Online Event: Decarbonizing Heavy Industry

Sarah Ladislaw: Hi. Good morning and good evening, depending on where you’re watching from. My name is Sarah Ladislaw. I am the senior vice president and director of the Energy Security and Climate Change Program at CSIS. We’re delighted to have all of you here with us today for our conversation on “Decarbonizing Heavy Industry.” This is the fourth session in a series that we’ve been doing on – called the Climate Solution Series, where we’re talking a sector-by-sector look at what it takes from a policy, investment, and technology perspective to decarbonize different portions of our economy.

I’m really pleased to have this discussion today. It’s a pretty complex one. For those of you who tuned into the clean energy innovation session we had last week with the International Energy Agency, we got into a bit of a discussion about the need for technological advancement, particularly in areas for decarbonizing heavy industry, which is often referred to as a hard-to-abate sector, when we think about decarbonization pathways. We’re really pleased to have with us today three experts to talk a little bit about what it actually means. First up, what is heavy industry? What is comprised in that sector? And what does it mean – what are the different technological and policy solutions to be able to try and decarbonize different aspects of heavy industry.

So we’re going to have a presentation starting off from Rebecca Dell, who is the program strategist for industry at the ClimateWorks Foundation. And she’s going to help us out by laying the groundwork for thinking about what are the different industries that are comprised when we say “heavy industry,” and what do some of the decarbonization pathways look like.

And then we’re also very pleased to have with us today Andreas Bode, who is the project manager for Carbon Management R&D at BASF, who’s going to talk about what this means and what this looks like as a challenge for a large chemicals company – a large and established chemicals company, and thinking about what some of the things that have gone right, and some of the challenges that they face in approaching deep decarbonization.

And then finally, Adam Rauwerdink, who is the vice president for business development at Boston Metal, which is establishing new and innovative technologies for thinking about steel production in sort of a low-carbon framework, low-carbon way.

And so we – a couple of weeks ago in one of these other sessions, we had a CCUS-oriented discussion, where we talked about cement. So we aren’t talking about some of the industries that also fit into the heavy industry frame for this discussion, but we’re very much looking forward to talking with these three experts on their viewpoint on, you know, what kind of pathways are available, and what are some of the things that need to be done in order to look at reducing greenhouse gas emissions from these different sectors.

Just to remind everybody, this is a live recorded event and it’s up to the public. So we will be taking questions from all of you. The way to enter a question is to go to the website and push the “ask a question” button. And those will be fed to us so that we can ask them of the – of the panelists today.

So without further ado, I’m going to turn it over to Rebecca to get us started. Rebecca, as I said, you know, we’re going to do this a little bit differently than some of the other sessions in this series, where we’re going to ask you to maybe spend a little more time talking about, you know, what the industrial sector encompasses, what are some of the challenges for this sector relative to some of the others, and what are some of the ways that we should think about this challenge. So thanks for being with us, Rebecca.

Rebecca Dell: Thanks so much, Sarah. It’s my pleasure.

So as you said, I’m going to take just a few minutes to try and frame up the problem that we’re trying to solve here today in this Climate Solutions Series discussion of industrial carbonization. And so I wanted to show a few images to help do that. So I’m going to help bring up some slides. So are the slides coming through well?

Sarah Ladislaw: They are, yeah. Looks great.

Rebecca Dell: Great. OK. So why is it so important for us to talk about industry when we talk about climate change? The short version of the answer is that industrial emissions are a third of global emissions. So by end-use sector, this is the largest source of emissions in the global economy. And so what we’re looking at here are all of the main greenhouse gases emissions from 1990 until recently, split up by sector. And those green – darker green wedges at the top are direct CO2 emissions, and direct non-CO2 emissions from the industrial sector. So these are emissions that are basically coming out of smokestacks at industrial facilities.

The lighter green section is all of the greenhouse gases that are emitted while generating the electricity that’s used by industrial facilities, which are the largest users of industrial facilities by category. If you put all of those things together, the industrial sector is responsible for 38 percent of all global greenhouse gas emissions – which is a lot. And actually the story is even worse than that, because if you look at that green section at the top of the graph you’ll notice that the slope at the top of the green section is considerably steeper than the slope at the bottom of the green section. And what that tells us is that industrial emissions are not only large, but they’re rising faster than greenhouse gas emissions overall.

So where are these emissions coming from? Well, as you can see, over the last 10 or 15 years, the major driver of this increase in emissions has been from China. And this is by and large in every way but about climate change this is a good-news story, because the reason why there’s been this enormous run-up in industrial emissions in China is because we have literally hundreds of millions of Chinese people who have modern housing, and access to modern transportation, and sanitation, and electricity, for the first time in history. And all of that takes an enormous amount of stuff. It takes concrete and steel for roads, and pipes, and transmission lines, and all of these things.

So what we’re looking at here are kind of the four most important geographies when it comes to greenhouse gas emissions from the industrial sector. We’ve got the EU and the U.S. And the two different shades of color here are the darker is the direct emissions, things coming straight from industrial facilities, and the lighter color is the indirect emissions from the electricity that these facilities are using. And you can see that there’s kind of this – been this, you know, long and stable, maybe even a little bit of a decline in the emissions from the U.S. and the EU. We’ll see in a sec that that decline may be a little misleading. China has been the major driver in increases over the last 10 or 15 years but has really stabilized in the last few years.

And we’re looking now at India as kind of the key driver of emissions growth and pressure for increased emissions going forward. Their emissions are not that high now, compared to their population, but they’re increasing very quickly. And then on the right side, I’ve broken out all of these industrial emissions by category. And this shows us why the industrial sector’s a little bit different than some of the other sectors that we talk about. So you can split industrial emissions globally into about thirds. One third, called combustion – labeled combustion – that is burning fuels at industrial facilities, whether you’re doing it for heat or for some other reason. It’s just you’re burning fuel. Then another third is that indirect emissions from all the electricity being consumed. So those are your energy emissions.

