This article is an on-site version of our Moral Money newsletter. Sign up here to get the newsletter sent straight to your inbox.
Visit our Moral Money hub for all the latest ESG news, opinion and analysis from around the FT
Greetings from Washington, where the cherry blossoms are blooming, the skies are clear — and the IMF and World Bank are holding their spring meetings this week. It would be nice to think that the cheery weather reflects the global economic outlook. But the IMF has already warned of cloudier economic times ahead.
And this year’s discussion could be sombre: the world’s poorest countries are ailing, defaults are rising, the UN’s sustainable development agenda has been set back and progress on limiting carbon emissions is patchy, notwithstanding the UN’s recent, strong warning that time is running out to avert a global warming catastrophe.
But this year’s meeting will probably yield some uplifting news too: the departure of David Malpass as head of the World Bank is accelerating efforts to reform the multilateral development banks’ support for green projects. Watch out for movement on this.
There may also be some progress around moves to get a more rational system for the restructuring of debts for low-income countries, with China appearing more willing to collaborate on this front. Separately, if any Moral Money readers want to hear my ideas about what cultural anthropology can teach economists and why this matters for sustainable finance, I am speaking on this at the IMF.
Meanwhile, if you want more cheer, take note of two stories today: Europe is bucking the fossil fuel train, and hydrogen is popping up in the steel sector.
Also note the FT podcast on who needs to pay for Pakistan’s climate change disasters. Let us know any thoughts. — Gillian Tett
Europe’s message to the IMF
At this week’s spring meetings in Washington, there are two themes that will undoubtedly surface: the war in Ukraine and the crisis around the energy transition. The latter is likely to be particularly political, given the unexpected decision by Opec+ last week to cut oil production, the role of China in green technologies’ supply chain, and the campaign by the American right to persuade governments to re-embrace fossil fuels.
But as energy security issues hover over the IMF debates, it is worth looking at a recent piece penned by Adam Tooze, professor at Columbia University. Tooze has long been one of my favourite commentators on global financial issues. His latest piece on carbon issues challenges the claims (advanced in America) that the war in Ukraine has forced Europe back into the arms of the oil, gas and coal sector.
“The idea that Europe was falling back in love with fossil fuels is, in fact, very wide of the mark,” Tooze insists, noting that “though coal consumption blipped up for a few months [this winter] it did not break the downward trend of recent years” and during the past year “renewable investment surged to record levels [and] in solar Europe is now installing twice its previous record set a decade ago”.
Why does this matter to the IMF and World Bank? The short answer is that it might help to counter arguments that poorer nations facing economic pain and energy shocks must inevitably embrace more fossil fuels. Of course, switching to renewable energy requires a lot of investment, as well as collaboration between the public and private sectors. Tooze notes that this is still in short supply in Europe, not least because there is still only patchy public engagement (see his punchy column for the FT on that.) Meanwhile, for emerging market nations these issues are doubly acute since “estimates presented to COP27 suggested the need for an additional $1tn per annum for low income and emerging market investment” to back a green transition, he adds.
But this week’s spring meetings are likely to focus on these issues, particularly around the question of multilateral development bank reform, and whether a framework can be found to enable the World Bank, in particular, to make more concessionary loans. Separately, the UN will be corralling support for its Global Investors for Sustainable Development Alliance; it calculates that MDBs have mobilised about $34bn of private sector funds for green development in recent years, on top of official aid, but is now seeking to significantly expand this.
The numbers remain daunting. But here is another intriguing piece that IMF and World Bank attendees might note: in an essay in The Conversation, Anastasia Denisova says mobilising public support for green projects is far more effective when it is presented in upbeat — not excessively doom-laden — terms. Here is hoping. (Gillian Tett)
Sweden bets big on green steel
The black blast furnace is a hulking intrusion on the landscape, still draped with snow in early April, that surrounds the northern Swedish city of Luleå. For more than 70 years, day and night, the steel plant here has belched invisible clouds of carbon dioxide into the atmosphere. But within a decade, according to its owner SSAB, all of the company’s blast furnaces will shut down — a foretaste of the massive transformation that is set to sweep the global steel industry.
This is thanks to the power of hydrogen — specifically, the Hybrit system, which has been deployed in a €200mn pilot project at SSAB’s Luleå site. Instead of coal, it uses hydrogen, generated using renewable energy, to extract oxygen from iron ore. Instead of carbon dioxide, the process produces water, along with iron that can be mixed with alloys in an electric arc furnace to make steel.
SSAB has already produced 500 tonnes of steel using the process, selling it to customers including compatriot Volvo Group, and is planning to transform its business with striking speed. SSAB promises that all its steel will be produced without any fossil fuels “around 2030”.
That’s a big claim in an industry that produces 7 per cent of global carbon emissions — more than twice as much as the aviation sector — with steel demand set to rise more than a third by 2050, according to the International Energy Agency.
SSAB’s 8.1mn tonnes of crude steel production last year was a small fraction of the 1.9bn tonnes produced worldwide. But Martin Pei, the company’s chief technical officer, argues the Hybrit project — a joint venture with state-owned iron ore miner LKAB and electricity group Vattenfall — could galvanise progress across the sector.
“In the beginning there was really a concern if there would be such products on the market at all,” he says. “Now, we have shown that this works.”
This is more than braggadocio, says Thomas Koch Blank, who researches the green transformation of industry at the Rocky Mountain Institute. Just a few years ago, he says, big steelmakers talked of hydrogen-based direct iron reduction as “a post-2040 technology”. Hybrit was a uniquely ambitious project at its launch in 2016, and SSAB’s competitors are now rushing to catch up.
SSAB and its partners eventually plan to license out the Hybrit process, Pei says. First, they will need to prove it can function at full industrial scale. The first commercial Hybrit plant is scheduled to start operations near an LKAB iron ore mine in 2026, giving a clearer sense of whether SSAB’s green bet will pay off.
One big question is whether steel users will be willing to pay more for a cleaner product. SSAB expects to charge a premium of about €300 per tonne for its zero-emissions steel, adding about 1 per cent to the price of a €40,000 car.
Customers are already showing demand for green steel, Pei insists, with buyers of the experimental batches ranging from watchmaker Triwa to crane producer Cargotec. Rising prices of European carbon permits will further narrow the green premium, he says.
Another challenge will be securing the renewable energy to power SSAB’s new electric arc furnaces, and the electrolysers to supply the huge amounts of hydrogen that the Hybrit rollout will require. That’s the logic behind the project’s initial deployment in northern Sweden, with abundant hydropower and fast-growing wind generation.
Even so, the amount of green electricity this initiative requires is intimidating. LKAB, by far Europe’s biggest iron ore producer, plans to roll out hydrogen reduction plants across its operations, to supply SSAB and other steelmakers with fossil-free iron. It says this will increase its annual electricity demand to 70 terawatt-hours by 2050. Sweden’s entire national electricity consumption in 2020 was 130TWh.
“It’s massive,” says Koch Blank. “It’s the largest industrial investment programme in Sweden’s history.” But given steel’s centrality to both the world economy and the climate crisis, this is the scale on which companies — and policymakers — need to be thinking. (Simon Mundy)
Who should pay for climate disasters in poor nations? This is a topic that will be hotly discussed in Washington this week. So listen to this well-researched and punchy podcast about the impact of flooding in Pakistan, the intensifying battle about who is responsible and who should pay — not just in south-east Asia but in other poor nations too.
Recommended newsletters for you
FT Asset Management — The inside story on the movers and shakers behind a multitrillion-dollar industry. Sign up here
Energy Source — Essential energy news, analysis and insider intelligence. Sign up here