This is ultimately a positive trend for EV buyers, who can increasingly compare the sustainability performance of different models in order to make an informed choice. Mercedes’ new CLA uses 39 kg of steel from electric arc furnaces using renewable energy, whilst Volvo’s ES90 uses 18% recycled steel and 43% primary aluminum produced with renewable energy.
Such progress shows that automakers increasingly see economic value, and a competitive advantage, in selling EVs made with cleaner materials. However, as this competition intensifies, it also brings with it greenwashing risks from companies wanting to claim the same economic benefits without actually doing any of the hard work.
Nowhere is this clearer than in the misleading use of “mass balance” accounting within the steel industry. This accounting trickery is diluting the meaning of the term “green steel” and leading to some automakers paying a premium for steel that is being marketed as low-emissions but, in reality, is still produced by burning massive quantities of coal.
What’s the problem with ‘mass balance’?
Mass balance is a chain of custody model used to track certain materials with an environmental impact as they move through supply chains. Traditional mass balance systems can enable producers to mix dirty and clean inputs and then claim a corresponding amount of the final product is clean or dirty, rather than just an average of the two.
In recent years the Japan Iron and Steel Federation (JISF), and steelmakers including Nippon Steel, launched an entirely different accounting system branded as so-called “mass balance” (now “GX mass balance.”) Their method allows a company to claim they achieved greenhouse gas emissions reductions somewhere within a company’s steelmaking processes and issue equivalent emissions reduction certificates that they then sell along with steel products.
While the schemes are labelled “mass balance” there is no requirement for an actual link between the reported emissions reduction and the final product. This means that the stated emissions reductions could have occurred in a site with no connection to the steel being sold as “low-emissions” and even “zero emissions.” There is no requirement that the emissions reductions result from investments in the deep decarbonisation of production.
This is a worrying development with serious consequences for the automotive and steel industries.
Carmakers – and thereby their customers – risk being duped into paying a premium for “green steel” that has actually been manufactured using the same coal-fired blast furnace technology the industry has used to make steel for over a century.
For steelmakers that are actually investing in constructing costly fossil-free steel facilities this is a slap in the face and a serious threat to their own viability, as the market for the green premium they rely on risks being undercut by steel products that have required no such investments.
Where is this showing up in car supply chains and the Leaderboard?
In 2022 Nissan announced an offtake agreement with Kobe Steel for “low-CO2 steel”, and subsequently announced plans to “expand the use of green steel” by purchasing Kobenable®*2 Steel from Kobe Steel, Nippon Steel’s NSCarbolex®*3Neutral, JFE Steel’s JGreeX®*4, and POSCO’s carbon reduction allocated steel, all of which use this so-called mass balance method.
Nippon Steel, for example, claims that their steel has “achieved a 100% reduction in CO2 emissions from steel manufacturing through the mass-balance method.” However, according to research by Transition Asia, this steel is still produced in a polluting coal-fired blast furnace. Not only is it egregious to claim that such steel is “green”, it is also impossible for any steel to have zero CO2 emissions. Even Stegra – which will produce a genuine near-zero emissions steel product – claims up to 95% emissions reductions, not 100%. The markup premium by Nippon Steel for its so-called zero-carbon steel? A 30-60% premium.
This year the Leaderboard introduced new definitions for lower emission and fossil-free steel, which state that lower emission steel is produced by eliminating as much coal as technically possible in the ironmaking and steelmaking processes. As a result, Nissan has lost points for the offtake agreements it has signed for “green” steel, dropping a significant 10 percentage points in the steel subsection of this year’s Leaderboard report.
Pushback on accounting trickery
Steelmakers are being held to account over their distorted claims on green steel. Last year Korean steelmaker POSCO – a major supplier to automakers such as Hyundai Motor Company and Nissan – was ordered by the Fair Trade Commission in South Korea to withdraw sustainability claims about its steel products, in response to a legal claim submitted by Solutions for Our Climate (SFOC). According to SFOC, POSCO’s ‘Greenate-certified steel’ uses the mass balance methodology to certify some of its products as low carbon, allowing the company to unevenly allocate emissions reductions to specific steel products.
Sadly, the ruling came after POSCO sold up to 300,000 tons of “low-carbon” steel — despite the emissions cuts for the steel accounting for less than one percent of its total emissions.
Civil society groups across the world are pushing back on attempts by Japan Iron and Steel Federation and Nippon Steel to have their distorted mass balance accounting for steel production accepted by standard-setting bodies and national governments. In an open letter, over 30 organisations, including the Lead the Charge network, called on “independent standard-setting bodies and governments to only recognise credible low-emissions steel in their standards and to reject undue influence by steelmakers in weakening these standards”.
The letter adds: “We urge corporate steel buyers not to pay premiums for so-called ‘mass balance’ steel but rather encourage the production of physically low emissions steel”.
Credible green steel
The demand for genuine green steel continues to grow. Automakers such as BMW Group, Mercedes-Benz AG, Volkswagen and Volvo Group are continuing to stick with credible sources of green steel.
The competition for cleaner EVs is heating up and, soon, the first EVs using truly fossil-free steel will hit the market. It is essential that regulators and carmakers, as well as their customers, push back against efforts to dilute the meaning of green steel via distorted mass balance accounting, to ensure green steel produced with revolutionary new technologies is not competing with steel claiming equivalent benefits, despite it being produced using the same old dirty coal.
