CHALLENGES & BARRIERS TO FINANCING

INDUSTRY DECARBONISATION
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INSIGHTS FROM THE IRON & STEEL SECTOR

CEFIM webinar
June 14, 2023

Cécile Seguineaud ([email protected])

Structural and Industry Policy Division / Steel Unit

Directorate for Science, Technology and Innovation
 Industry decarbonisation ambitions face implementation
challenges
Insights from the iron & steel sector

Primary near zero Underpinned by a lack of

More than of 90% 30% of global emission steel represents economically viable
global crude steel crude steel production business cases
production in countries covered by corporate’s less than1% of global
with Net-Zero target Net-Zero target crude steel production
100%
Share of global crude steel production

75%

50%

25%

0% Source: MPP, 2022

1 2 3 2
Source: OECD, 2022
 Barriers to attract financing for industry decarbonisation

Multiple challenges increase the risk profile of low-emission (steel) projects…

Technology
Investment
Low industrial maturity /
Scale-up breakthrough techno. High capital intensity /
upfront costs

Competitiveness
Higher costs of production /
Green Premium

Broader systemic challenges Market

Low-carbon infrastructure/ Volume uncertainty / Lack of

Policy framework … definition of ‘green’ products 3
 Barriers to attract financing for industry decarbonisation
… even more pronounced for Emerging & Developing Economies (EMDEs)

Further barriers for EMDEs, e.g:

Investment
Technology • Access to innovative techno.
High capital intensity /
Low industrial maturity / • Access to finance upfront costs
Scale-up breakthrough techno
• Cost of capital

• Regulatory & policy uncertainty Market

Competitiveness
• Lack of low-carbon Volume uncertainty / Lack of
Higher costs of production /
Green Premium infrastructure definition of ‘green’ products

Broader systemic challenges

Low-carbon infrastructure/
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Policy framework …
Towards economically viable business cases:
Key Enabling Conditions

Technology Innovation support, demonstration projects

Financing instruments & de-risking mechanisms

Investments (Cash grants, loan guarantees, sustainable linked bonds,
credit enhancements…)

Competitiveness De-risking mechanisms (tax credits, CCfD, FiT…),

Carbon price & global level playing field

Market Offtake agreements, Green Public Procurement,

Standards for ‘green’ products

Supportive policy & regulatory framework

Systemic (targets, sectoral decarb. plans, low-carbon electricity, H2, CCUS...)
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Multi-stakeholder partnerships, ind. clusters, intl collaboration
 Towards economically viable business cases:
Examples from the steel sector
Growing pipeline of innovative near zero emission steel projects,
incl. multistakeholder partnerships

Many innovative projects involve government support through grants

H2 Green Steel: Equity & Debt financing Source: OECD, 2022

JSW: SLB issuance (500 million USD), incl. sust. performance target

De-risking: CCfD (Germany),

indirectly steel related: 45Q Tax Credit CCUS / 45V Tax Credit H2 (US)
Emission content criteria for trade: CBAM (EU), GASSA (US – EU)

Purchase commitments: steel producers (H2GS, Salzgitter, Nucor…) & end-users (BMW, Volvo, Miele…)

Green Public Procurement , corporate buyers coalitions

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Standards & definitions …, incl. finance
 Increasing & channelling capital flows:
A Double Imperative
Large investments & net-zero aligned projects are critical
for steel decarbonisation
New projects are not going in the right
direction
More than 1 USD trillion required by 2050
Most of the new commercial projects planned & underway
relate to high emission intensive production routes
Illustrative Key Metrics from steel 1.5°C aligned scenarios

• Around 60 USD billion /year

• Representing 20% increase

versus baseline scenario

• Cumulative investment
required [2020-2050]
around 1,6 USD trillion

Source: OECD, 2022 7

Source: MPP, 2022
 Increasing & channelling capital flows:
A Double Imperative
The profile of existing steelmaking assets calls for a crucial role of
transition finance, especially in EMDEs

Emission intensive assets prevail Assets characteristics in EMDEs

at the global level increase the risk of stranded assets
• Higher emission intensive assets
• Younger assets
• Growing capacity
• Concentrate the vast majority of new emission intensive
projects

Source: OECD, 2022 Source: OECD, 2022 8

 Fostering cooperation between public & private
finance institutions

... by sharing common goals

Ensuring policy alignment

Defining standardised frameworks & criteria for … to mobilise & catalyse various
labelling / classifying financial instruments sources of finance
Developing reporting frameworks
Defining new forms of financing approaches (green
and SLBs, blended finance, performance based
.. to increase transparency & instruments…)
accountability
Leveraging public finance to de-risk projects,
Encouraging data disclosure attract private investments,
stimulate local capital markets
Ensuring best practices for MRV

Using ESG criteria to incentivise directing capital towards

net-zero aligned projects
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THANK YOU FOR YOUR ATTENTION