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Rio Tinto to tackle emissions with China's biggest steel maker

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Rio Tinto has moved to silence its climate change critics and activist investor groups with a landmark agreement to work with China’s biggest steel maker on ways to reduce greenhouse gas emissions.

The iron ore giant and Baowu Steel Group signed a memorandum of understanding late on Wednesday that commits them to developing and rolling out ways to lower emissions as part of a greener steel-supply chain.

Rio Tinto chief executive Jean-Sebastien Jacques.  Daniel Munoz

The historic MoU also involves China’s influential Tsinghua University and comes days after Prime Minister Scott Morrison challenged China to do more to reduce its emissions, which include hundreds of millions of tonnes a year produced in turning Australian iron ore supplied by Rio, BHP and Andrew Forrest’s Fortescue Metals Group into steel.

The agreement with Baowu will see Rio tackle customer, or so-called scope 3 emissions, more than 40 years after it began shipping iron ore to China's steel mills.

Rio has the use of coking coal in steel-making firmly in its sights after the company's chairman Simon Thompson said in May that there are technically feasible alternatives with the potential to drastically reduce emissions.

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Baowu chairman Chen Derong, who was with Rio chief executive Jean-Sebastien Jacques at a China Iron and Steel Association conference in Qingdao for the MOU signing, said the steel maker was committed to “greener factories” and low-carbon metallurgical innovation.

“We will promote sustainable production through intelligent manufacturing,” he said.

The MOU represents a major step forward in tackling scope 3 emissions for Rio as it faces another shareholder resolution on the issue from Friends of the Earth subsidiary Market Forces at its 2020 general meeting.

Rio saw off a Market Forces resolution in May that called for it to set targets for reducing all greenhouse gas emissions and to align its strategy and spending with the goals of the 2015 Paris climate agreement.

BHP avoided a similar resolution from Market Forces this month after chief executive Andrew Mackenzie promised to take action on its scope 3 emissions.

Rio said the new MOU paves the way for reduced emissions across the steel-making supply chain, which is thought to account for 7 per cent to 9 per cent of all global emissions annually.

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Mr Jacques said the MoU partners had not set targets for reducing emissions but would seek to make supply chain improvements that limited the impact on the environment through technology breakthroughs, investment and policy settings.

"We have been shipping product to China for many, many years and we intend to continue to do it for a long time. We are looking at the future and to build best supply chain we can think of," he said.

Mr Jacques said the MoU was unrelated to activist pressure with Rio main focus on  sustainability for miners through to end users of steel.

“This pioneering partnership across the steel value chain will bring together solutions to help address the steel industry’s carbon footprint and improve its environmental performance,” he said.

“The materials we produce have an important role to play in the transition to a low carbon future and we are committed to partnering with our customers and others to find the most sustainable ways to produce, process and market them.”

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Mr Jacques said Rio had already moved to tackle issues in parts of its aluminium arm and was now turning to steel making.

Rio has reported that its scope 3 emissions, most of them from steel making, totalled 536 million tonnes of carbon dioxide equivalent gases last year compared to 28.6 million tonnes across scope 1 and 2.

BHP reported 537.4 million tonnes of scope 3 emissions for the year to June 30, including 299.6 million tonnes in steel making and 111.4 million tonnes from use of its metallurgical coal, while scope 1 and scope 2 emissions totalled 14,700 million tonnes.

Fortescue and many other Australian mining companies do not publish figures on its scope 3 emissions, which can also be counted as scope 1 emissions in the case of customers.

Rio chairman Simon Thompson has said employing alternatives to coking coal are a big part of de-carbonising the supply chain from the mine through to the end user of steel.

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In responding to questions from Market Forces at the company's general meeting in Perth in May, he said it wasn't iron ore that introduced the carbon into the manufacturing process.

"It is the coking coal that is added in the blast furnaces that results in the greenhouse gas emissions during the production of steel," he said.

Mr Thompson said there were technically feasible alternatives to using coking coal in the steel manufacturing process.

"You can use hydrogen as a reductant, or you might be able to use biomass as a reductant," he said.

"Or, you could continue to use coking coal, but then you could capture the carbon dioxide that is produced and store it using CCS (carbon capture storage).

"So there are technically viable alternatives for making steel that would decarbonise the value chain from the mine through to the end user."

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Mr Thompson said what Rio couldn't do was set hard targets for the steps that would be taken by steel mills in China or other countries.

Green movement grows

Last week, BHP last week brushed off Morrison government complaints about big business kowtowing to activist shareholders and said it would push ahead with plans to ''influence'' the carbon emissions of Chinese steel mills and other big customers.

BHP said it would set public goals for its customers' emissions footprint within nine months.

In a statement to mark the Rio agreement, Mr Chen said the steel maker wanted to work with suppliers to reduce emissions.

"We want to make a difference to the iron and steel ecosystem by developing greener factories and enterprises to deliver a cleaner, more sustainable steel industry," he said.

"We hope to jointly address climate challenges with our partners, and create a model of harmonious coexistence between cities and steel mills.”

Rio and Baowu are joint venture partners in the Eastern Ranges mine and the Western Range project in Western Australia's Pilbara.

Baowu was formed in 2016 by the consolidation of the Baosteel Group and the Wuhan Iron and Steel Corporation.

Brad Thompson writes across business and politics from Western Australia for The Australian Financial Review. Brad is based in our Perth bureau. Connect with Brad on Twitter. Email Brad at brad.thompson@afr.com

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