JSW Steel’s Seshagiri Rao on going green, carbon financing & hydrogen fuel cells

Recently Mr Jindal speaking at an event, laid out the challenges that the steel industry would face to go green along while commiting to go green. Let me start with the commitment bit first.
As far as the steel industry is concerned, coke is used as a reductant and also as a fuel for producing steel. So to replace coke with alternative energy is very difficult. That is why it is considered as a “hard to abate” sector. But at the same time, the kind of initiatives the steel sector is taking globally to reduce carbon emissions and to produce green steel are very large initiatives.

As far as JSW Steel is concerned, in line with the commitments made by India on reducing carbon emissions intensity to GDP by 33 to 35% by 2030, we also have worked out the numbers accordingly. Our commitment is to reduce carbon emissions for JSW Steel by 42%. So, because of a very comprehensive sustainability policy on not just reducing carbon emission, but also waste utilisation, waste generation and water usage, air pollution and biodiversity, we have prepared a very comprehensive sustainability policy.

We have communicated to all the investors, shareholders and stakeholders where we would like to be by 2030 in each of these parameters when compared with nationally determined contributions by India or whatever paper that has been given by the ministry of steel to the ministry of environment, Indian steel industry has to reduce carbon emissions by 1% every year. Starting from 2005, the Indian international agency has made a sustainability development scenario where carbon emissions by the steel industry in India should be 2.18 T/tcs by 2030.

In all these parameters, we are far ahead of the very ambitious targets JSW Steel has taken. So we have communicated that we will achieve 1.95 T/tcs carbon emission for every tonne of steel which we are producing by 2030. To achieve that 1.95 T/tcs, we have taken a series of steps on what we should do each year starting from 2020 onwards. Thereby, we will be able to not only achieve or even exceed the target which we have set for 2030. There is a lot of capital expenditure which we have been incurring to achieve this.

We are ending 2021. You have eight years to hit the goal. So if you were to break it down in percentage terms, what would be the reduction in carbon emissions?
We were at 2.52 T/tcs as of March 31 (FY2021) carbon emission per tonne of steel which we were producing, which we have set a target to reduce to 1.95 by 2030. That means we are reducing by 57 bps, which is 23% over a period of nine years.

We are reducing carbon emission by approximately 2.5% every year whereas the ministry of steel’s commitment is to reduce by 1% every year. We are very aggressive and ambitious in reducing carbon emissions.

How much will it cost? What is the capital expenditure set aside for this? Is it viable to go green?

The issue is 27% of the total steel capacity in the world have committed to net zero emission by 2050. That is a commitment several companies have made but many of these companies are in developed countries and not in developing country like India. The issue here remains that 10% of the population who are living in the developed world starting from 1990 to 2015, have emitted 50% of the carbon emissions in the world whereas the rest of the world is still struggling. The 50% of the poorest population in the world contributed only 7% of the carbon emissions during this period. Therefore if a developing economy like India has to transition to a cleaner world, then a huge amount of capital expenditure and operating expenditure will be incurred.

Just to give an idea, today carbon which is traded in Europe is almost close to $70 for every tonne of carbon if you want to buy the certificates. That means if the steel industry is emitting approximately two tonnes of carbon, the shadow cost that is involved is $140 to $150 per tonne of carbon emitted per tonne of steel. It is very difficult for any company to incur that kind of operating or capital expenditure.

So carbon financing is required for a company located in a developing economy like India, which has to be given as a grant or at a concessional rate. Hand holding is required by developed countries to developing economies like India so that the government is able to extend this type of carbon financing to companies like us so that we are able to transition much faster than what the world is looking forward to.

So what is the plan as of today? While all the carbon financing gets sorted, what sort of capital expenditure will you be putting in?
As far as we are concerned, we are incurring close to Rs 10,000 crore in carbon transition. For instance, in the case of Odisha, where we have iron ore mines, we are setting up beneficiation plants and slurry pipelines to improve the quality of the ore that is used in the furnace. For instance, if the quality of the inputs which goes into the furnace are bad or inferior, then one has to consume more fuel.

When one consumes more fuel and there is more emissions, we are focussing on improving the quality of input that goes into the furnace so that it consumes less fuel and less carbon emission. So, spending is close to almost Rs 3450 crore in setting up beneficiation plants, slurry pipelines and also our own equipment for mining plus digitisation expenditure which we are incurring in terms of improving the quality of the inputs.

Over and above that we are also trying to replace fossil fuel-based power with the solar power and are now spending close to Rs 2,500 crore. One of our group companies set up a 1000 MW solar power plant in Karnataka and also in Maharashtra and in Tamil Nadu, which can replace fossil fuel power. That will help reduce carbon emission.

The third way which we are trying to do as a measure to reduce carbon emission is increasing the use of scrap in overall steel making. Today it is around 6-7%. We want it to increase by another 10% and that will reduce carbon emissions. We have taken a series of measures where capital expenditure is involved, but overall cost reduction will also happen. There is UCL capital expenditure which we need to commit to achieve this goal.

So is the outlook that eventually this capital expenditure will be worth it? Will going green make good business sense?
It will definitely make good business sense. For instance, when we wanted to achieve 1.95 carbon emissions, then we have done a sustainability linked bond in global markets. It is almost close to $500 million. It has given a very good response and we have got very good interest rates in securing the financing.

Financing is available in the global markets but that is at an interest rate which we need to pay. So there is a cost involved in doing that. That’s why I am saying whether there is any possibility of the developed countries extending their helping hand to a developing country like India via grants or concessional financing to help the transition.

