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    Swedish Fossil-free Steel Under Fire

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    Stockholm (NordSIP) – The steel industry, which is responsible for around eight per cent of the global greenhouse gas emissions, is a notoriously hard-to-abate sector. Investing in innovative technologies to reduce these emissions is crucial. The transition to fossil-free production methods is, however, bound to have a significant impact on the environment, the economy and society at large.

    In Northern Sweden, several companies such as LKAB, SSAB and H2GS have been investing heavily in decarbonising their production, aiming to make the entire value chain from mine to steel fossil-free. They use a variety of innovative technologies, such as sponge iron production using hydrogen and electric arc furnaces. The jury is, however, still out on whether these efforts will succeed and whether the projects will become profitable.

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    On 16 January, the Scandinavian Institute for Public Policy, a non-profit research organisation, published a new report on the topic, ‘Profitable or costly’. The paper is a follow-up to a study that attracted considerable media attention in Sweden last autumn, ‘From brown to green’. In that report, the author, David Sundén, openly criticised the benefits of the planned high-profile investments, largely financed with tax money.

    In his new report, Sundén takes a deep dive into the profitability of different steel production technologies. He argues that LKAB’s plans are based on optimistic assumptions about future prices for electricity consumption and carbon dioxide emissions. His main concern is that when it comes to sponge iron production, Northern Sweden lacks crucial competitive advantages compared to regions with access to cheap natural gas. According to his calculations, that would make LKAB’s sponge iron the most expensive in the market.

    Sundén’s conclusion is clear. “LKAB should not put resources into developing sponge iron production in Norrbotten,” he asserts (in Swedish). “For H2GS, it is difficult to see how to achieve profitability at all. It does not matter whether you look at the short or long term,” he adds.

    Tuning in to a webinar organised by the Scandinavian Institute for Public Policy upon releasing the report, NordSIP is curious to hear the concerned companies’ response to this highly critical view of their decarbonisation efforts. LKAB’s representative at the event, the company’s Head of Communication, Niklas Johansson, concedes that there are several important points in the report. He makes it clear from the onset, however, that he disagrees with the academics’ main conclusion. For LKAB, delaying action while waiting to see which technology will prevail is not an option. The EU’s decision that the steel industry must be fossil-free by 2039 is a hard deadline, giving companies little time to transition.

    Johansson disagrees with the analysis, pointing out that Sweden has unique competitive advantages, such as high-quality iron ore and plentiful green energy. The competition from the Middle East is, admittedly, a challenge as they use relatively cheap natural gas to produce sponge iron. Will the current gas prices persist in the future, though? He also reminds about the transportation costs, emissions, and geopolitical risks related to imports from the Middle East.

    Magnus Henrekson, Professor of Economics and the project manager for the institute’s report series, is not as convinced as Johansson that the energy needed for the enormous projects in the North is plentiful. He warns of a potential “democratic backlash” if the development were to affect the energy prices in Southern Sweden. The professor is also highly sceptical of the proposed hydrogen solution, which has yet to be tested in the industry. He also points out that hydrogen is already in high demand for fertilisers, among other applications, and using it for production might jeopardise our food supply.

    Wrapping up the discussion, Johansson revisits his central argument: LKAB needs to transition, and it needs to do it now. Investing in decarbonising across the entire value chain while considering the local conditions is necessary. He concludes that no matter what the economic models say, ‘wait and see’ is not an option.

    Image courtesy of LKAB
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