Half of all steel is used in buildings and only a little over a tenth in cars. Why is it still worth starting the decarbonisation of the steel industry with cars?
Cars transport dreams, dreams above all else.
Cars are dreams in a steel shell: dreams of speed, power, freedom – and, increasingly, of sustainability.
Sustainability dreams have long been mainly determined by the car’s motive power. Electricity is at the forefront of this dream. Some car manufacturers have been tweaking the dream by claiming that their car manufacturing is carbon neutral or that the upholstery is made from recycled materials.
Bolder dreams are needed as the number of cars in the world increases, with electric vehicles being the fastest-growing market. For example, in Norway, 80% of new cars run on electricity, and in the world’s most massive car market, China, already one in four.
With driving emissions on the decline, attention is shifting more towards the manufacturing of cars. The dream of a sustainable car depends more heavily on how responsibly steel, aluminium and battery minerals are produced.
An EV is not a sustainable solution if its manufacture is not
The board of our foundation recently extended its funding for a global operator called The Sunrise Project for its advocacy work in the automotive industry. The purpose of the efforts is to push the car business towards more sustainable operating methods by means of public ranking.
Last spring, this advocacy work culminated in the launching of the Lead the Charge coalition, which separates the wheat from the chaff in the automotive industry. It is the first global campaign that promotes carmakers’ sourcing of fossil-free steel.
The thorough analysis underpinning the campaign highlights the role of the entire supply chain in the assessment of the sustainability of EVs. The electrification of car traffic is a major milestone, but not enough of a step forward if the environmental and human rights issues in steel, aluminium and battery manufacturing are sidelined.
The dream of a sustainable car depends more heavily on how responsibly steel, aluminium and battery minerals are produced.
It is precisely with regard to these multidimensional problems that a recent ranking places the world’s leading car manufacturers in an interesting order. The top three are Mercedes, Ford and Volvo, the first two of which distinguish themselves with their sustainable supply chains, and the latter is a Nordic bright spot in terms of material emissions.
Instead, the world’s largest EV manufacturer Tesla, which has a habit of drastically slashing its prices, ranks near the tail end on both indicators, as does the world’s largest carmaker Toyota. On the whole, the automotive industry still has a lot of work to do. More than half of car manufacturers are lagging far behind in the sustainable sourcing of steel, while two out of three are not committed to respecting the rights of indigenous peoples.
Grievances are ultimately addressed by tightening regulation, particularly in the EU, and, on the other hand, by the will of institutional investors to secure long-term returns. And since some car manufacturers are already setting concrete sustainability goals, reporting on their development transparently and committing to pre-ordering sustainably produced metals, the direction for the future is clear.
It all boils down to accelerating the inevitable. The more recognition given to the pioneers, the more sweltering the spotlight will be on those still resting their foot on the brake.
Why is the automotive industry included in our steel portfolio?
Steel accounts for nearly a tenth of the world’s carbon emissions. The projects funded to implement our foundation’s environmental programme are currently focused on reducing emissions from steel production internationally. In the case of steel, the reduction of emissions does not depend on a lack of better solutions, but on how a new global market can be launched.
Funded by us, The Sunrise Project and its network cover the key car manufacturing areas in the USA, Europe and Asia. Competition between car manufacturers means competition between subcontractors who produce steel, and this can have a rapidly scaling effect on future investments in, for example, the Korean, Japanese and Chinese steel industries. Almost half of all cars in the world are manufactured in these countries, and China alone produces more than half of the world’s steel.
The automotive industry plays the role of a catalyst as it is able to transfer the additional costs of green steel to the selling prices of cars with a marginal effect.
In the demand for green steel, the automotive industry plays the role of a catalyst as it is able to transfer the additional costs of green steel to the selling prices of cars with a marginal effect. A car that is a few hundred euros more expensive will surely sell if it gives the buyer a more sustainable car dream.
At the same time, the car market is large enough that when committing to sourcing green steel, it can open a financial window for more and more steel producers to clean up their production process. As the supply increases, the price of green steel starts to drop, hopefully with the result that the next domino will fall and the construction industry will take an interest. In construction, the need for steel is many times higher than in the automotive industry.
In addition to market forces, a timely response from political decision-makers is needed. They can spur the transition with measures such as renewable energy investments or stricter emission standards in both transport and construction. Although the biggest players are located in Asia, a global change in the automotive industry is one that, thanks to green steel, has an attractive Nordic connection to both the pioneering Volvo and the emerging hydrogen industry.
That is something that not only car owners are dreaming about.
Cover image by Joel Haapamäki.
Taneli Rajala is our foundation's communications specialist.