Mr Jindal recently spoke about hydrogen-based power. What are the challenges there?
The cost of producing and transporting hydrogen in a greener manner is very, very high. It is more than $100 for every tonne of steel produced if we have to use hydrogen in place of coke in addition to the capital costs that are involved. It is very expensive today to use hydrogen.

Number two is how to produce hydrogen in such a large scale. The capacity which is there today and its efficiency is very limited. So new technologies have to be developed eventually to replace the coke with hydrogen fuel cells. In the USA today, as a part of their 1.75 trillion spending plan, they have announced the scheme that if any coal based power plant plans to set up facilities for carbon capture use and storage, they will pay $85 per tonne to that particular company.

So they are not saying they will phase out coal. They are saying coal-based power plants can continue to operate even in the USA but they will pay $85 so that they can capture the carbon and use it and store it.

In India also, that type of opportunity should be available so that coal-based power plants can continue to operate. But we cannot set up facilities to capture carbon, use it or store it in a manner that it does not harm the environment and carbon emissions are zero. Through new technology, the USA has set a goal that in the next one decade, they want to produce hydrogen at $1 per one kg, whereas today it is almost $6-$7 per kg. It is very expensive and it is not possible to replace the existing fuels with hydrogen completely.

Alternatively, scrap usage can be increased and fossil fuel-based power replaced with solar power. These are things which we are doing to reduce in addition to carbon capture and usage. There is a lot of capital expenditure involved and that brings us to the point of carbon financing.

Coming to the big question of carbon financing in the near term, who do you think needs to step up and do it? What would you hope for in terms of immediate steps?
A commitment was made as a part of the Paris Agreement in 2015, that hundred billion dollars every year will be extended to the developing economies by the developed countries through a mechanism to transition to a clear economy, where nothing is done up to 2021. Even in 2021, the debate still remained unanswered. It is estimated that 2023 onwards, the $100 billion per annum will be extended through a mechanism to the developing economies. They will be able to access this capital and extend it to the companies by way of a grant or concessional financing to transition very quickly.

Until then, I was trying to explain how to improve the quality of the existing operations and then reduce the emission. It is not possible to completely eliminate emission. Gradually via CCUS or biodiversity and those methods, we will have to set a course for net zero emission by 2070. That’s what India has committed and we need to move in that direction.

The response to that commitment by a lot of global climate activists was 2070 is too far out and zero emissions is too wide a target, it needs to be a stronger one. I put that question to you as well. The targets you have set for yourself till 2030, the amount of capex you have talked about, some may argue a lot more needs to be done. What would you say to that?
China has committed to 2060 whereas most of the countries are talking about 2050 and they are mostly developed countries. Compared to them, India is a $2.7-trillion economy, and the majority of the population is struggling to meet both the ends. Therefore 2070 is a very ambitious target.

It could be a very realistic and achievable target as far as 2070 is concerned but even to do that, huge amounts of capital expenditure has to be spent on energy transition. I feel that the government of India should take very strong steps and take the issue up very strongly with the developed countries to extend this financing to India and other developing countries.

What is the kind of help the industry needs right now from the government?
Europe is talking about carbon border adjustment tax which they wanted to introduce starting from 2026-2027 but the way I see it, this tax mechanism should not be used as a protection measure where they stop trade entering into Europe and use this not as an environmental policy tool but as a tariff tool for restricting the trade from rest of the world.

If they take those steps, there would be retaliatory measures of that nature from other countries also so it will impact global trade very much. Therefore in my view, before such steps are taken, there should be a robust mechanism. If a tariff has to be introduced, it can be used in a fair and transparent manner rather than just as a tool to introduce it because we have seen what happened when the US introduced a section as a safeguard measure. Every country has put tariffs so entire global trade got affected.

My only fear is it should not lead to that situation going forward and therefore India should take it up very strongly as regards to the carbon border adjustment tax and how its mechanism will operate and how India’s interest can be protected. We are looking at a very large export of merchandise, coupled with $1 trillion of exports from current $400 million approximately. So if you have to do that much export of merchandise, then we should be very conscious of what other countries are doing, particularly developed countries in terms of carbon border adjustment tax.

Our internal targets for steel manufacturing are growing. We need to produce more steel and increase the share of manufacturing as a portion of GDP. You have gone in for major capital expansion as well. How are you going to balance that with sustainability goals?
Sustainability and carbon emission reduction is at the core of our expansions. So when we are negotiating even for the procurement of our equipment and for our expansion plans, we have been talking with our suppliers, asking them what are the new measures they have taken in terms of digitisation, automation and carbon emission reduction.

We are paying that extra cost and ensuring that the equipment is modern and we will be able to reduce the carbon emissions. At the same time, it is not possible to completely transition to a hydrogen-based economy for the reasons which I just explained to you. That is why it should be possible that the equipment which we are buying should be retrofitted as and when the new technology is affordable for using hydrogen in the place of coke. We are looking for that kind of retrofitting flexibility in the equipment which we are buying.

When are you going to be ready to declare a zero emissions target?
What we are working to achieve by 2030 is considered very ambitious relative to where we were in 2005. We have been awarded leadership band by CDP. When compared to the average of the entire industry in Asia, which is considered B average, we are rated A minus. The company has been included in the sustainability index. We are moving very fast in terms of overall sustainability goals.

But what about the zero emissions target?
I think it will take some more time before we announce that. We are now looking at how to replace the entire fossil fuel based power with solar power. India has an advantage in having a huge amount of sunshine. We will be able to produce solar at a very good cost. Our group company JSW Energy has been working on that. In the next few years, we want to replace fossil fuel based power completely with solar power.