And those are the ones that we talk about a lot in other sectors. But you can see, even if we were able to eliminate both of those, if we were able to get entirely clean industrial energy for all of our industrial uses – so no combustion emissions, no electricity emissions – there would still be another third of the emissions left. And those are what we call process emissions. So those are from any kind of chemical reaction that’s not a combustion reaction, non-CO2 emissions, and emissions that come from waste systems – like, waste processing systems. You know, so like wastewater systems and things like that. And so, as I said, cleaning up the energy – in the very best-case scenario clean energy only gets us two-thirds of the way there in the industrial sector.

So another really important characteristic of the industrial sector is that the products are very highly traded, in most cases. So the – you can move large quantities of emissions easily from country to country in the form of finished or semi-finished goods. So here we have the same figure that we’ve been looking at globally a few minutes ago, here it’s just for the United States. And it looks like the United States has a much lower of its emissions coming from the industrial sector. It looks like it’s only about 20 percent, instead of the 38 percent we had globally.

But if you add in the emissions that are represented by all of the products – by making all of the products that are imported to the U.S., and then you subtract out, of course, all of the emissions associated with the products that end up being exported – so you look at the emissions footprint associated not with our production but with our consumption, you have to add that rather large additional green wedge at the top, which unfortunately we don’t have a full time series for. That’s why it’s kind of truncated. (Laughs.)

But what you can see is even in a mature economy, the emissions that are represented by our consumption of goods in the material sector, our use of stuff as opposed to our use of energy, are actually only a little bit lower in high-income countries on average than they are in emerging economies that are building their infrastructure for the first time. And so this movement of emissions in the form of a movement of goods changes not just the way we think about and account for the emissions, but it also changes the political economy of how we approach reducing these emissions in pretty dramatic ways.

Now, the final – or, I guess there’s two final pieces that I would add to that. One is that we’ve talked a lot about industry. And this is a term that is some – that can conceal more than it reveals. In the broadest sense, when we talk about the industrial sector, we’re talking about anything to do with the material economy. Anything that’s stuff instead of, you know, agriculture or energy. But actually, the emissions are really dominated by a very small number of activities. So if we look at the direct industry emissions and we split them out by sector, what you can see is that steel, cement, and chemicals – so, three kind of product categories – are responsible for two-thirds of all industrial emissions.

Everything else that we do – we’ve got – we’ve got a distant fourth and fifth coming from aluminum and pulp and paper. But everything else that we do – mining, construction, every other kind of manufacturing that’s not making one of these commodities, food processing, waste processing, all of it. You put it all together, that only adds up to a quarter of industrial emissions. So these emissions are not just large, but they’re very heavily concentrated in a set of pretty concentrated industries.

And those industries are all what we call primary commodity processing industries. So, basically, you dig something out of the ground, you cook it, and then you turn it into a usable material. And that initial stage, where you’re taking a raw material – an ore, a petroleum – you know, crude oils, whatever. But some – you know, you take a raw material and you turn it into a useful material, like steel or plastic or whatever, that is where these emissions are concentrated. And these – so that – and there’s a few consequences of that.

One is, again, we talked about how these are – these are by and large quite heavily traded materials. And so that affects the political economy. Another really important thing to understand is that these being commodity industries, these tend to be quite low value-added industries. So that’s not to say that they’re not valuable. They’re incredibly valuable. I encourage anybody to go outside on an urban street, and look around, and consider how much of your – of all of your field of vision is occupied by things made out of steel, cement, or plastic. (Laughs.) Which is where a major of – a majority of what we’re talking about with chemicals. Chemicals is – from an emissions perspective, it’s mostly fertilizer and plastic.

But, you know, it’s – this stuff is everywhere. And we get enormous value from it. But from an economic perspective, these are low value-added industries. And that’s – there’s a good news/bad news aspect to that. The good news – and – oh, and to that end, actually, it’s worth taking a second to just think about where these materials go. So for cement, it all goes into the built environment. It’s about half and half going into structures and infrastructure. So buildings and civil engineering works. Steel, 60 percent or so goes into structures and infrastructure. The rest is roughly equally distributed among vehicles, industrial equipment, and consumer products and packaging. And then plastic is really dominated by consumer products and packaging, with about 20 percent of plastics going into the built environment.

And so we have all these really useful finished products that these are made out of, but because these industries are so value-added in their own processes, they represent a very large portion – making materials represents a very large portion of the total emissions generated among the complete supply chain for these products, but it represents a very small portion of the total finished cost of the – of the goods. And to give you a sense of that, here in the United States for buildings it’s – the cost of the cement typically represents about a quarter of a percent of the cost of the building. It’s a bit higher than that – it’s closer to 1 percent for infrastructure. You can imagine, a bridge has a lot of concrete in it. And infrastructure often has lower land acquisition costs. (Laughs.) But it’s a very small portion of the finished cost of the goods.

And there’s a good news/bad news aspect to that. The good news is that if – you know, if there are costs associated with reducing greenhouse gases in these industries, if we can figure out a policy and market structure that gets those costs passed efficiently all the way to the final consumer, the final consumer isn’t likely to notice those costs. They’re likely to be a rounding error in the cost of the product. The bad news is that it’s very, very hard to persuade people to use materials efficiently when they’re as inexpensive as these materials. (Laughs.)

And so I’ll just finish by pointing out I know we’re going to talk a lot more about technology and policy pathways in the – you know, with my colleagues and in the discussion portion. But I want to finish by pointing out that there’s a few different pathways that we can use to approach reducing emissions. And we should make sure that we keep open the options and we make progress on all of them. So where I’m finishing here is with a very simple equation, which is – helps me to think about our options, our intervention options, in this sector.

So we say the total greenhouse gas emissions, GHG, is equal to the total amount of services that we consumer – so, services are things like thermal comfort, mobility, washing, elimination. They’re the things we actually like to have. Multiplied by the number of products that we need to deliver a service, multiplied by the amount of material that we need to make a product, multiplied by the amount of emissions that’s generated to make that material. Of course, you know, in the real world you can’t separate these things cleanly, but conceptually it’s very helpful, because what this tells us is that we can intervene to reduce the number of products per service. We can intervene to reduce the amount of material per product. Or we can intervene to reduce the emission for the materials.

