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The CEO of Cleveland-Cliffs cast doubt on a new mill funded in part by $500 million in federal grants. What does that say about corporate commitments to decarbonization?
American steelmaker Cleveland-Cliffs cast doubt last week on the country’s most important green steel project. Chief executive Lourenco Goncalves suggested in an interview that the company was considering passing up $500 million of federal grants to build a new hydrogen-powered mill at its Middletown Works facility in Ohio, blaming fears that there won’t be buyers for the lower-carbon product, which he claimed could cost 40% more to produce than steel made by conventional methods. Cleveland-Cliffs later issued a short press release walking back Goncalves’s comments and reaffirming its commitment to the “transformational” project.
It’s, of course, possible that Goncalves was just expressing personal concerns that do not reflect the company’s official position. But either way, those doubts were not only real, but revealing about our prospects for decarbonization by mid-century.
First, the episode is a stark indictment of the many attempts to create demand for cleaner products by conjuring up corporate ambition on climate change. The entire rationale for cajoling corporations to quantify the emissions in their supply chains, known as Scope 3 emissions, has been to pressure them into sourcing greener inputs. The steel sector produces 7% to 9% of emissions globally: if it were a country, it would be the world’s third-biggest emitter after the United States and China. And steel represents the biggest single source of Scope 3 emissions for many companies in other industries — on the order of 40% to 45% for auto companies and as high as 85% for construction, for example. This makes steel a litmus test for whether Scope 3 footprinting and corporate commitments to green their supply chains are delivering as promised.
Worse, these types of steel buyers have ostensibly already been organized to show demand for green inputs. Before he stepped down as President Biden’s special envoy for climate, one of John Kerry’s cornerstone initiatives was the First Mover’s Coalition, an effort to secure advanced purchasing commitments from corporate buyers for green steel and other industrial materials. The fact that the coalition’s members – many of which are major steel buyers like Ford and General Motors – were not publically jumping all over the outputs of Cleveland-Cliffs’s heavily subsidized project is itself troubling. After all, while the green premium on steel may be significant, the material is typically a relatively cheap input into much more expensive, high value-added products.
Goncalves’s comments also underscore how uncomfortable incumbent industries perceive the jump to new, low-carbon products to be. Assume that the new Cleveland-Cliffs mill does in fact pencil out at the cost originally expected and that it has a reasonable prospect of finding offtakers. The company still says it has to invest $1.1 billion to complete the project. It is not really enough, in the logic of the market, for that investment to be profitable: It has to compete against the opportunity cost of alternative investments, including manufacturing conventional steel. Even if both outputs would find buyers, conventional steel may still be more profitable.
Now imagine the company is looking at the larger direction of the industry. If they don’t do this project, they may well forestall a shift to cleaner steel and be able to keep the sector chugging along more profitably for a little longer. Complete the project, and they may bring about changes that, while maybe inevitable, are uncomfortable for the industry. After all, Cleveland-Cliffs and U.S. Steel produce the vast majority of American primary steel; they are steel production in the United States – and so they get to shape its transformation.
This behavior is similar to that of the American car industry. U.S. automakers have largely conceded that electric vehicles will eventually overtake their combustion-engine counterparts, but they are still clinging to the better margins that gas-powered SUVs provide. The short-term profits are hard to pass up, even if it means getting farther behind EV first-movers like Tesla, BYD, and Hyundai. Once the technology pathway to a sector’s transition becomes clear — even when it feels inevitable — incumbents may still have an extremely hard time ripping off the bandaid.
It’s as if decarbonization is a massive marshmallow test for corporate America, and it’s failing.
There are essentially two ways out of this dilemma.
The first is that society will need to rely on new entrants to each sector to disrupt the status quo. Companies developing entirely novel steelmaking technologies like Boston Metals become more important to the steel transition than Cleveland-Cliffs, just as Tesla has been to the American EV market. Sublime Systems may be vital for green cement, just as Fervo Energy may be for enhanced geothermal. The problem with this approach is that it is extremely expensive to build projects in heavy industries like steel, so most pathways assume that even technology developed outside of the incumbents will get deployed by them (Sublime just this week announced a tie-up with cement giant Holcim).
