Sustainability in the Automotive Value Chain
19 May 2021
As a proud partner to the automotive industry for over 40 years, we take all facets of this industry seriously and one of the most important focus points is sustainbility. When we talk about sustainable mobility, we often overlook the production of vehicles and the used materials. Additionally, when we look at a vehicle, usually a major part is made out of steel. As the topic of sustainable mobility gains more and more attention, we will focus on how it plays a role in the automotive value chain.
We interviewed Sander Heinhuis, the Head of Marketing at Tata Steel Europe, one of the largest steel producers in Europe, and Dinesh Thirunavukkarasu, Manager of Research Area Vehicle Structures at our cooperation partner, the Institute for Automotive Engineering of the RWTH Aachen University (ika) to address this popular topic.
The ika is responsible for the outer shell of vehicles and ensures safety, durability, and sustainability. This requires the application of innovative material and manufacturing technologies according to the specific requirement of each component in the structure. Ika spends a great deal of focus on sustainability, due to the high overall mass share of the structure in the vehicle. Additionally, the target is to apply material concepts in an efficient manner to reduce the environmental impact throughout all life cycle phases to an absolute minimum.
As a global steel company with major locations in India, the UK, and the Netherlands, Tata Steel is a large supplier of advanced steel to the automotive industry. They supply various strip steel and tubular products, for instance, the body in white, the chassis, and seats, including offering products specifically aimed at supporting vehicle electrification.
Sustainability in the Automotive Value Chain
Sustainability is often limited to the reduction of the carbon footprint but it’s actually about taking social responsibility for the environment and mankind.
The United Nations have defined 17 Global Goals for Sustainable Development, which besides reducing the environmental impact also include goals like i.e. the reduction of poverty and hunger, quality education, and gender equality. All industries over the world need to commit themselves to these sustainability goals in order to improve the living standard of every individual. According to Thirunavukkarasu, when we transfer this approach to the automotive industry, we need to have a detailed look into the entire automotive value chain. This includes the extraction of the raw materials, the production of the vehicles, the use, and of course the recycling.
Thirunavukkarasu believes that some of the major challenging factors and automotive key players face are to, first of all, get an overlook of where every single component of the vehicle comes from, which suppliers are involved in the manufacturing process and how raw materials are extracted, and then to make the right decision when setting up their value chain.
A typical example would be to make sure that in the rising electric vehicles market, the raw materials for batteries (i.e. cobalt) are extracted without child labor. Also, the carbon-neutral extraction of raw materials and production of components plays a decisive role since most countries committed themselves to the Parisian climate agreement to limit global warming. And this has been proven to be one of the biggest challenges in the value chain.
Thirunavukkarasu states that from a supplier and also an OEM perspective it is now necessary to overthink the processes, the actual material, and energy flows, within the entire value chain to reduce the carbon footprint to a minimum.
Heinhuis wholeheartedly agrees that subscribing to the United Nations Sustainable Development Goals is very important and Tata Steel has been following the Goals eagerly. Heinhuis states that Tata Steel’s sustainability agenda is broad as it covers multiple aspects, including (1) Being a responsible producer, which includes working with responsible suppliers, (2) decarbonization, or simply put, taking carbon dioxide out of our production processes and (3) circularity, or in other words, making sure their products are part of a circular economy in an effective and efficient manner.
Some of the major adjusting layers we can see towards carbon-neutral mobility needs to be approached holistically, according to Thirunavukkarasu. He states companies should start at the use phase, naturally, the vehicles should be as efficient as possible and build upon renewable energy sources. For combustion engines this can be done by using biofuels, for battery electric vehicles the electricity mix should generate a minimal GWP (etc. wind, solar, etc.). Even at the end of life, manufacturers should make sure that vehicles are designed for recycling. This means that components can be dismantled and sorted homogeneously and afterward, they should either be able to be recycled or lead into a second use application. Thirunavukkarasu continues that the carbon footprint in the production phase can be influenced by taking the right material and manufacturing choices. Especially in the field of material technologies, there are currently a lot of efforts going on to reduce the impact generated in material production. Thirunavukkarasu believes that steel, aluminum, plastics, and other lightweight materials take over a decisive role. Over 50 % of the material content of nowadays vehicles are made out of steel, which further decreases the GWP of steel products therefore can be one of the adjusting layers.
