Car Companies' Green Agendas Rely on Carbon-Neutral Steel

With automakers worldwide setting green agendas in a bid to seek carbon neutrality, cleaning up steel production has to be part of the equation. According to the American Iron and Steel Institute, steel makes up 54 percent of the average car. And much of the steel produced worldwide relies on coal power.

"The defining challenge of our generation is to take care of the CO2 problem, that's the 800-pound gorilla," Mercedes-Benz CEO Ola Källenius said in response to a Newsweek question during a media roundtable in Vienna earlier this year. "And it has to be from from A to Z. All the suppliers, all our operations, the obvious thing, the car itself ... The twin of the CO2 problem is circular economy. How do we reduce the use of primary materials in production goods?"

The World Steel Association reports that in 2018, every ton of steel produced emitted an average of 1.85 tons of carbon dioxide. That's about 8 percent of global carbon dioxide emissions, McKinsey & Co. researchers noted in a 2020 study focused on decarbonizing steel production.

According to the International Energy Agency (IEA), the steel industry is not on track to meet goals set out in the Net Zero Emissions by 2050 Scenario, which aimed to show a pathway forward for reductions in global carbon emissions.

The IEA notes that the most progress to get steel-making to near-zero emissions has come from the European Union, the United States and Sweden. The EU launched the Green Deal Industrial Plan in February 2023 and the U.S. funded new initiatives under the Inflation Reduction Act. Those plans, and others globally, focus on the importance of hydrogen as a coal replacement.

The task of creating carbon-neutral steel isn't one that automakers are taking up themselves. They're relying on their steel suppliers to find the solution, the same way that they tell other materials suppliers that they must meet certain sustainability criteria.

Some companies, like Nippon Steel, have set carbon-neutrality timelines that are aligned with those that automakers have set. Nippon aims to be a carbon-neutral company by 2050. It's looking to do that by not just creating carbon-neutral products, but by shoring up the manufacturing process to lessen its environmental impact. The company primarily manufactures its steel in Japan and is a longtime supplier for Toyota and other Japanese automakers.

Tata Steel, which has facilities worldwide, wants to be carbon neutral sooner, but the timeline varies by region. Its business in the United Kingdom is set to reduce its carbon emissions by 30 percent by 2030, as compared to 2018 levels. The company's footprint in the Netherlands will have 35 to 40 percent less emissions by the same time, and will be carbon neutral by 2045.

Last year, Tata announced plans to supply Ford Motor Company's European plants with steel made without using fossil fuels, after 2030.

To create carbon-neutral steel, producers are undergoing decarbonization measures such as switching to hydrogen-based steel production, McKinsey said in its report. Further, they are sourcing power from renewable sources and lessening the environmental impact of the manufacturing process.

The first bit of fossil-free steel used in auto manufacturing was delivered to Volvo in 2021. It was produced via the HYBRIT joint venture between Swedish steel maker SSAB, iron ore mining company LKAB and Vattenfall, an energy company. At the time, Forbes reported that mass quantities of the steel from the venture would not be available until 2026.

Mercedes-Benz is moving forward to quickly bring a carbon-neutral vehicle into production. In the meantime, the luxury automaker is integrating carbon-neutral steel parts and using recycled steel throughout its vehicles. The company has the goal of having 40 percent of the steel it uses in vehicles be recycled steel by 2030.

"That might not sound ambitious. But believe me, engineering-wise, it is unbelievably ambitious," Källenius said.

Mercedes-Benz has set lofty goals for its suppliers as the company focuses in on carbon neutrality over the next two decades. How long a company has to become carbon neutral and keep Mercedes-Benz's business varies by industry.

"I would say probably 90 percent of our suppliers have a plan [to become carbon neutral, but that] doesn't mean that the plan is executed. Three or four of our steel partners now are deep into carbon-free steel production, we will have the first parts in our vehicles in less than two years' time.

"One of the steel manufacturers has announced that they're going to go [in] 2030 [instead of] 2039, which is unbelievably aggressive. That particular company happens to be in the geographical location where they have abundance of hydroelectric power. So, they have a geographical unfair advantage," Källenius said.

Steel production can't be the sole focus, though. Cars contain large quantities of aluminum and magnesium as well. In its move to work toward circular manufacturing, Mercedes-Benz is also looking to reduce the carbon footprint of the aluminum it uses.

"We just signed a deal with a player in the aluminum space where we're going to reduce the carbon footprint not up to zero, but reducing by 70 percent," Källenius said. "So, you can see big movements on things that if we would have had this conversation 10 years ago, pretty much everybody at the table would have said, 'That's not possible.'"