The conversation often moves very rapidly and very directly to that final category. And I know, particularly considering my colleagues on this panel, that we’ll have plenty of opportunity to discuss that emissions intensity category, where we’re talking about carbon capture, and fuel switching, and bioenergy, and energy efficiency, and all of these things. But we should also remember that we have potentially levers that are as powerful or more powerful, and much less dependent on new technologies, in the area of reducing product lifetimes, increasing the utilization rate of products, using materials more efficiently within products, improving the quantity and, often more importantly, the quality of recycled materials. So we have a very broad range of options. And they’re not all – and in my instances they do not, in fact, have large technological barriers associated with their implementation. In many cases, it’s more about business models than it is about technology.

So I hope that has been a useful introduction to what we’re going to talk about today. And I look forward to kind of digging into some of the technology and policy details together with my colleagues on the panel.

Sarah Ladislaw: Rebecca, that was great. It was certainly a good framing overview of the issue that we’re talking about today. Before I turn to Andreas to talk about how BASF has been, you know, managing some of these challenges, I wanted to just as one more question because I know you follow it closely. You know, a lot of our viewers and in the discussions that we’ve been having under the Climate Solution Series, people sort of understand what the policy landscape looks like, right? They understand the policy vehicles. They sort of get a sense of where policy is surging ahead, or places that are being more aggressive in terms of the policy landscape for reducing greenhouse gas emissions in the power sector, or in the transportation sector. What does it look like for the heavy industry sector?

Rebecca Dell: Yeah, sure. So I think, you know, we have the same kind of broad categories of policy that have been used in other sectors as well. So we have – you know, the options are around, you know, technology investment and development policies, regulation of emissions from emitters and production facilities, and market-creation policies for low-carbon alternatives. I think the relative balancing of those is quite different than in many other sectors. And that reflects a lot of the issues that I mentioned, both issues of technology readiness, which are some of the more obvious ones, but also some of these trade and economic geography issues.

And as a result of all of those factors, I think in the near term there’s been a lot – there’s a sense from the policy community that we’re – that the technology – or, the poll policies, the market creation and poll policies are probably more important in the next few years. And as the alternatives become more mature, those are – you know, we may move more into the kind of direct regulation and push policies and, you know, the pricing policies, and things like that.

So to give it just one example of that, you know, I mentioned that about half of all cement goes into infrastructure and civil engineering works. Which means that about half of cement in most countries is being purchased with taxpayer dollars. And so one of the policy areas that has gotten the most attention is around public procurement. So if we – in a similar way to, you know, with renewable portfolio standards in the electricity sector, if we say we’re going to – for a certain amount of the cement that we buy in the public sector, we’re going to buy low-carbon alternatives. And you can do this for steel and for other building materials as well.

We’re going to buy low-carbon alternatives. We’re going to create the market. We’re going to, you know, sort of buy down the early prices, get us moving on a technology learning curve. And that’s something that we can do at trivial cost to the taxpayer, and potentially very important impact in emissions.

Sarah Ladislaw: That’s great. Well, we’ll have more discussion about sort of the policy landscape and some competitiveness issues and things like that when we get to the discussion, but thanks for getting us kicked off on a really good start, Rebecca.

Andreas, I wanted to turn to you next. You know, BASF is in that chemicals wedge that Rebecca showed on her chart. Can you talk a little bit about, you know, how BASF has been approaching some of these challenges and what’s worked out so far? And I think you’ve got some slides to show as well. So maybe my colleague can pull those up.

Andreas Bode: OK, yes. So good morning and good afternoon to everybody here on the call. And thanks for the opportunity to take part. And I would like to say – to reframe a little bit what we heard in the beginning. I think Rebecca’s presentation was very good to show the structure of the industry and the role we have for greenhouse gas emissions. And important for me as we are not only doing plastics. The chemical industry is one of the key players for decarbonizing our industry system and our energy system. Maybe if you – if you look at this image here, it shows you our production side in Ludwigshafen. It’s the largest of BASF.

So I think it makes clear what heavy industry means from our point of view. But chemistry is heavy industry on one side, but it’s also a very light industry on the other side. So we are a heavy industry in the petrochemicals sector at the beginning of the value chain. And then we are approaching very light chemistry with very small amounts of products, you know, like pigments and catalysts. So things that are important for many devices in our environment.

If you go to the next slide, yeah thanks. It shows that it starts for the chemical industry and for me in my role that we are affected by climate change, but that’s only one part. The second part is all products enable climate – at least a significant share of the products. Imagine the batteries production, a huge part of this is coming from the chemical industry, or insulation material for houses. So we are in a little bit double position. We have the issues with large-scale productions emitting greenhouse gases and producing products which are important for climate protection all over the industry, and for consumers.

So the last part is we are responsible for the greenhouse gas emissions of our production. And here I would also like to connect to Rebecca’s presentation. Again, you see here for our Ludwigshafen site a rough breakdown our emissions. So power plants play a significant role. The core production unit, the steam cracker, ammonia production, and laughing gas emissions. They are very important for our total emissions. And this also reflects into the total chemical industry. So next slide, please.

As Rebecca showed, the industrial emissions in Europe and in the U.S. did not really increase in the last years. And if we zoom out now the chemical industry, and especially BASF, we can see that since 1990 BASF has already decreased in absolute terms the emissions by 50 percent. So there are not many industries that have similar numbers, especially because we doubled our production in that time. So the specific greenhouse gas emissions per ton of product, they were reduced by 75 percent already. And that is, I think, making very clear that we are approaching thermodynamic limits in improving our energy and resource efficiency.

You can see in roughly 2018 we started with the gray line going up, business as usual. This would happen with our greenhouse gas emissions if we would continue with our programs for energy and resource efficiency, as we did in the past, while growing our sales volume. So to bring down these emissions, we have set ourselves the target to grow CO2 neutrally until 2030. That’s the horizontal line. So we don’t have to have increase of greenhouse gas emissions. But since we are at the thermodynamic limits at our processes, we need completely new processes. And that’s what I want to talk about later. We have to think about breakthrough technologies.

And that’s why we started the so-called Carbon Management R&D Program. But on the right-hand side of the slide you see that not only the Carbon Management R&D Program is important to us. At this point in time one part is still improving our energy and process efficiency, and the second is increasing the share of renewables in our power supply. And these two measures, they apply immediately. We are working on that now. And in the Carbon Management R&D Program, we are developing completely new processes that should come into really play after 2030. OK, next slide, please.

