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Decarbonizing the steel industry


Iron and steel production is the largest carbon emitter among heavy industries. According to the International Energy Agency, the iron and steel sector accounts for 3.7 gigatonnes of carbon dioxide emissions annually, making it responsible for about 10% of energy sector CO2 emissions.

Such high emissions occur because the steel sector is currently the largest industrial consumer of coal. This is due to most steel production being highly reliant on burning coal, and therefore highly emissions-intensive. The most common primary steelmaking route involves coal-based blast furnaces and basic oxygen furnaces (BF-BOF). This route accounts for 73% of the world’s current steel production, totalling 1.95 billion tonnes of crude steel in 2021. To produce that amount of steel, the World Steel Association estimated that the global steel industry used about 1.1 billion tonnes of metallurgical coal. On average, producing just one tonne of crude steel results in 2.0t of CO2 emissions. Moreover, while the use of coal is the main source of CO2 emissions in iron and steel production, it is also one of the main energy-related sources of anthropogenic methane emissions.

Steel production from steel scrap is low-emitting as it mainly uses clean electricity in the electric arc furnace (EAF). EAF steelmaking only produces 10-20% of the CO2 emissions of BF-BOF steelmaking, depending on the input material and power mix. Hydrogen-based direct reduced iron (DRI) is growing in use, and it appears to have better decarbonization potential to move towards net-zero. A massive and rapid transition from coal to clean electricity to produce green hydrogen and to power scrap-based EAF production will be the key to drive steel to net zero.

As Global Energy Monitor reports, the transition away from coal-based steel production is underway but moving far too slowly. As of March 2023, 57% of planned steelmaking capacity uses the coal-based BF-BOF route. However, “the International Energy Agency’s (IEA) Net Zero by 2050 scenario indicates that over half (53%) of steelmaking capacity needs to use EAF technology by 2050 and 42% of primary steelmaking alone needs to use EAFs in a hydrogen-based direct reduced iron or iron ore electrolysis configuration to meet that goal. Current capacity plans will result in a mere 32% of total capacity using EAF in 2050, far less than what is needed.” Furthermore, the IEA notes that in order to achieve the net-zero by 2050 scenario — which is 1.5ºC-compatible — CO2 emissions from the steel sector should be cut by around 30% by 2030 from a 2019 baseline.

In terms of production volume, primary steelmaking projects declared to be near zero emissions would produce 13 million tonnes of steel by 2030 — only 10% of the amount of green steel capacity necessary to meet a 1.5ºC target. Most of these projects are located in Europe, whereas three-quarters of global steelmaking capacity under development is currently in Asia, with China and India accounting for 55% of steelmaking capacity in Asia.

Solutions to the sector

1. A shift from coal to clean electricity

The steel industry’s transition to net-zero is contingent on a massive shift away from coal to electricity. Specifically, by producing hydrogen as an alternative fuel to coal and powering  scrap-based electric arc furnace production. This transition requires upstream production of hydrogen and electricity to become fossil free.

2. Phasing out high-emissions technologies like coal-based blast furnaces

The steel sector should not add or invest in more coal-based steelmaking technologies, and instead phase them out to avoid early retirement and stranded assets.

3. Optimizing steel scrap and material efficiency

Steel scrap plays a vital role in the decarbonization of the steel industry; due to steel’s excellent circular properties, steel scrap can be used to produce new steel, curbing industry emissions and resource consumption. Every tonne of scrap used for steel production prevents the emission of 1.5 tonnes of CO2, as well as the consumption of 1.4 tonnes of iron ore and 0.74 tonnes of coal, according to the World Steel Association. Scrap is generated by recovering steel from buildings, infrastructure, vehicles and other products at the end of life.

Though it is estimated that around 85-90% of steel scrap potential is recovered at the end of life, more could be done to achieve higher recovery rates through material efficiency and improvement of the recovery system. Furthermore,  producing steel from steel scrap uses mainly electricity, and therefore it could emit significantly less emissions — or even zero emissions — if  clean electricity from wind and solar is used to power steel production through steel scrap.

4. Using electricity sourced from renewable energies like wind and solar

Electricity demand in the steel sector will quadruple by 2050 as steel’s transition to net zero hinges on a massive shift from coal to electricity. An affordable and reliable electricity source is fundamental to competitive zero-carbon steelmaking. Increasing fossil fuel prices and decreasing renewable energy costs will favor the green hydrogen based steel production route. Solar and wind power has become cost-competitive with fossil fuels even without financial support. According to the IRENA, the cost of solar PV and onshore wind power generation  fell by 89% and 69%, respectively, between 2010 and 2022. Renewables can protect the steel industry from fossil fuel price shocks, avoid physical supply shortages and enhance energy security. This should be done through on-site generation, power purchase agreements (PPAs), and direct investment.

