According to a new estimate by BloombergNEF, with $278 billion in additional investment, steel manufacturing could be done with nearly no carbon emissions by 2050. (BNEF).
In order to reduce emissions from steel manufacturing, hydrogen and recycling are anticipated to play a key role. Steel is one of the most polluting sectors in the world, accounting for around 7% of all man-made greenhouse gas emissions each year.
Steel companies are being pushed to achieve net-zero emissions by 2050 as a result of government and corporate net-zero commitments. Efforts to decarbonize steel production are at the heart of China’s, Japan’s, Korea’s, and the European Union’s net-zero goals.
The paper “Decarbonizing Steel: A Net-Zero Pathway” discusses how a combination of lowering hydrogen costs, inexpensive clean electricity, and more recycling might decrease emissions to zero while overall output grows.
Green hydrogen might be the cheapest steel production technology by 2050, accounting for 31% of the market. Another 45 percent might come from recycled material, with the balance coming from a combination of older coal-fired facilities with carbon capture systems and novel iron-ore refinement processes that use electricity. This would represent a significant change in the types of furnaces and fuels used to make steel.
Around 70% of steel is presently manufactured in coal-fired blast furnaces, with 25% coming from scrap in electric furnaces and 5% coming from a newer, generally natural gas-fired method known as DRI—direct reduced iron (earlier post). More DRI units and electric furnaces would be required to convert a large amount of the fleet to hydrogen. In this case, blast furnace production would drop to 18% of capacity.
According to the paper, there are five main activities that the industry should undertake in order to achieve this transformation:
- Increase the amount of steel recycled, especially in China;
- Obtain renewable energy for electric furnaces.
- All new capacity should be designed to be hydrogen or carbon capture ready.
- Begin blending hydrogen into existing coal and gas-fired power facilities to reduce green hydrogen costs; and
- By 2050, any remaining coal-fired capacity will be retrofitted or shut down.
Green steel production using hydrogen and electric furnaces would need vast amounts of renewable energy as well as a transition to higher-grade iron ore. This might affect where the majority of steel is produced, as well as the mining industry.
Both Russia and Brazil have high-quality iron ore stockpiles and plenty of renewable energy. According to BloombergNEF analysis, Brazil is anticipated to have one of the lowest prices for hydrogen generation by 2030. South Africa and India have abundant iron ore deposits and the ability to generate enormous amounts of low-cost renewable energy. However, Australia, the world’s greatest iron ore producer, is now producing lower-grade ores and may lose its top spot in the supply chain unless it invests in equipment to strengthen its output.
China will continue to be a major player. With 57 percent of the world’s steelmaking capacity, China’s route to reducing emissions will set the tone for the whole sector. Before embracing early-stage technologies like hydrogen and carbon capture, the Chinese steel sector plans to prioritize recycling and energy savings.
The global steel industry is about to embark on a massive shift away from coal and toward hydrogen. Once recycling levels are increased, green hydrogen is both the cheapest and most practical technique to create green steel. This shift will be both a source of immense upheaval and a source of great opportunity. Companies and investors are underestimating the magnitude of the changes ahead. BNEF’s chief of industrial decarbonization, Kobad Bhavnagri
Policymakers’ support for industrial decarbonization might be a crucial factor for steel producers. Green steel procurement mandates for the public sector, such as the Industrial Deep Decarbonization Initiative announced at COP26, or rising carbon prices, such as those in the EU’s Emissions Trading Scheme, could all help green steel compete with fossil-fuel based production, according to the report.
In comparison to business-as-usual capacity development, BloombergNEF forecasts that new clean capacity and retrofits for lower emissions will cost the steel sector an extra $278 billion.
This is a small sum compared to the $172 trillion BNEF estimates for decarbonizing the global energy system. The majority of the expenses associated with producing green steel are incurred via operations rather than capital expenditures.
Green hydrogen costs must be reduced, and BNEF projects that they will drop by more than 80% by 2050, reaching under $1/kg in most regions of the world. Green recycling is also a quick and cost-effective solution. Steel recycled with 100 percent renewable power would only require a 5% premium above current recycled material pricing. With decreased sustainable energy prices by 2050, this premium might drop to less than 1%.