This leads to option two: comprehensive industrial policy. Cleveland-Cliffs may want to see not only that one green project pencils out, but that strategic opportunities and risks favor going green. This might means measures like implementing a U.S. carbon border adjustment mechanism (CBAM) to prevent foreign competitors from dumping dirty steel, the government guaranteeing offtake using public procurement programs like Buy Clean and Contracts for Difference, and ultimately policy sticks like carbon pricing that send a long-term signal favoring clean products over polluting ones, instead of relying on corporate social responsibility for a demand signal.
To decarbonize the economy, we will probably have to rely both on more robust industrial policy and the sector disruption from new entrants. While the story of this Cleveland-Cliffs project is far from over, the company’s apparent hesitancy, like that of U.S. automakers, may be teaching us a lesson that we have to learn quickly if we want to see decarbonization any time soon.
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A conversation with VDE Americas CEO Brian Grenko.
This week’s Q&A is about hail. Last week, we explained how and why hail storm damage in Texas may have helped galvanize opposition to renewable energy there. So I decided to reach out to Brian Grenko, CEO of renewables engineering advisory firm VDE Americas, to talk about how developers can make sure their projects are not only resistant to hail but also prevent that sort of pushback.
The following conversation has been lightly edited for clarity.
Hiya Brian. So why’d you get into the hail issue?
Obviously solar panels are made with glass that can allow the sunlight to come through. People have to remember that when you install a project, you’re financing it for 35 to 40 years. While the odds of you getting significant hail in California or Arizona are low, it happens a lot throughout the country. And if you think about some of these large projects, they may be in the middle of nowhere, but they are taking hundreds if not thousands of acres of land in some cases. So the chances of them encountering large hail over that lifespan is pretty significant.
We partnered with one of the country’s foremost experts on hail and developed a really interesting technology that can digest radar data and tell folks if they’re developing a project what the [likelihood] will be if there’s significant hail.
Solar panels can withstand one-inch hail – a golfball size – but once you get over two inches, that’s when hail starts breaking solar panels. So it’s important to understand, first and foremost, if you’re developing a project, you need to know the frequency of those events. Once you know that, you need to start thinking about how to design a system to mitigate that risk.
The government agencies that look over land use, how do they handle this particular issue? Are there regulations in place to deal with hail risk?
The regulatory aspects still to consider are about land use. There are authorities with jurisdiction at the federal, state, and local level. Usually, it starts with the local level and with a use permit – a conditional use permit. The developer goes in front of the township or the city or the county, whoever has jurisdiction of wherever the property is going to go. That’s where it gets political.
To answer your question about hail, I don’t know if any of the [authority having jurisdictions] really care about hail. There are folks out there that don’t like solar because it’s an eyesore. I respect that – I don’t agree with that, per se, but I understand and appreciate it. There’s folks with an agenda that just don’t want solar.
So okay, how can developers approach hail risk in a way that makes communities more comfortable?
The bad news is that solar panels use a lot of glass. They take up a lot of land. If you have hail dropping from the sky, that’s a risk.
The good news is that you can design a system to be resilient to that. Even in places like Texas, where you get large hail, preparing can mean the difference between a project that is destroyed and a project that isn’t. We did a case study about a project in the East Texas area called Fighting Jays that had catastrophic damage. We’re very familiar with the area, we work with a lot of clients, and we found three other projects within a five-mile radius that all had minimal damage. That simple decision [to be ready for when storms hit] can make the complete difference.
And more of the week’s big fights around renewable energy.
1. Long Island, New York – We saw the face of the resistance to the war on renewable energy in the Big Apple this week, as protestors rallied in support of offshore wind for a change.
2. Elsewhere on Long Island – The city of Glen Cove is on the verge of being the next New York City-area community with a battery storage ban, discussing this week whether to ban BESS for at least one year amid fire fears.
3. Garrett County, Maryland – Fight readers tell me they’d like to hear a piece of good news for once, so here’s this: A 300-megawatt solar project proposed by REV Solar in rural Maryland appears to be moving forward without a hitch.
