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Measures to incentivise production of zero carbon-emissions steel.
Fair competitive landscape.
Financial support to make long-term investments.
Access to sufficient, affordable clean energy.
Incentivised consumption of zero carbon-emissions steel.
ETS (emissions trading system)
Indirect compensation.
Public grants and soft loans.
CBAM (carbon border adjustment mechanism)
CCID (carbon contract-fordifference)
Consumer carbon charge.
Clean energy policies.
Public green procurement 2.5.4 Policy routes to zero carbon-emissions steelmaking.
Different combinations of the policy instruments described above can be used to deliver the desired end result: when the five policy conditions outlined above are achieved, then low and zero carbon-emissions steel will be at least as competitive as higher carbon emissions steel.
For example, if implemented correctly, a well-designed ETS coupled with a CBAM would provide sufficient support to enable zero-emissions steelmaking. This requires keeping current carbon leakage protection measures, free allocation to the level of the benchmark and indirect cost compensation, complemented by the CBAM that covers the carbon costs not covered by them.
The same could be achieved by a combination of a consumer carbon tax being comprehensively introduced to fund a programme of CCfDs.
It is possible we will see different combinations used in different regions, but in all cases, such tools must be accompanied by policies that enable the development of sufficient affordable clean electricity.
Given the scale of investment needed, significant public funding support will be required in each steelmaking region. Developed country governments can create the mechanisms for their steel industries to fund the transition to zero carbon-emissions steel, while the steel industry in developing countries may need additional support from international funding.
Recognising that governments have limited funding capabilities under existing policies, policy support to the steel industry needs to be done in lockstep with policies that directly and indirectly raise funds to support such policies. Hence the need for a CBAM to support an ETS or a consumer carbon tax to fund a programme of CCfDs.
ARCELORMITTAL • CLIMATE ACTION REPORT 2 36
2.5.5 Policy scenarios determine pace of decarbonisation.
In our first Climate Action Report, we outlined the conditions of four policy based decarbonisation scenarios, in which the industry will ‘stagnate’, ‘wait’ or ‘accelerate regionally’. Only if all conditions are in place worldwide can the industry ‘accelerate globally’ and therefore contribute to a 1.5°C scenario. Here we apply these scenarios to ArcelorMittal in different jurisdictions in which we operate.
As the cost of carbon rises, our incentive to decarbonise increases. This, together with our confidence that the five key policy conditions outlined above are forthcoming, are the twin factors driving the speed of our decarbonisation programme. Only where both factors exist can we accelerate our decarbonisation efforts. Where they are not, ArceloMittal will be ready to decarbonise but will be in ‘move’ mode, hampering our ability to achieve net-zero by 2050 and the industry’s contribution to a 1.5°C scenario.
To date, we envisage carbon price coupled with the necessary policy conditions being in place in Europe by mid-decade. All other regions are five to ten years behind Europe.
This table shows how our plans reflect the anticipated situation in each jurisdiction where we operate, and the policy conditions needed to enable us to achieve net zero by 2050. Clearly, only when policy support frameworks across different jurisdictions are aligned can ArcelorMittal, and the steel industry, ‘accelerate globally’ and contribute to a 1.5°C scenario.
Section 2 Our decarbonisation strategy 2.5 The role of policy.
Confidence that policy conditions will materialise within 5 years ArcelorMittal’s expected response Resultant risk.
Jurisdiction.
CO2e price risk.
Condition 1 Measures to incentivise production of zero carbonemissions steel.
Condition 2 Fair competitive landscape.
Condition 3 Financial support to make long-term investments.
Condition 4 Access to sufficient, affordable clean energy.
Condition 5 Incentivised consumption of zero carbonemissions steel.
ArcelorMittal 5 year outlook on financial risk from carbon prices 2021-25 2026-30 2031-35.
EU*  Accelerate Accelerate Accelerate Mitigating.
Canada**  Accelerate Accelerate Accelerate Mitigating.
USA N/A Move Accelerate Accelerate Low.
Mexico  Move Move Accelerate Mitigating.
Kazakhstan Move Move Accelerate Low.
Ukraine Move Move Accelerate Low.
Brazil Move Accelerate Accelerate High.
