Green steel – forging a path to net zero

A revolution in steel production is now within reach. By Faustine Delasalle, Co-Executive Director, Mission Possible Partnership | May 27, 2021

The modern world is built from steel. 1.8Gt were produced last year, 90% of all metal produced globally. From wind turbines to electric vehicles it will be an integral enabler of the energy transition. But steel production is a major source of GHG emissions. Most steel is still made using coal to reduce iron ore, a process that emits roughly two tonnes of CO2 per tonne of steel. The industry accounts for 7% of global GHG emissions from the energy system – equal to global aviation, shipping, and chemicals emissions combined. For the world to reach net-zero emissions by 2050 in line with IPCC (Intergovernmental panel on climate change) recommendations attention needs to turn to industrial sectors. Sectors such as steel, where emissions in the production processes themselves and the need for very high temperatures make the path to decarbonization more difficult than in the power sector.

The good news is that a revolution in steel production is now within reach. Major steel-producing countries, including China, Japan, the EU and now the USA, have set ambitious targets to reach net-zero economies. Achieving them demands not just further material efficiency, greater recycling of scrap steel and continued process efficiency; it will take a shift to radically different zero-emissions primary (ore-based) steelmaking. A range of solutions – from replacing coal with green hydrogen as a reducing agent, to carbon capture and storage or use (CCS/U), and eventually direct iron electrolysis – are approaching technological readiness. These solutions are being championed by a number of high-ambition steel producers – including the two largest players, Arcelor Mittal and China Baowu Group – who have announced commitments to net-zero steelmaking.

The time is now 

However, the business case is not yet there to unlock investment in green steel production at scale. Low-emissions steel products will cost +20-50% more than steel made through the conventional high-carbon route, and even more for first-of-a-kind plants. Carbon pricing could bridge this gap in theory. However, a coordinated global carbon pricing mechanism is nowhere on the horizon; and regional policies imposing additional costs on steel producers risk impacting market share and investments in the most climate-conscious jurisdictions, while emissions shift to places where the cost of polluting is cheaper.

We have a narrow window of opportunity to act. Steel plants run almost continuously, and major reinvestment and refurbishment takes place only every 20 years or so at each production site. About half of Europe’s steel assets are up for reinvestment this decade, providing a unique opportunity to kick-start the transition by switching those production assets to zero-emission technologies. But if these technologies aren’t brought to market quickly enough, we risk locking in high-carbon investments for another 20 years or face the prospect of stranded assets and a slower, more costly transition.

Santiago Calatrava's Lisbon-railroad oriental station made of steel and glass.

Santiago Calatrava’s Lisbon-railroad oriental station made of steel and glass. 90% of all metal produced globally last year was steel.

A zero emissions roadmap

Our goal at the Mission Possible Partnership, through the Net-Zero Steel Initiative (NZSI) we support, is to create the business case for green steel by mobilizing key stakeholders across the whole value-chain. High-ambition steel producers are making strides in the right direction, but it will also take their energy & feedstock suppliers, their customers, their financiers, as well as the key Governments that shape the steel market to profoundly transform the global steel market.

With the NZSI, we are finalizing an industry-backed roadmap to net-zero emissions by 2050 – for release this summer. It will, for the first time, provide a bottom-up picture of how the industry can transition to zero-emission production on a global scale and what it will take to get there: the pace at which GHG emissions can be abated, when and where different decarbonization strategies can be deployed, the investment and policy interventions needed to unlock them, all tested and validated with our industry partners.

Using green steel in a passenger car would add less than 1% to the showroom price of a car while reducing material-related carbon emissions by up to 34%

The roadmap is only a tool to an end: it will be the reference point for key stakeholders to agree tangible commitments to action which will change the business case for steel manufacturers in the 2020s, unlocking the profound value chain transformation that the sector needs.

As our paper Steeling Demand released today demonstrates, bilateral offtake agreements between green steel manufacturers and purchasers in the automotive and white goods industries can unlock investment in the first wave of commercial-scale green steel production plants. Combined with broader public commitments to greener supply chains from users down the construction value chain, this can create a fast-growing premium market for green steel.

Even if green steel is initially more expensive at a business-to-business level, the end consumer will scarcely notice the price difference. For example, using green steel in a passenger car would add less than 1% to the showroom price of a car while reducing material-related carbon emissions by up to 34%. As pressure mounts to meet voluntary and regulatory emissions targets, competition for materials with lower embodied carbon will intensify. Early movers already include Volvo’s partnerships with SSAB, BMW and BHP Ventures’ investment in Boston Metal, and Kingspan’s partnership with H2 Green Steel.

Financing the transition

The finance community is also ready to support the transition of the steel industry. The investment needs are substantial. Transitioning the first plants to green steel in the 2020s, totalling 170Mt of production capacity, will require $100bn in investment. Leading lenders to the steel industry — ING, Société Générale, Citi, Goldman Sachs, Standard Chartered and UniCredit  — are already working together to support steel sector decarbonization. The NZSI Steel Finance Working Group will forge methodologies to set global best practices for financial institutions to align their portfolios with climate targets in the steel sector and facilitate investment in green steelmaking. This climate-aligned finance agreement will be released at COP26.

Corporate action alone won’t drive transition at the pace and scale required. Policy interventions that incentivize green steel and support commercial-scale investment this decade are indispensable. Regional approaches are the most likely route in the absence of an international framework, but this should be a race to the top. Raising the carbon price that steel producers pay for emitting CO2 while maintaining a level playing field with imports – as the EU’s Carbon Border Adjustment Mechanism hopes to do – constitutes a difficult but important step.

Government support will also be needed to de-risk investments in new technologies and to deliver the rapid scale-up of fossil-free electricity, hydrogen and carbon capture infrastructure that green steel requires. Public procurement initiatives, such as those being explored by the Clean Energy Ministerial, and product standards based on lifecycle emissions can also help to move green steel from a premium market to the mainstream.

Ahead of COP26 in Glasgow, the steel sector is demonstrating how even hard-to-abate sectors can make progress towards net-zero by aligning behind a credible roadmap and embracing action across the entire value-chain. Steel provides inspiration for how other materials sectors might join the race to zero and transform their industries to continue creating value in a net-zero economy.

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