap each year.[9] At present around 8 million tonnes of this is exported,[10] often to places like China and Turkey to be turned into finished steel products. The total demand for steel in the UK is also 10 million tonnes a year.[11] The UK demand for steel could then theoretically be fully met by EAFs recycling the domestic supply of scrap. In order to fully capitalise on the economic and environmental benefits of this shift, we should be looking to grow our recycling capacity which currently is only 1.6 million tonnes,[12] as well as introducing policies to incentivise the retention of this potentially valuable resource in the UK. The benefits of doing so include capturing the gross value add here in the UK of the finished products currently imported from some of those countries we export scrap steel to, and, with our ambitious climate goals in mind, reducing transport mileage and the subsequent emissions.

A number of policy and fiscal measures would enable maximum capitalisation of this shift to low-carbon steel production:

• A green procurement strategy for public expenditure that includes:

—      enforceable measurement of social value

—      a requirement to publish supply chain plans, transparent balanced scorecard calculations and product certification

—      identification and implementation of measures which stimulate markets for GREENSTEEL and other low carbon products

• Provision of incentives for the utilisation and segregation of steel scrap;
• Fully address the persistent problem of high industrial energy costs in the UK, which are 86% more than competitors in Germany and 62% more than in France;[13]
• Consideration of whether the UK’s increased decarbonisation ambition will necessitate further measures, such as carbon border mechanisms, to ensure that the UK does not experience carbon leakage to jurisdictions with less climate ambition and lower environmental standards; and
• As part of the Treasury’s fundamental review of business rates, incentivise investment by removing plant and machinery from valuations.

The UK has an opportunity for global leadership, driving a green economic recovery following the impact of COVID-19. In order to fully realise this opportunity, further action should be taken:

• Industrial Decarbonisation. Decarbonisation of the sector will require significant change and a conducive policy framework. As an EAF operator, LIBERTY supports measures that encourage greater levels of steel recycling and the rollout of new Electric Arc Furnace technology. Government could incentivise greater levels of local scrap metal recycling in a number of ways. These include the introduction of tax credits for companies recycling scrap, tariff charges on exporting the raw material out of the country or by supporting innovation in the technology that refines scrap.

• Decarbonised Power Supply. Recycling steel leads to a reduction in emissions of more than two-thirds compared to the global average of primary steel.[14] This benefit will increase with more renewable energy generation capacity and will be strategically important as global pressure to mitigate climate change increases. As the UK progresses towards completely greening its power supply, it also needs to place renewed focus on delivering competitive power prices, and in ensuring the significant UK energy consumer spend on energy infrastructure is directed in a manner that grows and supports domestic supply chains.

• Breakthrough technologies. Hydrogen is going to play vital role in lowering emissions in foundation industries, and as such, plans for rapid deployment of infrastructure and pipelines to deliver affordable and green hydrogen should be created and published. Policies and supporting schemes that seek to unlock markets for hydrogen and accelerate investment in its development and commercialisation are welcomed. In particular, Government should develop a carbon-based contract for difference (CfD) auction to enable the commercialisation of breakthrough technologies such as hydrogen. Such contracts would create a competitive system for the low carbon steel producers while providing the necessary revenue and certainty.

• Industrial clusters. While industrial clusters are catalysts for innovation and adoption of low carbon technologies and infrastructure, their existence should not divert funding from industrial operations that are not within a formal industrial cluster area. This could have a perverse effect on efforts, ambitions and competition across the UK and potentially undermine other stated Government priorities such as those which underpin the “levelling up” agenda.

• Unlocking access to finance. The scale of investment required to transform the steel industry over the coming decade(s) will be significant and the private sector will not be able to, and should not have to, bring about that transformation on its own – especially given the wider industrial, environmental and societal benefits that will be accrued. Government has a significant role to play in incentivising and supporting the capital investment and should incorporate financial incentives, across the policy arena, for producers looking to invest in decarbonisation programmes.

(April 2021)