HONG KONG - Big steel, heal thyself. Rio Tinto has agreed to work with Baowu Steel to make the metal greener. From Royal Dutch Shell to BHP , resources firms are doing a little more to reduce the wider environmental impact of the stuff they produce. Cleaning up can help keep the industry going.

Under pressure from investors, oil majors and miners like Rio have begun to disclose and tackle the amount of climate-damaging gases coming from their wells, plants and pits, plus purchased energy – so-called scope 1 and 2. Few, though, have taken on scope 3 – emissions generated by their coal or oil after sale.

For Rio alone, those emissions, mostly from the use of its iron ore in steelmaking, are almost 19 times the scope 1 and 2 numbers combined. So the number is not only hard to control, but also huge. As recently as March, Rio's chairman said a proposal to set targets for customers was unworkable.

That makes Rio's tie-up with China’s largest steel producer last week a significant development, however vague.

First, it correctly signals steel is a good place to start: the industry generates between 7% and 9% of direct emissions from fossil fuels. More importantly, the tie-up acknowledges any carbon dioxide reduction by the resources sector will have to involve the world's biggest metal and energy consumer: China.

Beijing is committed to tackling environmental issues. It signed up to the Paris climate accord and wants to bring emissions to a peak by around 2030. It is experimenting with carbon trading, beginning what may become the largest carbon-pricing programme globally. A cooling economy makes such goals harder, not impossible: pollution, air contamination in particular, remains a political priority.

If emissions don't come under control, the price of carbon will only get steeper as key deadlines near. It may become harder to raise capital in the market. Chinese steel technology, mostly basic oxygen furnaces, could become uneconomic, leaving plants stranded.

As an iron ore producer, Rio can afford to spend on carbon capture and storage, or methods to replace coking coal — the other key ingredient of steel, and the one responsible for the worst emissions. After all, it produces none of that itself. It can simultaneously become the lower-cost, lower-emission producer that investors will prefer. Self-preservation can pave the way to change.

CONTEXT NEWS

- Rio Tinto, a major iron ore producer, said on Sept. 25 that it had signed a memorandum of understanding with China Baowu Steel and Tsinghua University to develop and implement new methods to reduce carbon emissions and improve environmental performance.

(Editing by Una Galani and Katrina Hamlin)

© Reuters News 2019