South Africa Move Accelerate Accelerate Mitigating * Will be impacted by final design of ETS allocation system and CBAM, and assumes additional support from individual member states is forthcoming. ** Federal + Ontario, Quebec.
ARCELORMITTAL • CLIMATE ACTION REPORT 2 37
2.6.1 Working with policymakers to achieve the support necessary to accelerate decarbonisation.
ArcelorMittal is committed to playing a leading role in decarbonising the steel industry and clearly this means we need to actively and directly engage with policymakers and organisations that advocate for the policies and conditions that will enable steel to achieve its net zero transition.
In order to maximise ArcelorMittal’s policy influence in this regard, we must be as effective as possible in our advocacy work. We are committed, therefore, to ensuring it is always consistent with the policy objectives outlined at the start of this chapter. This includes both our direct advocacy activities with policymakers and our indirect influence via stakeholder climate initiatives and also our industry associations. We will continue to reassure our stakeholders of our efforts to increase alignment in our influence by transparently reporting on this regularly, mapping our advocacy and the alignment of our membership organisations, as we did in our June 2020 report.
While we are actively advancing the climate change regulation agenda in all jurisdictions, we are focusing on developing significant traction between industry advocacy platforms and governments in both Europe (for example via Eurofer) and Canada. We will leverage these experiences to advance our advocacy across all our other jurisdictions.
2.6.2 Working with stakeholder initiatives to frame the transition to net-zero steelmaking.
While policy frameworks determine the rules for the incentives and disincentives that affect business, there are a range of other initiatives, led by both business and civil society organisations, that will impact on other levers in the market – the behaviour of customers, investors and lenders for example – in the form of ratings, standards and benchmarks.
ArcelorMittal understands the importance of these initiatives, and engages with those it believes may have a strategic influence on future market dynamics for the steel industry.
Numerous initiatives have emerged to tackle the transition to net-zero steelmaking.
Section 2 Our decarbonisation strategy 2.6 Leading and collaborating.
DRIVING THE CLIMATE TRANSITION FOR STEEL.
Creating tools to enable investors to align their portfolio with Paris Creating tools to grow the market for low-carbon, responsible steel Facilitating the transition of the steel sector.
What stakeholders need.
Investor expectations Customer expectations Government expectations.
ResponsibleSteel™ & PEF.
How can I buy responsibly sourced and produced steel?
XCarb™
How can I buy low and zero emissions steel?
NZSPMP - SBTi.
Which companies have targets aligned with Paris?
Investor benchmarks.
Which companies are well prepared for the transition?
Mission Possible Platform.
Which levers will drive the transition to net-zero steel?
ARCELORMITTAL • CLIMATE ACTION REPORT 2 38
ResponsibleSteelTM.
ArcelorMittal has played a leading role in establishing ResponsibleSteel™, the steel industry’s only global, multi-stakeholder certification initiative. ResponsibleSteel™ aims to give businesses and consumers confidence that steel certified under this standard has been produced responsibly at all levels of the supply chain, from mining to production processes through to steelmaking. The initial ‘site’ certification standard includes requirements on carbon alongside other air emissions, water responsibility, biodiversity, human rights, labour laws, local communities, business integrity and supply chain management. Additional certification – to provide customers with further reassurance on supply chain derisking and decarbonisation achievements – is currently undergoing consultation.
Section 2 Our decarbonisation strategy 2.6 Leading and collaborating.
Science Based Targets Initiative (SBTi)
The SBTi – a partnership between CDP, the United Nations Global Compact, the World Resources Institute and the World Wide Fund for Nature – develops methodologies and guidance for companies to set emission reduction targets in line with limiting warming to 1.5°c, and validates company targets that meet its requirements. Currently there is limited sectoral guidance for integrated steelmakers.
ArcelorMittal has agreed to collaborate with the Science Based Targets initiative through a project to define a fit-for-purpose methodology to develop additional science-based target resources for the steel industry. As part of this project, the SBTi’s Technical Working Group will consider the recently published recommendations of the NZSPMP – and in particular, the different carbon intensities of making steel from iron ore and scrap will be reviewed for integration.