One cannot imagine a world without steel. We use steel every day in our household, our work, and when traveling. It is the most commonly used engineering material in the world.
Yet, steel is today responsible for about 8% of all GHG emissions in the world. So there is a big responsibility upon us to address this. In Europe, cars account for about 12% of total GHG emissions, and hence also here is a significant responsibility.
Tata Steel and Decarbonisation
But using steel is not really optional. Nor is mobility. How do we use it is an option? Heinhuis and Tata Steel feel the responsibility to take carbon emissions out of their production process. To drive this process, they have set themselves certain objectives, for instance, to reduce their total CO2 emissions by 30% by 2030 and to be carbon neutral by 2050. Heinhuis believes that there is no one cure, but that it is about a portfolio of technological options. Not all options are ready from a technological perspective, so not all may be available at the same moment in time. Also, some technologies depend on certain boundary conditions to be in place, and also these can vary in readiness across time and finally, simply different steel making sites are located in different places, which means they have access to different regional benefits and can be part of different regional industrial clusters. In the short term, Heinhuis believes there is very good potential to significantly reduce high volumes of CO₂ by capturing the CO₂ from their production processes and storing it in empty gas fields in the North Sea. CCS is a relatively mature technology and one of their steel sites is really well located next to such empty gas fields where the CO₂ will stay underground forever.
Heinhuis continues that the next phase includes possibilities to also turn CO2 into useful chemical products, for instance supplying their CO2 to industrial clusters in the Netherlands or countries nearby. In parallel Tata Steel develops H₂ based solutions, like at the Port of Amsterdam and Nouryon, they investigate the construction of a 100MW electrolyzer on their premises, of which the H2 can be used in steelmaking processes or in turning captured carbon emissions into useful chemical products.
Additionally, on their H2 roadmap, they have already started to work, however, they are not yet planning the first steps of large-scale decarbonization through H2 because they believe it will only result in true decarbonization if one works with ‘green hydrogen’ or H2 made from renewable energy. In 2020 green hydrogen will not be available competitively on a large scale, because of the lack of renewable energy, which is geography dependent. This translates to what’s the optimal way for Tata Steel may not have to be the optimal way for other steel-producing sites.
Decarbonization: Market Demands vs Legislative Frameworks
Heinhuis is of the opinion that a very important interplay between CO2 legislation and the market’s demand to decarbonize society exists today. He believes that one cannot be successful without the other and these two aspects need to reinforce each other. Europe has been the first to start a large-scale emissions trading system, called ETS, in which Europe’s energy-intense sectors like steel, but also aluminum, cement, glass, etc., receive an incentive to decarbonize as the producers need to buy CO2 emissions rights to cover their emissions. There are nuance differences across sectors, but in essence, a company gets less and less ‘free allowances’ over time and therefore needs to buy more emissions rights to continue to produce and the CO2 value of these rights is increasing over time.
Heinhuis continues that the value of CO2 rights under this trading system has increased by 80% in the past two years. These increasing CO2 costs generate an incentive for the industry to decarbonize, which is good. Since the start of ETS in 2005, the installation covered by ETS, which is about 11,000, has reduced their collective emissions by 35% up to 2019.
He believes it is a powerful legislative framework, however, Europe does need to be able to trade on a fair level playing field with other regions in the world. And not all trading regions have similar systems or systems that generate similar costs. Therefore it is important to the European steel industry, but of course thereby also to steel intense users, like the automotive industry that there will be a fair level playing field in terms of incurred CO2 costs.
