Steel may exist as an important product of modern society, but it is also a major source of carbon dioxide emissions. So what role can green steel play in the journey to net-zero emissions? Although it currently costs twice as much as less environmentally friendly alternatives, it brings many benefits – and for a steel-based product the price will rise only slightly.
Here’s the dilemma: steel is a key material in modern society. It provides us with houses, bridges, transport, necessary equipment and products. It’s not just a relic of the old industrial revolution: steel also plays a critical role in the low-carbon economy. Green modes of transport such as electric cars, electric buses and trains require large amounts of steel, as do wind turbines and electrolyzers. So, unfortunately, steel production is also a major source of global greenhouse gas emissions. Greener alternatives have yet to prove their effectiveness and are often considered too expensive in a competitive market. It takes years to completely change a manufacturing process, so change is often extremely slow.
Making steel is an energy-intensive process, and current technology is largely coal-based. Today it emits 2.7 billion tons of carbon dioxide annually, accounting for 7% of the world’s annual emissions. This share roughly doubled in China, South Korea and Japan, reaching 15%, 14% and 12% respectively. Based on global population growth and economic prosperity, demand for steel is expected to grow by 35% by 2050. Bloomberg New Energy Finance. While the industry is improving in terms of energy efficiency, emissions are likely to rise if steel continues to be produced primarily from coal. This does not quite meet the goal of creating a zero-emission economy. We will therefore look at the business case for possible technological solutions to reduce carbon emissions in the steel industry. We’ll assess where we currently stand and the pressures companies currently face to achieve their net-zero ambitions. We’ll also look at which alternative fuels could become technology leaders as science evolves and adapts. There are three main strategies to reduce emissions: 1. Controlling demand for steel is a challenge, given rising demand through 2050 and consensus that steel alternatives such as aluminum and concrete will have high carbon emissions. Replacing steel with another product that emits a lot of carbon is not a big step towards a better climate. 2. Improving the energy efficiency of existing steel plants. This will be especially beneficial for older coal-fired steel mills that use higher-grade ore or more efficient methods of injecting coal into furnaces, which can reduce emissions by up to 30%. Material efficiency can also be improved by using more recycled steel, but with 85% of the world’s steel scrap recycled, recycling rates are already high. Most steel products last for decades before they are recycled. As a result, there is not enough recycled steel to meet growing demand, and the world still needs large quantities of “clean steel.” 3. Applying technology to the steelmaking process, such as electrifying parts of the process using electric arc furnaces running on green electricity, or capturing and storing carbon emissions from traditional coal-based steelmaking. The technology, called carbon capture and storage (CCS), leaves current coal-burning processes unchanged while cutting emissions by 75-90%. Replacing coal with synthetic fuels such as hydrogen is another technology solution that could significantly reduce carbon dioxide emissions. If the hydrogen is produced in a clean manner (i.e. using blue or green hydrogen from low carbon energy sources such as solar panels, wind turbines, hydropower or nuclear power). While technological improvements are important drivers of the transition to a net-zero economy, they face the risk of backfire and the Jevons Paradox: demand for steel could rise once its climate impact decreases.
Given the constraints of demand reduction and energy efficiency, and despite the Jevons Paradox, we believe CCS and hydrogen can play a key role in the steel industry’s transition to a net-zero emission economy. Hydrogen combined with electrification is the ultimate form of clean steel production in a net-zero economy. CCS is a key way to significantly reduce carbon dioxide emissions at many existing coal-fired steel mills around the world, especially young ones that are likely to continue operating for many years. Note that we have not yet studied gas-based steel production for two reasons. First, natural gas is often viewed only as a transition fuel and not as a primary source of energy in a net-zero economy. This effect is often attributed to synthetic fuels such as hydrogen. Secondly, for practical reasons we have to limit our modeling options because they are quite complex. We therefore need to focus on the coal route, which accounts for about 70% of global steel production, and explore the ultimate form of green steel production. However, we believe that natural gas-fired steelmaking will play a role as an intermediary technology that could act as a stepping stone to hydrogen-based steelmaking. In fact, the newest natural gas-fired steel mills are often dual-fuel plants that can easily switch from natural gas to hydrogen once large volumes of green hydrogen become available in the future. Experts believe that this could happen starting in 2035.
