EV makers have the chance to catalyze the clean steel and aluminum markets

When it comes to 2050 net zero goals, the steel and aluminum remain abysmally off-track. However, the IEA sees a "critical window of opportunity from now to 2030" to bring these industries — which represent a staggering 10% of greenhouse gas emissions — back on track. It will require"innovative near-zero emissions industrial technologies" to scale in that time, when 30% of existing assets will face an investment decision.

Fortunately, the barriers to decarbonizing the two industries are increasingly more due to market dynamics than to the technology itself. 

Bringing technologies like hydrogen-based direct reduced ironmaking to market requires massive investment. And that in turn requires certainty that there will be sufficient demand for green steel and green aluminum once the products hit the market — which represents a particular challenge given the likely green premium customers will have to pay, at least initially.

And herein lies the challenge. Steel and aluminum producers and their major customers are locked in a chicken or the egg problem: customers, like automakers, are hesitant to set ambitious targets for purchasing lower-carbon steel and aluminum because they are skeptical of future availability. Meanwhile, producers are wary of investing in technologies that dramatically reduce embodied carbon emissions because they are skeptical of demand for green materials from major buyers like automakers.

The transition to electric vehicles represents a critical opportunity to break this impasse. Globally, the auto industry is the largest buyer of aluminum and a major buyer of high-grade, coal-fired steel. As the industry rapidly transitions to EVs, pressures are growing to manufacture them with clean materials. Automakers therefore have an opportunity to drive the decarbonization of three industries at once — not only automotive, but steel and aluminum as well.

Companies can catalyze these transitions by setting ambitious commitments and, especially, by signing agreements directly with producers for the supply of fossil-free steel and aluminum. An analysis from Lead the Charge shows that some are already rising to the challenge: the share of the automakers assessed that have signed such agreements rose from 22% in 2022 to 39% in 2023.

However, with the proliferation of such agreements, there is a growing risk that automakers and suppliers will be given a free pass to tout agreements that sound great on paper but do little to advance full decarbonization. It is critical to examine the specifics of these agreements. 

Accordingly, the Lead the Charge network — of which the Sierra Club is a member — is developing a framework to differentiate actions driving real change in the market from those that are mostly smoke and mirrors. Three broad principles have stood out so far. 

Substantive, detailed, specific

First, the agreements must be substantive and disclose adequate details so as to provide the aluminum or steelmaker, investors, and the wider industry with sufficient certainty regarding the growing demand for green steel and aluminum. 

Many of the agreements signed by automakers to-date are non-binding Memorandums of Understanding rather than bankable contracts. And others lack sufficient detail; for example, GM has agreed to purchase an unspecified amount of "sustainable steel" from U.S. Steel within an unspecified time frame. 

Such vague commitments will do little to make a business case for the broader steel and aluminum industries to invest in green technology as a means of becoming a more competitive supplier to the auto industry.

Companies send a more robust market signal when they sign a binding contract to purchase a specific quantity of steel or aluminum within a clear timeframe. For instance, Mercedes-Benz has signed a binding agreement to purchase 50,000 tons of near-zero emissions steel per year, beginning in 2025. 

Beyond purchasing agreements, there are other kinds of binding agreements that can drive real impact. BMW, for example, has invested directly in Boston Metals to support the development of fossil fuel-free steel production. Investments like these demonstrate that automakers are proactively building new supply chains, instead of passively waiting for these industries to act on their own.

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Second, automakers should pursue these kinds of arrangements everywhere where they have a manufacturing footprint.

Automakers that solely sign agreements for facilities located in economies where supply chains are already well-developed — to the exclusion of regions where the transition is still nascent — are passive actors, and are failing to drive industry-wide transformation. 

Ford, for example, has signed commitments to purchase green steel for their European facilities, but so far has not signed agreements for production facilities outside the region. Mercedes-Benz, though, is leading in this respect; its 50,000-ton agreement covers facilities in the United States as well as Europe, and the company has also signed a deal to purchase hydrogen-based steel for its Chinese joint venture. 

The ambition imperative 

Last, the agreements must be ambitious enough to be technology-forcing and lead industries towards full decarbonization. EV makers must avoid using their purchasing power to further false solutions. These include partial changes that keep production processes fundamentally reliant on the same fossil-fuel based technologies. 

For instance, a blast furnace at a steel mill that installs a new system to efficiently reuse its waste gas may eliminate a share of a facility’s overall climate footprint. But this cannot reduce emissions to the levels necessary to mitigate climate change because a blast furnace is intrinsically dependent on consuming coal. 

In more egregious cases, steel and aluminum companies can obfuscate their emissions accounting to label their materials as “clean” without making any fundamental changes. Agreements signed by companies such as Nissan and Toyota for “low-carbon” products like these neutralizes their transformative power to drive change.

Automakers should instead prioritize ambitious agreements that bring new technologies that do not use fossil fuels to market. Volvo, for example, has now signed agreements to help bring zero-carbon steel and aluminum technologies to scale.

The effort to mitigate climate change is more urgent than ever before. And in the U.S., substantial public funding is available for industry players that are willing to adapt. At this moment, we need companies to be more ambitious. 

The Lead the Charge campaign looks forward to showcasing the most substantive, far-reaching, and ambitious commitments made in 2024 in its forthcoming assessment of the auto industry, poised for publication in early 2025.

Yong Kwon is the senior policy advisor on the Sierra Club’s industrial transformation campaign. The opinions represented in this article are solely those of the author and do not reflect the views of Latitude Media or any of its staff.