Big steelmaker weighs abandoning $500M Biden climate grant

The CEO of a leading U.S. steelmaker said he is considering ditching production of low-carbon “green” steel and forgoing a $500 million Biden administration grant — a move that would offer the latest big setback for the president’s attempt at a climate-friendly remake of American manufacturing.

In an interview with POLITICO, Cleveland-Cliffs CEO Lourenco Goncalves said the Ohio-based company produces the steel with the lowest carbon emissions in the world. But he said his company cannot persuade buyers, mostly in the automobile sector, to pay the price to cover the costs of producing more environmentally friendly steel.

“There are only two ways to fix that: One is they change their minds and pay. So far, not very successful. The other way is for me to go back to what I was before and emit more,” Goncalves told POLITICO on Thursday. “That's a decision that I'm going to have to make very soon.”

Goncalves’ words come amid a broader set of headwinds for private investments in low-carbon and clean-energy projects, which have seen several initiatives delayed or scrapped entirely despite the massive federal subsidies available through President Joe Biden’s climate and infrastructure laws. The Cleveland-Cliffs project is especially significant because it addresses climate pollution from industrial manufacturing — one of the next frontiers in lessening U.S. greenhouse gas emissions.

Industrial sources produce 30 percent of U.S. greenhouse gases, according to the Environmental Protection Agency, but the federal government does not regulate them directly, unlike the way it has spent years trying to impose limits on carbon pollution from the power and transportation sectors. Instead, the Biden administration has tried to coax industrial companies into greener production methods through subsidies in the climate and infrastructure laws. And it’s devoted considerable financial and political support toward greening the steel industry.

The Energy Department has announced it awarded Cleveland-Cliffs two grants through those laws to reduce emissions from facilities in the Midwest: $500 million to use hydrogen instead of coal to make steel in Middletown, Ohio, and $75 million to replace two natural gas-fired furnaces in Butler, Pennsylvania.

Cleveland-Cliffs has already received an installment of the $75 million grant, but it is still negotiating the $500 million Middletown grant with DOE. Even with that grant, Goncalves said his company would still need to put up $1.1 billion to convert its Middletown furnace to using hydrogen as the fuel instead of coal. He said he worried that the market is not yet willing to pay the true cost of green steel.

“I’m still trying to figure out if it even makes sense with the grants because the grant is $500 million, the entire project is $1.6 billion. I still have to pony up $1.1 billion,” he said. “I'm not going to do it if the government and the general public are not really supportive of that.”

A DOE spokesperson said in a statement that “Cleveland-Cliffs continues to be a good partner to the DOE and has made significant progress since selection on projects that will enable American companies and workers to be competitive for decades to come.”

As a raw material, steel is not marketed directly to consumers, and instead goes to companies producing goods such as cars. The DOE grants can help pay for costly capital projects in industries where companies face thin margins and little incentive to differentiate themselves with environmentally friendly products.

Goncalves said the capital expenses to upgrade Cleveland-Cliffs’ facilities, such as switching large, polluting blast furnaces that rely on coal to reach extremely high temperatures to run on hydrogen, are costly. He said finding buyers willing to pay that so-called green premium has been challenging, so Cleveland-Cliffs has sold that steel at a discount.

“Let's realize it's not going well,” Goncalves said. “Like I keep telling government officials at the White House, I'm doing everything I can because we are at the bottom of the industrial structure.”

“There is nobody here trying to save the world, including me,” Goncalves added.

Cleveland-Cliffs did not specify how much that green premium would cost customers, but analysts at BloombergNEF have estimated low-carbon steel costs 40 percent mor e than standard steel.

Biden administration officials have lauded Cleveland-Cliffs during several visits over the years to tout its ties to union labor and efforts to reduce carbon emissions in steelmaking. Energy Secretary Jennifer Granholm toured its Butler site in April with Goncalves and leaders from the United Auto Workers, United Steelworkers and International Association of Machinists unions.

But Goncalves said he is worried about losing market share to producers based in China and India, where environmental rules are lax and production is cheap. He said automakers and other buyers so far have shown they would rather purchase less expensive, higher-polluting steel than pay more to honor climate and sustainability commitments.

“Their conviction is just [that] they want their stock price to be the same stock price as Tesla,” Goncalves said. “That's what they are looking for, nothing else.”

Goncalves noted that automakers are buying green steel, though not at cost. Several automakers, however, have joined efforts to scale up green steel production. Ford and General Motors are members of the First Movers Coalition, a private sector initiative that commits members to purchase cleaner commodities and raw materials. Coalition members have agreed that 10 percent of their steel purchases by volume will contain near-zero emissions by 2030.

Goncalves said he is not ready to give up on Cleveland-Cliffs’ climate mission, noting that the firm is still working with the Biden administration on a $1 billion DOE grant for a so-called hydrogen hub that would spur development of the fuel through a cluster of new production, infrastructure and companies that have agreed to buy that power. He said negotiations with the federal government are “not moving as fast as I would like,” while noting Cleveland-Cliffs nonetheless built a $9 million feed-in pipeline for the Indiana facility.

“When the United States decides to do something, we do,” he said. “We are at that decision-making point right now.”