Steel is made from iron, one of the metals we are most familiar with. It has been used since ancient times, and historians have even named a 650-year period of iron use (the Iron Age, dating from 1,200-550 BC). The Industrial Revolution transformed iron into high-quality steel and gave birth to many uses of steel in our modern society. Making steel involves two steps: first reducing iron oxide (mined from the earth) to pure iron, and then reducing it back to pure iron. Turn into steel. Steel comes in hundreds of different forms, but they are all made from iron. The process of converting iron ore into iron and then into steel requires very high temperatures and therefore requires energy to generate heat. Traditional processes use coal both as a raw material to reduce iron ore to iron and as an energy source to generate heat. The first stage of converting iron ore into iron is by far the most energy and carbon intensive, accounting for about 80% of the carbon emissions of coal-based steel production.
Carbon emissions can be captured and stored underground (CCS) or used in other parts of the economy (carbon capture and storage or CCUS). Using this technology, 75 to 90 percent of emissions do not enter the atmosphere and therefore do not contribute to global warming. Carbon capture and storage is a relatively cost-effective technology to combat global warming. The concentration of carbon dioxide at the ends of pipes is often very high, making it quite easy and cheap to capture. The cost of CCS in steel production ranges from 60 to 100 euros per tonne of carbon. This is much cheaper than technologies such as electric vehicles, home renovations and hydrogen-based solutions, which cost hundreds of euros per tonne of carbon saved. Despite this, CCS is not yet widely adopted in the steel industry because it is not mandatory and carbon prices are often insufficient worldwide. Europe’s carbon price of around €85 per tonne of CO2 is starting to take its toll, but steelmakers still enjoy many free allowances and prices have risen recently, with investment in CCS taking years to materialize.
Hydrogen offers the opportunity to completely redesign the steel production process. The amazing thing about hydrogen is that it makes the entire process virtually carbon-free! Hydrogen reacts directly with iron ore to form iron and water instead of iron and carbon dioxide. A process called direct reduction of iron (DRI) is already used for natural gas instead of hydrogen. Another advantage of DRI steel production is that the main reaction occurs at a lower temperature and therefore requires less energy. The reduction of iron ore occurs in shaft furnaces at relatively low temperatures (about 1000°C). The reduced iron is then processed in an electric furnace into liquid iron. As in other industries, electrification is an important strategy for greening the steel industry through the production of green hydrogen from electricity and the electrification of furnaces. DRI technology offers many benefits and can significantly reduce CO2 emissions. The process can also use scrap or recycled steel, increasing circularity. Manufacturing using DRI technology also provides greater flexibility because the process is easier to start and stop. DRI technology can produce high-quality steel and thus provides a green path for steel mills targeting the high-quality steel market. Energy plants can also run on hydrogen instead of coal. Carbon dioxide is produced when coal burns, and hydrogen turns into water when it reacts with oxygen. Finally, since iron ore can be reduced at lower temperatures (around 1000°C instead of 1500°C), the process still requires a lot of energy, but less than it would otherwise. The graph below shows the carbon emissions per kilogram of steel for different steel production technologies.
Estimated emissions from the production of one kilogram of steel. We focus only on Scope 1 and 2 emissions and therefore do not focus on Scope 3 emissions resulting from the use of steel by other companies or consumers. CCS capture rates for coal-based steel production are assumed to be 80% and for blue hydrogen production to be 85%. We consider the Swedish network emissions to be a fully renewable network (10 kg CO2/MWh), the Netherlands network emissions are similar to those of a natural gas network (325 kgCO2/MWh), and the Poland network emissions are similar to those of a coal network (735 kgCO2 /MWh). We show emissions per kilogram of steel to make data comparable across production technologies and fuel types. Note that we have not yet studied natural gas-based steel production because natural gas is often viewed only as a transition fuel and not as a primary energy source in a net-zero economy. This effect is due to completely green hydrogen (from solar, wind, hydro or nuclear energy).