5. Steel buying companies collaborating with steelmakers to expand green steel production

According to McKinsey, the European market for low-CO2 steel is expected to remain undersupplied until 2030 because of rapidly growing demand and long lead times to bring green assets online, leading to significant premiums from 2025 to 2030.  Steel buying companies should work with steelmakers by making commitments to purchasing green steel. Governments can also introduce a green public procurement policy for green steel to support  such expansion.

False solutions and myths

Myth: Green steel is too expensive and customers won’t pay for green steel. 

Green steel demand is growing faster as customers like automakers, consumer goods producers, and equipment providers have targets to decarbonize their supply chain. Transport sector demand on green steel is particularly high as automakers are facing life cycle-based CO2 regulations. While prices for lower carbon steel are higher, a growing number of customers are willing to pay a premium for it.

38 companies including wind companies like Ørsted, Vatenfall and automakers like Volvo have joined Steel Zero, a global initiative that brings together companies to make a public commitment to buy and use 50% low emission steel by 2030, setting a clear pathway to using 100% net-zero steel by 2050. The  green premium would account for a small portion of the total cost of the end products, and can be absorbed by consumers with little resistance. For the auto industry, for example, a 25% increase in the price of steel would only raise vehicle production costs by 1%.

Myth: Low carbon steel making technologies are not ready at this moment.

The race to produce green steel is already underway. Swedish steelmaker SSAB produced the world’s first fossil free steel in 2021, while steelmakers like ArcelorMittal and H2 Green Steel will start commercially scaling zero emission steel production in 2025.

It is clear that projects to build green steel plants before 2030 have been on the rise. IEA reported in 2023 that announcements for new near-zero emission steel projects  have more than doubled  from 2022 to 2023. The project pipeline for primary near-zero emission projects has increased to 13 Mt in 2023, from 5 Mt in 2022.

Myth: There is not enough high grade iron ore in the world, which is instrumental for primary green steel production. 

Direct Reduced Iron (DRI) technology —which is an alternative steelmaking technology  that replaces coal with hydrogen as a reducing agent — and electric arc furnace (EAF) technology  are regarded as a key route for lower-emissions steelmaking  — a route which  is already in use today. The challenge is that it needs high-quality iron ore, with iron content of 67% and above, which has lower levels of impurities. Currently, this type of iron ore only makes up about 4% of global supply. However, according to The Institute for Energy Economics and Financial Analysis, high-grade iron ore production and new technology looking at using lower-grade iron ore in the DRI process are expected to increase.

Myth: Metallurgical coal is a critical material in steelmaking, and therefore blast furnaces will require technologies like carbon capture, usage and storage (CCUS), and hydrogen injection to decarbonize. 

According to the Agora Industry report, carbon capture and usage and storage for coal-based blast furnaces will not play a major role in global steel decarbonization. Furthermore, Agora Industry emphasizes the phase-out of coal in the steel sector is technically feasible by the early 2040s.

An analysis by the IEEFA reviewing the performance of 13 flagship CCUS projects found that 10 of the 13 failed or underperformed against their designed capacities, mostly by large margins. Some steelmarkers use injection of hydrogen into blast furnaces as a means to cut emissions by replacing small amounts of coal, though this is expected to only reduce 7-10% of the carbon emissions of the conventional coal-based steelmaking route, as seen in cases like Tata steel and Nippon steel.

Media coverage

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Global Energy Monitor, Pedal to the Metal 2023, July 2023

Agora Industry, Wuppertal Institute, 15 Insights on the Global Steel Transformation, June 2023

The Institute for Energy Economics and Financial Analysis, No, metallurgical coal is not a critical material… and carbon capture won’t save it, July 2023

Centre for Research on Energy and Clean Air, Solutions for Our Climate, Unveiling the Truth Behind Blast Furnace Pollution in South Korea, November 2022

InfluenceMap, The Japanese and South Korean Steel Sectors & Climate Policy, April 2022

Lead the charge, Hyundai’s Award-Winning Ioniqs: Failing To Answer The Call For Sustainable Supply Chains, April 2023

SteeWatch, Sunsetting Coal in Steel, June 2023

Fatih Birol, Clean energy is moving faster than you think, April 2023