This is a breakdown I described before in the column for Ludwigshafen. So you see here we have 8 million tons of CO2 equivalent emissions in Ludwigshafen. This is 1 percent of the German greenhouse gas emissions. So it’s a significant emitter, our site here. And as you can see, 3.9 million tons stem from power and steam production. Fits well to Rebecca’s numbers. And 3.3 stem from our basic chemicals production – steam cracker, ammonia, and hydrogen production – and 14 other plants. But the first three are the most important. So for our efforts to bring down our emissions, we have to concentrate on power and steam and on the upstream. All the other downstream plants are, of course, important, and also waste, as you can see here, is important. But it’s not our primary measure. That’s why we have the very focused development ongoing for this upstream and the power and steam.

OK. I would leave it like as if you’re OK with these slides at the beginning, and maybe go into a little bit more detail when questions come on the technologies that we are working on.

Sarah Ladislaw: Well, why don’t we actually – if you don’t mind – since we have it up, why don’t we go to that now? Because I was going to ask as a follow up, you know, it’s very interesting how you framed it. But, you know, what are some of the challenges that you’ve come up against? Or what are some of the things that you’re working on?

Andreas Bode: Yeah, sure. OK. So now we can continue with the next slide. This slide is kind of a sneak preview on the future of chemical production after 2030. Four examples are shown here that we are working on in the R&D program. The first is electrical heating of steam crackers. So steam crackers are at the beginning of our value chain. They are decomposing hydrocarbons into very small-chain hydrocarbons. And then we build up the molecules starting there. So it’s 850 degrees in an oven, and these ovens are heated by natural gas normally.

And we are starting – well, started to develop a technology to heat this oven by electricity from renewables. It’s a completely new technology. It’s not available on the market. And I think everybody can imagine what happens if you – if you have to heat a three-meters long tube by – from room temperature to 850 degrees, because it’s simply getting much longer. And this has huge challenges for development. You have to bring in the heat. You have to ensure that the materials are stable enough, and so no and so forth.

The second is CO2 free synthesis of syngas. This is already something that is in the market. So we can use carbon dioxide and CH4 to produce what we call synthesis gas. It’s a mixture of hydrogen and carbon monoxide. And you can build up the whole chemistry also from there. This is already in commercialization. The third project I like very much is methane pyrolysis for clean hydrogen. So hydrogen production is one of the key functions in decarbonizing the energy system and the industrial systems. What we are trying here is instead of producing CO2 while generating hydrogen, we want to produce solid carbon. And this is a temperature in the reactor of more than 1,000 degrees Celsius. I think it becomes very clear that this is a challenge.

The fourth one is sodium acrylate, which is used for diapers. And we are trying to produce them also using CO2. So if we look into the different methods to reduce CO2 emissions, also as mentioned by Rebecca before, then we see here Co2 utilization in two projects. We use increased amount of energy use – of electrification, but we also see what we call direct avoidance of greenhouse gas generation. And this is an area where BASF has a strong focus. So we think that the priority should be direct avoidance of CO2 emissions. And then we have biomass utilization, we have CO2 utilization, and many other methods. But the core should be avoidance.

So if you go to the next slide, I would briefly show just for illustration what we are working on a video of a methane pyrolysis laboratory experiment, where you see now a glass reactor. It’s about one meter high, with a carbon flow – flow of solid carbon from top to bottom. And CH4 is flowing from bottom to top. The CH4 decomposes in the center of the reactor, where it’s glowing here, and hydrogen is going upwards, and solid carbon is moving downwards. Looks quite nice here. It’s heated with induction. And what you would expect is moves in the center and stabilizes. But as you see here now, it suddenly becomes unstable. The carbon flow gets interrupted. And it moves much further down than we expected, because the heating is in the center of this coil.

After we developed this experiment, I think maybe four years after we started to work on this process – four years – we realized what has – what has happened in our experimental units. And with this experiment we got a new excess to this process on how to control is, how to move forward in our R&D. But this already took us four years. Meanwhile, we are working for seven years on this project at least. The first things we measured were in 2010. Now we have 2020. And our estimate is that we will become ready for industrial use in 2030. So we have 20 years development for bringing such a process into practice. That, I think, explains now, in turn, why our target is to stay with our greenhouse gas emissions until 2030 flat, and then start to bring this part of greenhouse gas emissions further down.

That’s it for my PowerPoint presentation.

Sarah Ladislaw: That’s great. Thanks, Andreas. And I want to come back in our discussion portion to thinking about how these timeframes over which innovations, like the one you’re talking about, get incorporated into greenhouse gas emissions reduction pathways, because I think, you know, one of the core questions is how can those be – can they be expedited? How can they be expedited? And where and how? But so thanks very much.

I want to turn now to Adam to talk about the work that they’re doing at Boston Metal. So, Adam, very similarly, you know, steel and metal’s not an area where lots of people spend a huge amount of their time. Can you talk about some of the things that your company is doing, and how to think about it in the broader context of steel and metals production?

Adam Rauwerdink: Sure. Thanks, Sarah, for that introduction. So, yeah. I’m Adam Rauwerdink. I lead business development at Boston Metal. It’s located just outside of Boston. And we are focused on, you know, revolutionizing the steel production process. So going from what Rebecca talked about, taking raw materials out of the ground – in our case, taking iron ore out of the ground and converting that into molten metal and molten steel, and doing that in a way that, as Andreas said, avoiding CO2 production in the process.

So we saw that the way steel is produced today accounts for 8-9 percent of global CO2 emissions. And that is because, you know, if you look at the steel that’s produced globally, last year there was 1.9 billion tons of steel produced. To put that in reference – or, in context, it’s the Eiffel Tower a quarter of a million times each year. That’s how much steel is produced. And with each ton of steel that’s produced. And with each ton of steel that’s produced you get about two tons of CO2. And that’s your – that’s where you get to – very quickly to 9 percent of global emissions.

