Steel is produced using basically two production routes. The primary route, also known as the integrated route, uses iron ore as its main raw material, which is transformed in blast furnaces into an intermediate product called pig iron. These blast furnaces require the use of a reducing agent, which generally is carbon based, that reacts with the iron oxide in the mineral’s composition to remove the oxygen, which produces the pig iron along with CO2. The pig iron then goes to a melt shop, where it is combined with metallic alloys and other inputs to make steel with the quality required for each application.

The other production option is the secondary route, known as the electric arc furnace or mini mill route, for which the raw material is ferrous scrap. Steel is the most recycled material in the world. There are two very interesting characteristics that make this possible. Its magnetic properties facilitate the separation of scrap and in turn make it easier to recycle. Another factor is that steel is infinitely recyclable without losing any of its properties in the process. A bicycle today can become a spoon tomorrow, which one day can become part of a car. In this production route, scrap is melted in electric arc furnaces in the melt shop, where its composition is adjusted to the properties required for each type of steel application.

Today, world steel production is around 70% from ore and 30% from scrap.

The average cycle for steel to return as scrap is around 40 years. This means that within only 40 years of its production, steel becomes available again for recycling. Note that this is the average period. Steel packaging can take only a few months to be scrapped, while the steel structure of a building or bridge can take over 100 years in that function before becoming scrap. Accordingly, those regions that have produced more steel in the past also have the most scrap available today for the secondary production route. Therefore, the iron ore route will remain relevant to society’s growing demand for steel

Steel plays a key role in the planet’s decarbonization. It is used to build renewable energy facilities, such as solar and wind power plants, electric vehicles, trains and in the infrastructure used to produce and distribute renewable fuels. But the fact remains that the iron and steel industry currently accounts for 7% to 9% of global CO₂ emissions, for which reason it bears responsibility for reducing its emissions.

The industry is known as one that will be “hard to abate,” due to not only the volume of its CO2 emissions, but also because of the lack of technologies available for the low-carbon transition. In a study conducted in 2020, the International Energy Agency (IEA), one of the world’s most recognized sources in the energy sector, found that in a sustainable development scenario, the iron and steel production sector could reduce around 50% of its emissions by 2050 compared to 2019. Similarly, the intensity of emissions of crude steel production could fall 58%.

The IEA and World Steel Association believe that the industry’s low-carbon transition should focus its nearer term actions on capturing energy and operating efficiency gains. Another opportunity for the short/medium is to increase the use of scrap in steel production. The primary route, which uses iron ore and coal, has CO2 emissions that can reach approximately seven times higher than the secondary route, which uses scrap. The issue is that, as we discussed before, increasing steel production via scrap recycling is conditioned upon the raw material’s availability in the market. In addition, increasing scrap supply depends on higher per-capita steel consumption.

The industry understands that these short- and medium-term actions would be insufficient to support more substantial decarbonization. Disruptive technologies involving the use of hydrogen as an ore reducing agent as a substitute for coal, electrolysis-based production or implementing “carbon capture and storage” or “carbon capture and use” models must be developed and be feasible not only in terms of technology, but also from the financial standpoint, and would demand certain infrastructure, such as the availability of energy from renewable sources.

Not all regions would be able to make these disruptive technologies feasible, depending on the availability of natural gas, hydrogen and the carbon capture structure of each country or region. Another relevant issue identified by the IEA study is the estimated additional production cost of these disruptive technologies, which ranges from 10% to 50% above that of current technologies.

The transformation of the steel industry will be gradual, but could be accelerated by public policies that ensure the infrastructure and subsidies needed for the transition. Another opportunity for accelerating decarbonization involves increasing the demand for low carbon intensity steel from the consumer market willing to absorb the additional cost for this type of product.

In 2020, Gerdau’s emissions amounted to 0.93 tonne of CO2e per tonne of steel produced, which is approximately half the average of the global steel industry (1.83 tCO2e/t), according to data from the World Steel Association.

One thing that would help Gerdau achieve this result is having a production matrix in which ferrous scrap figures as the main raw material and using charcoal produced from planted forests to substitute fossil-based carbon sources.

At Gerdau, we make steel in three different ways: using scrap (secondary process) and iron ore (primary route), but using two different carbon sources.

We are the largest recycler of ferrous scrap in Latin America. Gerdau recycles over 11 million tonnes of scrap at its mills in Brazil and the Americas. Therefore, 73% of the steel produced by Gerdau has ferrous scrap as the main raw material and we obtained positive impacts in mitigating climate change, saving natural resources, reducing energy consumption and greenhouse gas emissions. Each tonne of scrap recycled avoids 1.5 tonnes of CO2 emissions in the steelmaking process. It is important to note that this proportion is the opposite of the world steel industry, which uses iron ore as its main raw material in 70% of global production.

In addition, at three production units in Brazil, we use bioreducers to substitute fossil-based coal, which avoids CO2 emissions even though the process is considered a primary steel production route (based on minerals), given that the bioreducer used is a renewable source of carbon, more specifically charcoal produced from planted forests. Gerdau has 310,000 hectares of reforested areas, of which 90,000 hectares are set aside for biodiversity conservation. In addition, Gerdau’s energy forests created by reforestation reduce pressure on the deforestation of native forests while contributing to the adequate use of degraded land and respecting the most modern concepts in minimal soil tilling. Combined with best practices in natural resource conservation, they ensure sustainable production and also provide another important service by removing carbon from the air and stocking it. The scale of the carbon removals generated by expanding the forest stocks and the long-term stocking capacity give wood-based energy through reforestation the potential to contribute to combatting climate change, especially over the span of decades.

