Industry is gearing up for the challenge of “net zero” manufacturing

Last October, the Volvo Group unveiled the world’s first vehicle made from ‘green’ steel. The autonomous electric truck weighs eight tons and is designed for use in quarries and mines.

It was the result of an industrial partnership between Swedish steelmaker SSAB, state-owned power producer Vattenfall and iron ore mine LKAB. Their goal was to make the first steel fossil-fuel free by replacing the coking coal traditionally used to make it with green hydrogen.

Dubbed ‘Hybrit’, the partnership is at the forefront of European industry’s drive to develop more energy-efficient, low-carbon manufacturing technologies.

Many initiatives were already underway before the coronavirus outbreak, but the pandemic has turned the minds of industry leaders to the importance of transforming and strengthening supply chains and tackling longer-term challenges – particularly climate change.

“It’s no longer about the cheapest manufacturer, it’s about the resilience of your supply chain,” says Stephen Phipson, managing director of British trade organization Make UK.

He points out that manufacturing leaders in the UK are reassessing ‘just-in-time’ manufacturing processes and how much stock needs to be held going forward to ensure greater resilience. The importance of skills has also come up on the agenda, particularly as companies struggle to attract and retain workers in the wake of the pandemic that has left many understaffed.

However, business leaders warn that full-scale transformation will not happen overnight.

SSAB’s ‘fossil-free’ pilot mill Hybrit © SSAB

A McKinsey survey last November underscored the challenges. In a previous survey in May 2020, most companies said they were taking multiple avenues to improve supply chain resilience, including diversifying the supply base. But in practice, by the end of 2021, most had mainly increased their inventories.

The more recent survey found that 61 percent of companies had increased inventory of critical products and 55 percent had taken steps to ensure they had at least two sources of raw materials. Only 11 percent had “nearshore” production to avoid the risk of disruption from geographically distant suppliers.

Duncan Johnston, UK Manufacturing Leader at Deloitte, says: “Manufacturing changes take time. You can’t very quickly turn a global supply chain into something that’s more offshore or UK-centric.”

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The same applies to sustainability ambitions. While companies have pondered this, they have yet to “actually embark on the journey needed to reduce carbon emissions in the UK economy“.

Manufacturers face several challenges. In addition to reducing emissions in their own processes, they also need to consider those in their supply chain. They need to find new ways to advance their activities and in some cases, such as B. in the automotive industry, completely revise their products.

Heavy industries such as steel and cement are at the forefront of efforts to decarbonize countries’ economies. Outside of power generation, the iron and steel sector is the largest industrial producer of carbon dioxide. According to the World Steel Association, they are responsible for 7 to 9 percent of all direct emissions from fossil fuels.

According to the International Energy Agency, emissions from the steel industry must be reduced by at least half by the middle of the century in order to achieve global climate and energy targets. Achieving such a reduction will require more than incremental improvements in the efficiency of conventional blast furnaces.

“We have come to a point where there is not much room left in terms of efficiency efforts,” says Martin Pei, Chief Technical Officer at SSAB. “It’s really game-changing technology that we’re looking at now.”

The delivery of fossil-free steel in Oxelösund © SSAB

In the blast furnace process, companies use carbon to deoxygenate iron ore to obtain iron. Instead, SSAB will use clean hydrogen gas produced in a facility called an electrolyser, powered by Sweden’s abundant renewable electricity. The result is a solid intermediate product called sponge iron that goes into an electric arc furnace, where it is mixed with scrap and refined into steel.

The successful production of Volvo’s first heavy-duty truck shows that “the entire value chain works,” says Pei.

SSAB has estimated that metal from its hydrogen-based process will be 20-30 percent more expensive than conventional production, at least initially. However, Pei says customers are excited and that demand for greener steel is growing as more companies commit to decarbonizing their supply chains.

Policy makers must also do their part to help manufacturers make the transition to a low-carbon economy. A massive conversion of the European steel industry to hydrogen, for example, would require a massive expansion of renewable energies. Government support would be needed to fund the necessary investments in expanding electricity grids and other infrastructure to enable the transition to a low-carbon economy.

Hydrogen is a prime example. The EU and the UK have both published ambitious plans to develop a hydrogen economy, but obstacles remain to making this a commercial reality.

For example, says Phipson, the UK has “a very small innovative sector for hydrogen. . . The challenge is to scale that up.” The UK, he adds, is very good at innovation and research funding, but what is needed is “scale-up capital”.

As for the sources of funding, he says: “There is a big commitment from companies to use private capital, but the government also has to play its part.”

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Another concern is transforming the workforce to manage this transition. Even before the pandemic, manufacturers were concerned about the impact of an aging workforce and how to attract younger talent with more digital skills.

“We don’t know of any manufacturing company that has as much digital capability as they would like,” says Johnston.

These concerns have increased as many employers emerge from the pandemic with even more unfilled positions. Phipson would like to see more government action on this front as well.

“[It] needs to be more ambitious in terms of his skills,” he believes. The shortage of skilled workers is currently a “growth brake”.

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