And the way it’s produced today – the way steel is produced today is very similar, at its core, to – you know, when talk about, you know, hard to decarbonize industries, the formula for steel production was developed in the Iron Age, the use of carbon to break iron and oxygen apart in iron ore, to get a molten iron product. And as a byproduct today in industry, you get CO2. What we are changing – we’re using the same feedstocks, iron ore. We’re producing the same or better quality molten product. But we’re changing that production mechanism, changing the formula for steel production.

And what we’re doing is a process called molten oxide electrolysis. And the big change is that third word, electrolysis. So using electricity rather than coal to produce molten iron products. So it’s decoupling emissions from steel production. So all the emissions on site, scope one emissions, when you’re using our process, is oxygen – oxygen as a byproduct from steel emissions. And as you pair this with renewable energy or in sector where it’s clean today, or where it will be in the years ago, you’re limiting scope one and scope two emissions, and producing steel with nearly zero CO2 emissions. So that’s where – that’s the mission that we are focused on at Boston Metal to revolutionize that steel production process and bring our technology to market in the next several years.

Sarah Ladislaw: And, Adam, if you would, where – how does your solution fit relative to other solutions that the sort of conventional steel industry has? And where are you in the stage of sort of deploying that technology?

Adam Rauwerdink: Yeah. So if you look at that 1.9 billion tons of steel that’s made each year, there’s two – you know, first order, there’s two big breakdowns in the industry. There’s primary steel production and recycled. One of the best ways, certainly, that’s available today to reduce CO2 emissions is recycling. About a third of global steel production, and it’s an increasing percentage, is the re-melting of scrap steel. And that’s something that is very, very strong in the U.S., even in China, certainly as you’re two decades out from industrial revolutions there you’re starting to see scrap become available and re-melted. So that is one very, very positive trend that’s happening in industry. And that will certainly continue, and we certainly support that.

Where we sit is really what’s called primary steel production. So doing that conversation – bringing new units of metal to markets. And the incumbent process today is a blast furnace route. Very tall towers, where they’re mixing iron ore and coal. And that’s where the majority of the CO2 emissions occur. So there is much work being done to try to, you know, really in the near term, capture or utilize some of those emissions from those incumbent processes. But really the big push is to – is to change the fuel source, to move away from a carbon emissions. Again, to Andreas’ point, to avoid CO2 emissions altogether. And if you’re going to produce almost 2 billion tons of material, you need a very, very abundant energy source. And so electricity, you know, is the answer for that.

And that’s – once you get into that corner of the market, then there are a few different approaches being developed. We are trying to use electricity direct on iron ore, so that the hydrogen is the other alternative. We’re doing electrolysis on iron ore. The other approach that’s being developed, and especially works very well with some of the high-grade ores, is to use electricity to do electrolysis on water to produce hydrogen, and then do that as a reducing form. But for either of those, you need – you need electricity, ideally clean electricity, very abundant electricity to produce, you know, billions of tons of steel, and very reliable production.

So that’s, you know, very much a matrix. If you’re going to produce 2 billion tons of material, it’s going to be a matrix of solutions. But we see a very, very large space for our solution to fit into that process.

Sarah Ladislaw: And, just quickly, what are some of the barriers between here and there. I mean, is it a cost issue? Is it, like, a piloting issue? You know, how should we think about the pathway?

Adam Rauwerdink: Mmm hmm. Yeah. So certainly the scale is one of the most critical things. It is very much a global commodity. It’s an extremely capital-intense production process. So you have 2 billion tons of production capacity in the ground today. It is a globally traded, relatively, you know, very low cost material, and a very low margin on top of that. So all that capital entrenched with very low margins and low cost to deal with, you know, there is very, very little risk that the industry can tolerate as you make that transition. So that’s certainly an important part for us, is to make sure that we play – as we develop our process that it fits very seamlessly upstream in terms of, you know, the ores that we can tolerate.

We don’t have to change that side of industry, making sure that the product we’re producing fits very, very well downstream, and then working to ensure that we can get, you know, first plants and first facilities into the ground in a very seamless way, as incremental capacity or working alongside existing plants, to really grow and take parts of the market. Because it is very, very entrenched. You know, obviously thousands of years with that formula. It’s worked very, very well. And it’s grown tremendously at scale. But to see the change happen, it is something that will take many, many decades.

Sarah Ladislaw: And what I’d like to do is maybe ask you and then Andreas the question I asked Rebecca, which is about the policy environment. And how much of what you are doing, Adam, and what your company’s trying to do is either dependent upon a policy environment that’s trying to drive down greenhouse gas emissions, or – either sort of directly or indirectly – or, you know, how much do you work with and think about the policy environment when you think about the business case for the technology?

Adam Rauwerdink: Mmm hmm. Yeah. That is certainly key. So you know, up front, you know, certainly when you come to economics, the goal of our company is to try to reach a point where our price, you know, is on par directly with the incumbent process. So that’s our goal in terms of engineering and implementing the technology. Certainly, there’s a gap to conquer before we’ll get there. But as you look globally at, you know, development, there’s both direct steel policy, there’s also energy policy that benefits us.

Because if you’re going to electrify steel production, transportation, any of these, you need that clean and renewable energy. So that’s something we are very, very supportive of, all the work that’s being done to electrify – or, to clean up electrification and electricity use. This is – this is plugged into a carbon source – or, a carbon fuel power source, you know, you’re just moving scope one to scope two. That’s not our goal here. So that’s one big side of it.

And then within the steel industry, there’s a few different factors at play. It is very much a global commodity. And for national security reasons will probably remain very much a global commodity, with, you know, many, many countries producing their own steel. And so if you’re going to promote a – on a global basis – a clean solution, you do need to figure out ways to, you know, make for level playing fields and fairer playing fields across borders of how you’re going to – how you’re going to deal with that. And that’s, you know, certainly a very, very complex issue. But it will be critical long-term.

And I would just quickly add, you know, one third area is certainly on the finance side. You know, access to capital to deploy, you know, these new solutions over the years ahead. Hopefully they’re, you know, competitive directly. But if you’re trying to replace, you know, incumbent, installed capacity, there certainly needs to be access to capital that’s going to help you and support you as you go about that transition.