Net Zero Steel Pathway Methodology Project (NZSPMP)
ArcelorMittal is a co-founder of this initiative, which aims to enable the steel sector to target CO2e reductions in line with the Paris objectives by developing the principles of a credible, well informed sectoral methodology for steel.
The project published a report in July 2021 with recommendations, including the need to use disaggregated Paris aligned carbon ’budgets’ for iron ore-based as well as scrap-based steelmaking in the formation of a steel company’s sciencebased target, to align such targets on the basis of a consistent system boundary, to consider crosssector CO2e impacts of steelmaking, and to outline the dependency of a steelmaker’s science-based target on the introduction of supportive policies.
The project has drawn on the expertise of its 16 member steel organisations, and has liaised with a range of other carbon initiatives focused on steel via its stakeholder reference group. The project’s report aims to become a credible reference for the further development of methodologies assessing companies’ transition to net zero.
Energy Transitions Commission (ETC) and the Mission Possible Partnership’s Net-Zero Steel Initiative.
Over the past two years, the ETC has actively convened a core group of steel companies and other experts with an active interest in the decarbonisation of the sector to help refine its thinking and create alignment on the key aspects of technology, policy, finance and demand signals needed for the sector’s net zero transition. ArcelorMittal’s EVP, Bradley Davey, is a commissioner of the Energy Transitions Commission and the company is an active participant in the ETC’s work.
The Mission Possible Partnership’s Net-Zero Steel Initiative was formed by the ETC with the World Economic Forum, the Rocky Mountain Institute and others to bring together the thinking on these four aspects with that of a broader group of initiatives.
ARCELORMITTAL • CLIMATE ACTION REPORT 2 39
• The Centre for Climate Aligned Finance (CCAF)
The Rocky Mountain Institute’s CCAF is hosting the Steel Climate-Aligned Finance Working Group as part of the Mission Possible Partnership. The group aims to define a collective agreement on how banks assess steel companies’ decarbonisation progress. ArcelorMittal is liaising with this working group in particular on those aspects of the NZSPMP where the thinking has been provided by ArcelorMittal.
• CDP and ACT.
CDP Climate – and also CDP Water and CDP Forests – aim to provide investors with a signal of the level of progress a company has made in its response to climate change and related aspects of sustainable development, by rating a company based on their response to a detailed survey. Over the past year, CDP has worked with The French Agency for Ecological Transition (ADEME) to develop a new framework, Assessing the Climate Transition (ACT), on a sector by sector basis. ArcelorMittal participated in the ACT working group in 2020 to develop the framework for steel, encouraging ACT to incorporate some elements outlined in the NZSPMP.
Investor benchmarks and frameworks.
The investor community is increasingly expected to align their portfolios with the goals of the Paris Agreement, and many use third party ratings or proxies in order to do so. The longest standing of these is the CDP Climate survey, but a number of other frameworks have emerged in recent months and years, focusing on heavy industry or steel in particular. • Climate Action 100+ Net-Zero Benchmark.
As a coalition of institutional investors, Climate Action 100+ has developed a common approach to engaging companies in hard-to-abate sectors on their response to climate change. ArcelorMittal has engaged with representatives from the coalition since 2018 to ensure its investors understand the context for and progress in the company’s decarbonisation strategy, and with its parent body the Institutional Investors Group on Global Climate Change (IIGCC) on the policy conditions we believe the industry needs to enable this.
In March 2020, CA100+ released its Net-Zero Benchmark. With its broad-based approach, covering not only targets but plans and policies, we view this as a useful way for stakeholders to track the progression in companies’ climate strategies. We have included the benchmark in Appendix C, with our own assessment of how this report improves our alignment.
Global Framework Principles for the decarbonisation of Heavy Industry.
ArcelorMittal is a signatory to these principles, which provide a simple framework for how leading economies can both stimulate economic growth and recalibrate toward a 1.5°C climate trajectory. The principles, developed by the civil society organisation, Mighty Earth, in partnership with the Climate Group, aim to accelerate the decarbonisation of heavy industry by avoiding capital being ‘locked in’ to high carbon-emitting industrial activities, stimulating the investment of public and private capital in low emissions technologies through finance and industrial policy and tools.