Decarbonisation in Europe’s steel industry is complicated by cyclical headwinds, rising climate change costs and need for a clear carbon price. These were some of the challenges discussed by First River Consulting partner James Moss during Kallanish’s Europe Steel Markets 2024 conference in Milan.  

“The discussion about decarbonisation in Europe is being had against the backdrop of either a structural or a deep cyclical change in demand and production,” says Moss.

These shifting supply and demand dynamics, along with the challenges of the green steel transition, will likely distort government decision-making to invest in facilities that should be allowed to die, Moss warns. He adds that the US once had a reputation that no facility ever died, but there have been several casualties over the last 10-20 years and large names in the industry have disappeared.

Another difference is the accounting of carbon costs in final product pricing.

"So just to be completely simplistic about it, there's been an accounting error for the last 200 years. We [the US] have not counted carbon in our costs," says Moss.

But US costs associated with climate change are starting to appear. One example is the difficulty in obtaining affordable home insurance in California and Florida because many insurers have stopped insuring homes in those states. This makes the insurer of last resort the state itself – whether it's against wildfires or earthquakes in California, or hurricanes in Florida.

Since 2017, homeowner insurance exposure in those two states increased from $160 billion to $340 billion in seven years.

By including the cost of carbon in our cost of goods sold, costs will rise and drive price higher.

“So if hot metal goes up because iron coming out of a blast furnace has a carbon tax added to it, scrap will reflect that cost they track. And if scrap reflects that cost, DRI will reflect that cost. So all iron units are going up and prices will go up with them,” Moss adds.

For now, the market does not have a clear price for carbon. Moss says the market needs a clear internationally understood price for carbon if it is going to be calculated among costs. And understanding the true cost of steel production is crucial to avoid government interference.