Sarah Ladislaw: Great. Thanks, Adam. And I’m going to want to come back to the issue of competitiveness and national security, as you mentioned. But, Andreas, I wanted to give you an opportunity to answer the question about policy as well.

Andreas Bode: Yeah. Thanks. So the policy part is an increasingly important one. So we have – I would say we have three areas. Technology is one. Policy is second. And consumers is a third one. About technology we heard already something in my presentation, and also Adam referred to that. So we have very long development cycles. We need a lot of money and a lot of people, and a lot of – (laughs) – luck also to develop the new processes. The consumer side is extremely important because we will need some market pull for these technologies to become viable business cases. And policy is insofar very important as different policy measures can be promoting the implementation of these technologies, or hindering.

Just to give you an example, in Germany we have the Renewable Energy Act, which was, I think, very important to bring down the cost of renewable energy production, photovoltaics, and wind energy, for example. But today is it rather a hurdle for implementing the use of renewable energy in our processes, because the cost of production has been brought well down, and it’s competitive, meanwhile. But there are so many taxes and duties to be paid for using renewable energy that this is meanwhile rather a hurdle. So policy is insofar extremely important because all these three areas have to play together for us to implement such technologies.

And other policy measurement I would say is critical is R&D and implementation support. So in the R&D phase we need 10-15 years. And then in the scale-up phase we need another 10 years, and this all in a highly – yeah, in a high-risk environment for implementing such investments.

Sarah Ladislaw: Rebecca, you had offered some early thoughts on this question, but I wanted to give it back to you. But we – I’m looking at the stream of questions we’ve got coming in from the audience as well. And one of them, I think, relates to this, which is, you know, about the combination of trade exposure and cost structure. And what kind of opportunities do you see or do you encourage policymakers to see in terms of, like, onshoring, or thinking competitively about trying to create low-carbon versions of these goods, and to try to competitively sell them to the world, right? So is the industry at a stage where policy nudges could construct that kind of positive competitiveness?

Rebecca Dell: Yeah, absolutely. Thanks so much for the question. And I think that one of the things – this – one of the reasons – so I mentioned previously that there’s a lot of interest and attention around these kind of market creation and market-full policies. And one of the reasons why those are considered more attractive in our current moment is the competitiveness issue. So for example, the state of California passed a law recently called the Buy Clean California law, which puts some requirements on the greenhouse gas emissions performance of building materials used in public construction that’s funded by the state of California.

And so this is exactly the kind of policy that I was mentioning. And one of the major advantages of this is that, you know, this law doesn’t discriminate about – in any way – about where the material is produced. It just says that there’s an emissions performance requirement that the material has to meet. And so this is a way of structuring a policy that doesn’t create any incentive for offshoring. There’s no way for the emissions to leak as long as your, you know, account protocols are robust. And so whether the – whether you make your steel in China or in California, it doesn’t matter. All that matters is the emissions.

And one of the reasons why it’s easy to pass a law like that in the United States is that the U.S. steel industry is, on average, significantly cleaner than many of – than many other countries that American companies might be competing with. That’s not true in every industry. But it is true in the steel industry. (Laughs.) And so there – you know, so this is a case where domestic production would stand to benefit from a policy like that one. And I think there’s also – you know, Andreas mentioned the importance of technology policy, and technology commercialization support.

And I think it’s useful to remember the example of wind and solar, and the important role that feed-in tariffs and removable portfolio standards played in those – in the commercialization and scale-up of those technologies. And basically, those types of policies, what they said was: In the early stages, for small quantities of electricity, we will just pay whatever it costs. We don’t really care. It can be 10 times the cost of existing electricity. We’ll buy a non-zero – we promise that we will buy a non-zero amount of it, at whatever cost it currently is available at. And that was really necessary to get kind of from zero to one, to get to a place where technologies could then scale up.

And I think that there’s a need for something similar in steel, in cement, in basic chemicals, where there’s an initial market that’s created that is protected for clean alternatives. And that can be public; it can also be private. It doesn’t have to be public purchasing.

Sarah Ladislaw: So we have a number of questions coming through that relate to one that I wanted to come back to Adam and Andreas on, which is about the ways in which government can work with companies like yours to bring some of these solutions to market. And I think Rebecca outlined a number of different sort of pull policies. And we’ve talked a little bit about that. But maybe on the research and development side, like, are there specific areas where additional public-private partnership would be particularly helpful in advancing your technology solutions? Maybe, Adam, we’ll start with you.

Adam Rauwerdink: Sure. Yeah. And that’s something very good, I like, because we’ve been very fortunate, you know, certainly in the early days of our company, to leverage exactly that sort of funding. We were supported very strongly by the U.S. Department of Energy at the very early stages as a company, while we were first taking the core science out of academia, forming the company. The DOE was there for many different grants, we still have one ongoing, to help us really solve those early, key, you know, fundamental science issues and take the technology to a point where we could then raise significant amounts of private capital, and really, you know, accelerate – grow the company.

So that was something that was critical for us, R&D that’s focused on, you know, very long-term, very challenging bets that have, you know, an extremely important payoff at the end but, you know, the classic story is aren’t able to raise – you know, attract private capital. Just way too much risk. But the government stepped in and was able to support us. And thus far, you know, we’ve been able to leverage that and to grow the way forward.

And to just piggyback on the other discussion that just happened, is one example we’ve seen is one that’s being developed here in the U.S., as an example of kind of the market pull, would be the Buy Clean California Act that came out recently. In California, where – you know, whether it’s steel, or cement, any, you know, big building material that’s going to go into public projects, you’re going to have to start reporting what the CO2 emissions involves and those materials are. And that’ll be factored into the bid process. That’s something that we’ll favor in the U.S. in the near term.

And I know Rebecca mentioned we have some of the cleanest steel because, you know, globally about 70 percent of steels is primary. It’s the reverse in the U.S. About 70 percent is recycled steel. So we’re very, very good at producing some of the lowest emissions steel today. And factor in Boston Metal steel in the decades ahead, and that’ll get every better. But the U.S. is in a very good position right now for that.

Sarah Ladislaw: Great. Thanks, Adam.

Andreas.

