BHP and Rio take competition out of going green

Party of three. Capitalism and creativity are meant to thrive on healthy competition. Throw in the challenge of climate change and business rivalries can do more harm than good. Two of the world’s biggest iron ore miners effectively acknowledged that on Friday: BHP and Rio Tinto announced a partnership with Australian manufacturer BlueScope Steel to try to decarbonise how the alloy is produced. It’s smart on many levels.

First, pooling resources could speed up finding a solution, which means the industry could cut emissions faster. That’s critical for the planet because the current steelmaking process, which involves throwing iron ore into a blast furnace powered by coal, accounts for around 8% of the carbon belched globally into the atmosphere. Working together, the companies may end up spending less than they would have individually to achieve the same results. The plan involves the three companies sharing costs equally.

Moreover, the industry in Australia risked getting left behind. That’s because virtually all the iron ore dug up Down Under is hematite which has not proved conducive to being turned into “direct reduced iron” required in the first stage of the coal-free process. Currently it only works with magnetite iron ore, which is abundant in Brazil where rival Vale operates. BHP, Rio and BlueScope reckon that’s a fixable problem.

It needs to be. Iron ore accounts for the majority of Rio and BHP’s revenue. And it’s also Australia’s top export, worth some A$130 billion in the 12 months to June. That justifies why the trio’s project may qualify for some Australian taxpayer-funded assistance.

Success isn’t assured. For now producing DRI requires using fossil gas, which would reduce but not eliminate emissions. The hope is that it can be replaced with green hydrogen, though that too is betting on an industry in its infancy and facing myriad issues from high cost to water availability.

Getting it right would not just secure Australia’s iron ore industry, it could also expand it: rather than shipping iron ore abroad, the miners could process it into green iron first, capturing more of the value of the steelmaking process.

With so much to gain, it’s almost a wonder it took Rio boss Jakob Stausholm, BHP counterpart Mike Henry and BlueScope CEO Mark Vassella until now to join forces.