Wood Mackenzie, global research and consultancy group who supply data, analysis and consultancy advice looks at global decarbonisation and how scrap metal, including ELVs, has a critical role to play.
Metals producers have a critical role to play in global decarbonisation. Governments, investors and consumers are escalating pressure to reduce emissions. Increasing scrap consumption is the fastest way to reduce the overall carbon footprint for all metals. However, for different metals, emission reduction from increased scrap consumption occurs at different stages of production. This variability – combined with scrap quality, quantity, usability and cost considerations – means the role of scrap will not be the same for all metals.
At Wood Mackenzie, we believe that the share of scrap in meeting future end-use demand requirements across the metals industries will rise, but a coherent carbon policy will play an essential role in accelerating scrap consumption growth.
Ferrous scrap consumption must grow if steel emissions are to fall
For conventionally produced steel, most CO2 is emitted from blast furnace sites where iron ore is transformed into iron using coal. These emissions are direct – otherwise known as Scope 1. Around 70% of global steel is made using this method and the steel industry’s CO2 output accounts for just under 10% of global greenhouse gas emissions.
Carbon-free technology for iron reduction exists but relies on hydrogen availability. Given hydrogen supply is limited and prices are high, widespread adoption of this solution will take time – likely decades. In addition, we estimate that carbon reduction achieved through this technological evolution will be broadly offset by growing steel demand and – other things being equal – 2040 global CO2 emissions from ironmaking will be similar to what they are today.
The only other solution – aside from carbon capture, storage and reuse, which is expensive and geographically constrained – is to maximise the use of scrap. An electric arc furnace, using scrap, has little direct emissions. Together with Scope 2 emissions from power generation, EAF carbon footprint is around four times smaller than that of conventionally produced steels.
If by 2040, quality issues aside, all available ferrous scrap was to be collected, processed and used, it could reduce the requirement for iron and bring down emissions by 24% compared to today. Some of this reduction would be offset by increased power consumption and other considerations. Nevertheless, consuming more scrap, particularly in combination with green electricity, is the only way to bring down steelmaking emissions meaningfully over the next two decades.
There is widespread interest among steelmakers to mitigate costs and negative perceptions associated with direct, Scope 1, carbon emissions. While alternative ironmaking technology evolves, we expect to see a sharp rise in demand for ferrous scrap. Many producers have already turned to this route – ArcelorMittal, US Steel, Liberty, Vallourec and others have all expressed increased interest in scrap-based steels.
Non-ferrous scrap mostly lowers indirect CO2 emissions
For the aluminium industry, the largest source of CO2 emissions is electricity generation – and decarbonisation efforts are predominantly focused on the increased use of renewable electricity generation – but there are limits. Aluminium scrap use at downstream facilities can lower energy consumption by as much as 95% per tonne of aluminium, depending on the product. However, the biggest reduction of CO2 emissions will need to happen at the power plant, not the smelter or the downstream sector. Ultimately, rising electricity prices, perhaps driven by carbon policy (and other costs) – rather than an altruistic desire to reduce CO2 emissions – will encourage smelters to shift towards renewable sources of electricity.
Aluminium scrap consumption will grow if there is end-user demand for scrap-intensive downstream products, but the increase will be heavily reliant on policy, both aimed at improving scrap collection and penalising indirect – Scope 2 – carbon emissions.
Meanwhile, the copper industry also relies on power consumption. However, compared to steel and aluminium, copper smelting and refining processes are less carbon and power-intensive and the direct emissions are mainly those of SOx – not CO2. Yet, copper mining has a substantial carbon footprint and increased scrap use could lower the need for additional mine supply and associated emissions. However, for many refineries and smelters, mine site emissions are categorised as indirect Scope 3 emissions – often an ocean away from the copper-producing facilities themselves. Therefore, for refineries and smelters, the incentive to increase scrap consumption to reduce CO2 emissions is small. Cross-border carbon (or sulphur) policy will be vital to boosting copper scrap consumption in countries without mining exposure. Without policy impetus, copper scrap consumption will depend on the scrap price.
Policy framework will be an essential driver for accelerated growth in scrap demand
Scrap metal is a powerful tool in decarbonisation efforts. An increased focus on emissions will lead to a growing demand for scrap, with some metals more impacted than others. But, an internationally coordinated carbon policy across industries would accelerate scrap usage in all metals.
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