Andreas Bode: Yes. Let me take methane pyrolysis as an example. I mentioned that we were working on this for 10 years. And I can – I can really say that the funding opportunities in Germany developed very well during that time. When we started that project there were many discussion ongoing whether and how this could be funded. And we took a very high risk. And that’s why we applied for funding. Risk in such development projects always means speed. So are you going to do parallel engineering, you know, have three, four laboratory units at the same time? If there’s no funding available, I think nobody would, in industry, go into this fast development without having a clear business case in place.

So the funding in that case has been granted by the German Ministry of Education and Research. And they also continue to work with us in this area when, after the first large project of the first four years, we had, let’s say, 50 percent of success and 50 percent nonsuccess. And we analyzed this asked ourselves how could we move on for a reasonable way for the German taxpayers? And we found that way. So they’re still funding it. And the next steps are also, yeah, hopefully in this area on a good way because also the European funding schemes developed a lot. We have now the Green Deal in the European Union, and also funding for development and scale up of new processes has really reached a new level, compared with the time 10 years ago, from my personal point of view.

Whether there is demand for more public-private partnership, I would be – I would be careful. I think, at least in Europe, the area that I can see it should continue in the way it was set up. Of course, there are some areas where improvements would help, but overall I think it’s quite a good situation. And we have to come up with the good projects, and apply for funding in a really good way, so that we can stay fast with our development and take – and take high risks.

Sarah Ladislaw: Rebecca, I wanted to – oh, go ahead, please.

Andreas Bode: Maybe one more aspect. We are talking now a lot about the development of the technologies. But what Adam said before, the amount and availability of cost of electricity from renewable sources is an absolute key element in the whole discussion. And so I showed projects on electrification as well. And we are discussing here not about a little bit more electricity in the future. We are discussing about a factor of three for a chemical industry that is moving towards CO2 neutrality. So this area is also very, very important if you look into policy measures. Not only R&D funding but looking into supply of electricity from renewable sources.

Sarah Ladislaw: Thank you. Rebecca, I wanted to give you a chance to talk about this as well. But we have a number of questions in the string that are highlighting the fact that, you know, in a low-margin, highly competitive and risk-averse, you know, set of industries, that, you know, while there is a lot of public-private partnership and government investment that can go into some of these technology solutions, what is it going to take to also unlock additional investment for these kinds of – these kinds of enterprises relative to the more sort of conventional incumbents?

Rebecca Dell: Yeah. That’s an excellent question. And I think one of the things that we haven’t talked about – or, that hasn’t come up in discussion yet, which I think is another kind of important piece of economic and political context in these industries, is that a lot of them are currently in a situation of excess capacity. This is particularly acute in the steel industry, but particularly it’s been exacerbated in a lot of parts of the petrochemical industry in the last few months, in particular. But we have a – we have a significant excess production capacity in these industries, which actually makes the situation even more difficult than people may realize.

There’s a strong argument to be made that if you look – if you sort of project forward and imagine that, you know, as more countries develop and increased demand for steel continues along the pathways that we’ve seen before, even with that increased demand there’s a strong argument to be made that from a pure capacity perspective we will never need another steel mill. That we already have enough production capacity to meet growing demand indefinitely into the future. And so eventually we are going to have to move into a situation where we’re not just talking about how do we build new, but how do we retire what we have now – because we’re going to be – we need to replace more than we need to add.

And so, you know, I think that that’s about over time shifting demand, and also over time tightening the screws on what we’re willing to tolerate in terms of greenhouse gas, and also other types of emissions. It’s important to remember that often when we are – the types of interventions that significantly reduce greenhouse gas emissions also do a lot to clean up air and water. And so, you know, as we tighten those requirements, but do it in a way that is, you know, attentive to the trade issues, we are going to have to – you know, the agenda in these industries is going to have to become transformative more than additive. (Laughs.)

Sarah Ladislaw: You know, the overcapacity issue is an important one, and I’m glad you brought it up. It also raises the question of – you know, certain – and this is true of all sectors of the economy in some ways. But there are lots of places where the unlevel playing field is a combination of forces, right? So it can be that because producing these resources has been seen as a strategic advantage for a number of different countries, China included, and building things with that excess capacity has been a major arm of foreign policy initiatives for countries like China, how important is it when you think about sort of global policy initiatives, for there to be some sort of sectoral reckoning within this sector?

Is that, like, an essential dynamic here for actually going to one of these deep decarbonization pathways? Or is it sort of more akin to what we’ve seen in – you know, what you think about for renewable power generation, right? Which is once it’s cost competitive, then as long as you’re deploying it and the overturning capital goes to thinks that are lower and lower carbon, you eventually get there? Your idea of sort of having to shut down or, you know, draw back capacity kind of made that question come to mind.

Rebecca Dell: Yeah. So I think that I would say that, you know, just from my observation of policy dynamics in the past, I’m not interested in relying on any pathway that requires really strong international coordination. I think that there are great opportunities for international coordination and sort of, as you said, sectoral policy in some of these sectors. But ultimately, most of the policies that come with the opportunity for strong enforcement are domestic policies. And so we need to be thinking about pathways that advance the decarbonization agenda, while also meeting the domestic needs of different – of different countries.

And I think – you know, Adam mentioned the national security aspect of it. This is something that comes up especially in the steel industry, but in other industries as well. And I think if you look – if you look around Western Europe, you will find that, you know, the EU member states, almost all of them have either one or two integrated steel mills in the country. And that is not because from a sort of purely economic geography distribution of resources perspective there’s, like, one ideal location for a steel mill in every country. It’s because countries feel that having this production capacity in what are – you know, in what are considered foundational industries for the economy, is part of being self-reliant, and having national self-determination, and having the ability to secure your own economy.

And that actually, I think, creates some opportunities in this agenda, because it means that there’s a lot of countries that all have a stake in this agenda, because they don’t want – they don’t want to outsource this production. And so they can’t afford to ignore the solutions and the investments that are required to arrive at those solutions.

Sarah Ladislaw: OK. Adam or Andreas, did you want to add anything to either of those? Andreas, go ahead.