The integrated route, which uses fossil-based charcoal, reuses around 92% of the gases generated in the production process while generating own energy, which reduces the greenhouse gases emitted in the process as a whole.

In short, the use of renewable wood-based carbon and of scrap and the reuse of the gases generated in the process explain why Gerdau’s carbon intensity is below the global average of the steel industry.

Gerdau’s Strategy & Sustainability Committee is responsible for supporting the Board of Directors in identifying the industry trends that could impact the business in the short, medium and long term. By debating capital allocation and defining investment plans, the Strategy & Sustainability Committee considers as important in its decision-making not only aspects related to production and financial return, but also ESG factors. In other words, today, environmental, social and governance issues have a relevant strategic weighting in the company’s decision-making at the highest level.
The company has a Sustainability Policy and an Environmental Management System that reinforce its commitment to creating value for stakeholders and are aligned with regulatory requirements and best global practices. Therefore, environmental issues related to the steel industry are increasingly the subject of meetings of Gerdau’s Board of Directors and its committees.
In addition, the ESG agenda, in which the environmental component has a high weighting in its application to industrial activities, is also increasingly seen as a critical factor to be considered in the discussions, planning and decision-making of the company. In 2020, R$417 million was invested in improving ecoefficiency practices and technologies for protecting the air, water and soil.
In parallel, Gerdau began to report, in 2020, data on its operations in Brazil to the Carbon Disclosure Project (CDP), an international NGO that incentives companies, cities and other public or corporate organizations to report data on their environmental performance, which it uses to prepare assessments of environmental risks, opportunities and impacts. Gerdau received a score of B-, which figures in the range of companies with coordinated management of climate change matters, further reinforcing our transparency and commitment. This score was above the regional average of South America (D) and of the steelmaking industry (D). Another positive highlight was receiving a score of A for our overall GHG emissions, which are below the global average. Another highlight was our initiatives to reduce greenhouse gas emissions, which have detailed case studies of energy efficiency at our operating unit in Ouro Branco, Minas Gerais.
Reinforcing its commitment to transparency with stakeholders, Gerdau published its Annual Report 2020 with information on its sustainability initiatives, business strategy and financial performance, which for the second time was prepared in accordance with framework of the Global Reporting Initiative (GRI). The report includes dozens of indicators, including general content and specific performance metrics, in a separate publication designed to facilitate the search for key ESG indicators. In this cycle, we also present the correlation between the indicators of the Sustainability Accounting Standards Board (SASB).
The report also includes the performance targets for ESG indicators incorporated into the long-term incentive plans of our senior executives. Effective as of 2021, the rule stipulates that around 20% of the amount of the long-term bonus included in the variable compensation of our executives is conditioned upon meeting environmental and social targets, which include issues related to climate change. We see this as a way to give greater visibility to the topic at all levels of the Company.

Gerdau has been investing in the digitalization of its energy management and in mathematical modeling software to ensure online control and monitoring of our energy consumption and projections of our energy consumption based on our production planning and other process parameters. For example, all our efforts in energy management, ongoing improvement projects, reestablishing functions and fuel mix changes have supported, at the Ouro Branco Unit in Minas Gerais, a reduction in our greenhouse gas emissions intensity of 89,000 tCO2e in 2020.

Another example is that, in 2021, the Gerdau Unit in northern Texas, United States, began to operating using solar power. The ambitious project, announced in mid-2020, is the result of a 20 year power purchase agreement between the solar power company 174 Global Power and Gerdau North America. 174 Global Power will build an 80-megawatt solar power plant with over 230,000 solar panels next to Gerdau’s mill located in Midlothian, Texas. The plant will be connected directly to Gerdau’s mill, which will pay 174 for the energy consumed. The project will offset average emissions equivalent to over 13,000 households in Texas.

In Brazil, in partnership with Shell, Gerdau announced this year a future joint venture to generate solar energy in Brasilândia de Minas, Minas Gerais. With an approximate capacity of 200MWp, the solar park will supply part of the clean energy for the company’s steel production units, in line with the search for energy self-sufficiency and with the strategy of entering the segment of renewable energy generation.

We are undertaking a commitment to reduce emissions in line with the international agreements and protocols and based on economically feasible technologies. We adopted the curve methodology Marginal Abatement Cost Curve (MACC) and Marginal Energy Abatement Cost Curve (MEAC) for structuring our emissions reduction targets for the short, medium and long term. The goal of the study is to learn about the technologies available and under development that are pertinent to the steelmaking process used by Gerdau, analyze which are eligible, prioritize and plan the investments and then disclose the data.

Defining Gerdau’s target involves knowing what can be implemented based on availability and feasibility. One of the reasons why decarbonizing the steel industry is considered difficult is the fact that technologies must be developed that are still in the early phase, and public policies that make these technologies possible must be implemented as well. Since we have long-term challenges in the entire industry, we are reinforcing Gerdau’s contribution to reducing emissions in the medium term in our scrap- and biomass-based production, as well as our energy and operating efficiency initiatives. Our goal is to continue expanding our production of steel, a material that is key to the initiatives to decarbonize the planet, to keep Gerdau in its leadership position with targets to reduce its carbon emissions intensity. In other words, we will become even more efficient in terms of CO2 emissions and steel production.