DECARBONIZING THE STEEL INDUSTRY

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.

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.

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.

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.

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%.

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.

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.

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.