Andreas Bode: Yeah. I think there are several points now, I would say, on the virtual table here, which require maybe some comments. I think the chemical industry and the steel industry are in some areas completely different. There are significant differences. So for example, in the chemical industry we generally do not suffer from overcapacity. The amount of chemicals to be produced in the next 10-20 years is going up because of quality of life increase all over the world. In many countries, the products – just take a simple thing, a sports shoe – is something that will be – will be needed and will be demanded by the customers. But there are many other things, like areas for health care or, an example that I mentioned at the beginning, batteries for changing the energy system, catalysts for producing many things and processes.

So we have an increase. We are discussing about replacing our existing units, but we are discussing about new plants. For example, BASF is planning two new production sites – one in India, one in China, and we are thinking about completely new processes to be installed there, and also purchasing of electricity from renewables. That’s, I think, a key aspect, because it points out that we are active in a very much global environment as the chemical industry. And that’s why we are very skeptical regarding domestic tightening of requirements.

Although I’m, of course, convinced that all these tightening helps the environment, of course, yeah. And for example, laughing gas abatement, which is a very potent greenhouse gas, was a major good measure also required by a policy framework. But on the other hand, since we are in a global competition, the level – yeah, the field is disturbed by each of these domestic measures. And that is for us something we are very skeptical about. There are carbon border tax adjustments discussed, for example.

They will create a lot of disturbances in trade, in case we are urged in Europe to increase our production cost because of new regulation, instead of doing this globally or at least in the G-20 system, the competition will take over product amounts. And this will do – this will not help the work at all because of the problem of carbon leakage. The production will simply move into different areas of the world.

So our point is not to be against tightening and things like this, but we think it’s better to have a global CO2 price, for example, at least in the G-20. And we are supporting every government in discussing this, since otherwise we will see many, many difficulties in the market in the coming years. And that is no support for the world’s climate problem.

Sarah Ladislaw: Thank you, Andreas.

Adam, did you want to add anything to that?

Adam Rauwerdink: Yeah, I’ll just add that, you know, on our side there are two key things that certainly, you know, will be changing over the next – you know, the next decade and two decades. One is, you know, the renewable energy side of things. If we were going to have – if the technology to decarbonize steel production was available today, the energy required, regardless of what technology you choose, is something on the order of 4-5,000 terawatt hours. That’s 20 percent of global electricity production today. That’s going to take decades on its own, just to build that out.

And then on our side, whether it’s our technology, or hydrogen approaches, or others, as Andreas said, you know, fundamental R&D is challenging. So, you know, the technology’s not on the shelf today. It’s going to be a very different situation by 2025, and certainly by 2030. Our goal is to have this deployed at scale. But that’s – you know, that is something that the industry for steel struggles with, is that, you know, the pull from the industry and the desire for the producers to deploy low-carbon solutions is there, and it’s growing very, very strongly. But the technology – there’s certainly a gap in the technology and a gap in the availability of the energy to fuel that. So that is something where it will be, you know, a challenging couple years ahead to work through that gap, but I see very, very positive trends, for sure, in the industry.

Sarah Ladislaw: Great. I’m going to end on one last technical question with the three minutes that we have remaining. There’s a whole bunch of technical questions in the stream, I won’t be able to get to all of them. But one in particular was about carbon capture and utilization conversation of waste carbon, and how much of an opportunity you see there, and what kind of policy incentives might help to drive some of those solutions. So I don’t know if – Andreas, you appear to be nodding, so maybe we could start with you. And then Rebecca and Adam, if you wanted to add.

Andreas Bode: So I will keep – try to keep my answer rather short. So I think it’s a very important idea to utilize the CO2 from, let’s say, incinerating plastic waste. And there are methods available. So CO2 capture is available. You know, some CO2 conversation processes already on the market. But the total amount of carbon moving into the plastics area is from our global greenhouse gas emissions – something around 5 percent, 6 percent. So this is an important area, but it’s not a key area to bring down the global emissions significantly. And it will require a lot of energy because CO2 is such a low-energy molecule. So in general positive, yes, but just a part of the solution.

Sarah Ladislaw: Rebecca or Adam, did you want to add anything?

Rebecca Dell: Sure. I think that carbon capture and storage or carbon capture and utilization are going to be important tools that will be used in the industrial sector. They’re not going to be the right tool in every instance, but I think there are some instances where we don’t have a lot of other good tools. On the storage versus utilization question, as Andreas mentioned CO2’s a very low-energy molecule. So you know, you have these exciting high-energy molecules, and then you burn them and you take out all of the energy, and what’s left over is the CO2.

And so there’s very few things that you can get CO2 to do without adding in an enormous amount of energy back. One of the few things you can do is you can make basically artificial limestone and artificial rocks, which can be used in concrete construction. And so I see the most interesting opportunity here as capturing CO2 from cement production and then fixing the CO2 back into what are called artificial aggregates, basically artificial rocks, that you can then blend into your concrete.

Adam Rauwerdink: Yeah. And in the steel sector certainly where you have all of this installed capacity, that is something that they’re looking into especially in the near term as a – as a, you know, transitional factor. That if you just installed a blast furnace or relined a blast furnace, you know, that company wants to get 10 or 20 years of usage out of that. You know, the only way you’re going to help with those emissions is to rethink what’s happening with that carbon. So that’s certainly something that industry is looking to in the near term, and then ultimately moving towards just avoiding the emissions altogether. As a stopgap, it’s definitely an important player.

Sarah Ladislaw: Great. Well, there’s a ton more questions, but we have unfortunately run out of time. I think you’re all very good sports for taking on such a technically complex set of issues in an hour and 15 minutes. But clearly there was a huge number of people tuning in, so I think that the conversation was useful for getting at some of the curiosities that people have about this important area of policy and climate solutions. I just want to say a big thanks to you, Rebecca, and to Andreas, and to Adam for sharing your time and your expertise with us. This will be posted on the website for folks to be able to tune into. And hopefully you’ll be able to share your slides.

But just want to say, a big thank you to you and then to the team at CSIS, Stephen Naimoli and everyone who made it possible to put on this event. We’ll be coming out with the fifth series – fifth in the series for climate solutions soon. So hopefully we’ll see you all back then. But in the meantime, thanks very much for your – sharing your thoughts for us, and for everyone out there for tuning in. Thanks.

(END)