The EU has said that they will investigate how a carbon border adjustment mechanism, or CBAM, can be designed so that Europe is protected from lower-cost but more CO2-intense imports. The draft legislation will be proposed this year, with an expectation that legislation will be put in place in 2023. Heinhuis urges the market to realize that when asking for low carbon steel, it will be a different product than conventional steel. Perhaps not necessarily from an engineering perspective, but from a societal perspective. And hence the market will need to be willing to pay a premium for low carbon and carbon-neutral products. Heinhuis believes that this awareness is growing in the market and is important as everyone will need both the legislative incentives, but also the market pull to make a decarbonization transition happen.
Heinhuis is convinced that circularity contributes to carbon reduction. Once the iron has been extracted from iron ore, it is there to serve society for several generations. He believes that steel always comes back. Steel beverage cans or food cans can take up to 6 months, while a car can take up to 15 years and a building requires a staggering 50 years but returning to the steel pool is inevitable. Heinhuis pointed out two important roles, the first is that the remelting of steel is significantly less carbon intense than its original virgin production, which is beneficial. Also, the production of scrap-based steel results in about a quarter of GHG emissions compared to the production of virgin steel.
Secondly, due to the value and recyclability of steel, there is a highly efficient scrap collection and distribution network. Steel doesn’t end up as a landfill, it is simply too valuable and easy to use. For Tata Steel embracing scrap-based steelmaking as a future decarbonization strategy has become the norm, however, in addition to virgin-based steel production. The global demand for steel is growing and currently, only 40% of total global steel demand can be satisfied through recycling, and forecasts predict this will still only be 60% by 2050. Heinhuis believes that we can’t just count on efficiently remelting scrap but we also need to work on producing virgin steel with as little as possible, to eventually even no GHG emissions, as well as efficiently recycling scrap to high performing steels.
Today, when most consumers buy a product, they want to be sure that this product has been produced responsibly, not only at the shop or the dealer that they bought it from but throughout the whole supply chain. They want that people have been able to work in safe working conditions, with appropriate ethical standards, with equality, and of course absolutely free from child labor and free from trading with conflict areas.
According to Heinhuis, Tata holds themselves accountable to high environmental and social standards, and they are actively engaging with their suppliers to ensure the same.
Certification can play a meaningful role here and in 2020 Tata Steel became the second global steel mill to become a member of ResponsibleSteel, a sustainability standards organization that sets out to drive the sustainable development of steel products, its production, and its sourcing.
However, Heinhuis also believes that in addition to certification, collaboration and real supplier-customer engagement are indispensable.
The Not So Distant Future
Heinhuis is excited about the next 10 – 20 years, especially about the developments within the next decade. He sees two key trends, which will change the market for the better.
The first has been touched on in this article, that steel will have to be produced with a smaller carbon footprint, which will, in turn, will open a whole new market.
Heinhuis states that today’s steel demand is about strength, formability, and surface quality, whereas tomorrow’s steel demand will also be about the associated emissions. This will open up new steel product lines and will allow users to position themselves as first-mover users of low-carbon steel. He expects that ‘brand owners’ like automotive OEMs will be among the first users of low carbon steel.
As a second trend, he is convinced that in the future we will not only sell steel, but we will also increasingly sell data that facilitates the processing of the steel or for instance its traceability in subsequent production processes. Where Industry 4.0 has already become a daily practice in certain steel-making processes, at Tata Steel they are also convinced that this will become daily practice between steel suppliers and users in the years to come.
In the automotive sector, when talking about decarbonization, Thirunavukkarasu predicts that policies will change in the upcoming years. There are discussions going on that foster the implementation of a holistic Life Cycle Assessment instead of the isolated assessment of the use phase like it is at the moment. By 2023, the European Commission will evaluate the possibility of developing a common methodology for the assessment and reporting of the full life-cycle CO2 emissions of cars and vans. At the current stage, it is not mandatory to consider the full life cycle. Nevertheless, he is happy to see that the industry is already one step ahead and commits itself to sustainability targets on a voluntary basis.
Heinhuis believes that the trends mentioned are major trends and will not lead to incremental changes, but represent a real transition, just as electrification is a real transition for the automotive industry. He is of the opinion that it is very promising to see the interest and attention for this in the market and that it is in the producers’ and users’ hands to make this transition happen together.