4. Stark County, Ohio – The Ohio Public Siting Board rejected Samsung C&T’s Stark Solar project, citing “consistent opposition to the project from each of the local government entities and their impacted constituents.”
5. Ingham County, Michigan – GOP lawmakers in the Michigan State Capitol are advancing legislation to undo the state’s permitting primacy law, which allows developers to evade municipalities that deny projects on unreasonable grounds. It’s unlikely the legislation will become law.
6. Churchill County, Nevada – Commissioners have upheld the special use permit for the Redwood Materials battery storage project we told you about last week.
Long Islanders, meanwhile, are showing up in support of offshore wind, and more in this week’s edition of The Fight.
Local renewables restrictions are on the rise in the Hawkeye State – and it might have something to do with carbon pipelines.
Iowa’s known as a renewables growth area, producing more wind energy than any other state and offering ample acreage for utility-scale solar development. This has happened despite the fact that Iowa, like Ohio, is home to many large agricultural facilities – a trait that has often fomented conflict over specific projects. Iowa has defied this logic in part because the state was very early to renewables, enacting a state portfolio standard in 1983, signed into law by a Republican governor.
But something else is now on the rise: Counties are passing anti-renewables moratoria and ordinances restricting solar and wind energy development. We analyzed Heatmap Pro data on local laws and found a rise in local restrictions starting in 2021, leading to nearly 20 of the state’s 99 counties – about one fifth – having some form of restrictive ordinance on solar, wind or battery storage.
What is sparking this hostility? Some of it might be counties following the partisan trend, as renewable energy has struggled in hyper-conservative spots in the U.S. But it may also have to do with an outsized focus on land use rights and energy development that emerged from the conflict over carbon pipelines, which has intensified opposition to any usage of eminent domain for energy development.
The central node of this tension is the Summit Carbon Solutions CO2 pipeline. As we explained in a previous edition of The Fight, the carbon transportation network would cross five states, and has galvanized rural opposition against it. Last November, I predicted the Summit pipeline would have an easier time under Trump because of his circle’s support for oil and gas, as well as the placement of former North Dakota Governor Doug Burgum as interior secretary, as Burgum was a major Summit supporter.
Admittedly, this prediction has turned out to be incorrect – but it had nothing to do with Trump. Instead, Summit is now stalled because grassroots opposition to the pipeline quickly mobilized to pressure regulators in states the pipeline is proposed to traverse. They’re aiming to deny the company permits and lobbying state legislatures to pass bills banning the use of eminent domain for carbon pipelines. One of those states is South Dakota, where the governor last month signed an eminent domain ban for CO2 pipelines. On Thursday, South Dakota regulators denied key permits for the pipeline for the third time in a row.
Another place where the Summit opposition is working furiously: Iowa, where opposition to the CO2 pipeline network is so intense that it became an issue in the 2020 presidential primary. Regulators in the state have been more willing to greenlight permits for the project, but grassroots activists have pressured many counties into some form of opposition.
The same counties with CO2 pipeline moratoria have enacted bans or land use restrictions on developing various forms of renewables, too. Like Kossuth County, which passed a resolution decrying the use of eminent domain to construct the Summit pipeline – and then three months later enacted a moratorium on utility-scale solar.
I asked Jessica Manzour, a conservation program associate with Sierra Club fighting the Summit pipeline, about this phenomenon earlier this week. She told me that some counties are opposing CO2 pipelines and then suddenly tacking on or pivoting to renewables next. In other cases, counties with a burgeoning opposition to renewables take up the pipeline cause, too. In either case, this general frustration with energy companies developing large plots of land is kicking up dust in places that previously may have had a much lower opposition risk.
“We painted a roadmap with this Summit fight,” said Jess Manzour, a campaigner with Sierra Club involved in organizing opposition to the pipeline at the grassroots level, who said zealous anti-renewables activists and officials are in some cases lumping these items together under a broad umbrella. ”I don’t know if it’s the people pushing for these ordinances, rather than people taking advantage of the situation.”