US Steel has announced the close of a $290 million green bond issue that is to expand its decarbonisation plans through expansion of its electric arc furnace.
US Steel (SA:USSX34) has issued $290 million in green bonds to finance two new electric arc furnaces (EAFs) and other equipment at its new flat rolled steel making facility, Big River 2 (BR2) in Arkansas.
When complete (2024), BR2 is expected to have an annual capacity of 3 million tons, with GHG emissions 70-80% lower than traditional integrated steelmaking.
Rapid deployment of new technologies is necessary to bring the steel industry in line with the IEA’s net zero scenario. Steel accounts for 7% of global GHG emissions.
Using the proceeds from its latest green bond issuance to expand its EAF capacity has been identified by US Steel as a major contributor to achieving its 2030 greenhouse gas (GHG) emissions reduction target.
Getting to its net-zero 2050 goal envisages the development and commercialisation of various technologies, some of which have yet to be invented or become available on a broad scale.
Accompanying the announcement of its green bond issuance US Steel also repurchased $300 million of its own debt, which helped extend its debt maturity profile, and reduce cash interest expense by $5 million, with altering its credit metrics.
This is not the first green bond issuance for US Steel. In November 2020 it issued $63.4 million in environmental improvement revenue bonds to partially fund its electric arc furnace (EAF) at its Fairfield Works in Fairfield, Ala.
Sustainability commitments will need investments in new technology
US Steel was the first North American company to announce its net-zero by 2050 goal in 2021. It has recognized the need for the development and commercialisation of new technologies to help it achieve this goal, many of which have not yet been produced to industrial scale.
Some of these include carbon capture, use and storage (CCUS) technologies, hydrogen-based direct reduced iron production, hydrogen as a fuel and power, and improvements in the electric grid. The company identifies carbon offsets and credits as a last resort to achieving its goals.
US Steel is also counting on its own innovations to help reduce its carbon footprint. In 2021 it announced its sustainable steel product line, verdeX, which uses 90% recycled content and claims to be infinitely recyclable without quality degradation. It is produced in a LEED-certified steel mill, which adds to its sustainable credentials.
Another product, electrical steel, which supplies the electric vehicle industry and to fulfil the demand for alternative energy sources, is viewed as reducing societal independence on fossil fuels. Investing in electric arc furnaces which will produce steel that has over 80% recycled content, will also help boost its global recycling rates.
Steel industry depends on externalities to reach net zero
The IEA’s Iron and Steel Technology Roadmap identifies what’s needed for the industry to have a sustainable transition in a global net zero scenario. Most of these needs come in the form of new technology developments, identified by US Steel in its sustainability report, which will require a lot of external help to bring to commercialisation.
Not least among these is government help, which will be needed in building new energy infrastructure. This bodes well for the company if the measures outlined in the Inflation Reduction Act are implemented. It has only one plant outside the US in Slovakia, a member of the EU, which aims to lead the global clean energy transition.
New steel making technologies are expected to account for 30% of the cumulative emissions reductions in the IEA’s Sustainable Development Scenario, most of which are currently in the development stage. These include plants using CCUS and low-carbon hydrogen which will require a great deal of investment to bring to market at industrial scale.
To drive faster innovation and accelerate its transition, US Steel could turn once again to green financing. However, it may need to expand on its sustainability framework, which currently is published as part of its overall sustainability report. Sustainable bond frameworks are gaining in importance, as are second party opinions, which doesn’t seem to accompany this green bond issuance.