Without going into all the technical details and complexities of these two routes, there are two key points worth noting. First, CCS offers a way to radically reduce the carbon emissions of traditional coal-based steel production. Our indicative calculations show an 80% reduction in emissions, which is an impressive result as the carbon content of one kilogram of steel is reduced from approximately 1.87 kg CO2 to 0.38 kg. Second, hydrogen offers a way to fundamentally change such production processes. It produces virtually no carbon dioxide. The carbon content of steel would be reduced to almost zero if “all green” hydrogen was used – and by that we mean produced using electrolyzers powered by completely carbon-free technologies such as solar panels, wind turbines, hydroelectric power plants, nuclear power plants. etc. Hydrogen (or a combination of both). The definition of “green hydrogen” means that the electricity that powers the electrolyser comes exclusively from renewable sources (solar and wind). However, this is not the case in practice, as solar and wind energy are not always available and many countries’ energy systems still rely heavily on fossil energy. Green hydrogen currently means hydrogen produced from renewable electricity and electrolysers, while gray and blue hydrogen are primarily produced from natural gas in steam methane reformers. The network, which operates primarily from gas-fired power stations, has reduced the carbon content of steel by 30%, from 1.87kg of carbon dioxide per kilogram of steel to 1.28kg. This is a significant improvement, but still far worse than traditional coal mining methods using CCS, which can reduce carbon emissions by 80%. Grid-connected electrolysers will be decarbonized along with the entire grid. Finally, if the electrolyser were fed from a grid dominated by coal-fired power plants, the carbon content of the steel would increase by more than 50%. Therefore, you need to be careful with hydrogen in the electrolyzer. Electrolyzers and green hydrogen are not green by definition! Energy sources play a vital role, and in the early stages of the energy transition, climate damage from traditional fossil energy sources is very real. However, hydrogen is not necessarily produced using an electrolyzer. In fact, more than 95% of the world’s current hydrogen consumption comes from natural gas, most of which does not contain CCS (gray hydrogen). To reduce carbon emissions from gray hydrogen, blue hydrogen is needed, which shifts the CCS process from the steel industry to the hydrogen industry. The carbon content of steel made using blue hydrogen is very similar to that of conventional steel made from coal using CCS (0.38 kg CO2 per kilogram of steel compared to 0.22 kg CO2 per kilogram of steel). Blue hydrogen is slightly less polluting than coal-based steel using CCS because the gases needed to produce blue hydrogen emit less carbon than coal. Last but not least, gray hydrogen steel has a much smaller carbon footprint than traditional coal-based steel production. As a result, steelmakers won’t have to wait until their energy systems run entirely on solar panels, wind turbines or nuclear power plants. As long as the electrolysers are not powered by electricity from coal-fired power plants, the source of hydrogen in the early stages of the industry’s hydrogen transition should not be a major concern.
SMR stands for steam methane reforming; a chemical process that produces hydrogen by reacting steam (water) with natural gas.
Our calculations focus on the carbon impact of steel production, since carbon dioxide is a fundamental cause of global warming. However, hydrogen-based steel production has important additional benefits. Very high risk substances (SVHCs) (which may include lead or polycyclic aromatic hydrocarbons (PAC), nitrogen oxides (NOX), sulfur dioxide (SO2), particulate matter (PM10) and odors) are also reduced and noise may be reduced. involved. This improves the habitat and significantly reduces the negative impact on the environment and local communities.
It is therefore clear that both CCS and hydrogen can play a role in greening the steel industry, which is difficult to reduce, and drive progress towards net-zero emissions. The benefits of hydrogen go far beyond reducing carbon emissions. The necessary conditions are that the hydrogen needed must be produced with very little carbon emissions and be blue or “true green” hydrogen. So the obvious question remains: why hasn’t this happened yet? The answer is simple: hydrogen-based steel technology is still in its infancy. Swedish steelmaker SSAB became the first company to produce hydrogen steel in 2018. Today there are only a few small pilot projects in the world. Even as the technology matures, hydrogen production will remain energy-intensive. Therefore, its price is approximately twice as high as that of coal and steel.
Estimated unsubsidized steel costs and pre-tax steel costs (€/kg) for different steel production technologies
Costs are calculated from a European perspective and are based on the following assumptions. Hydrogen costs are calculated based on natural gas prices of €45/MWh, natural gas prices of €110/MWh (baseline), coal networks of €99/MWh (-10%) and renewable energy networks of €88. MWh (-20%). The difference in electricity prices is based on the actual electricity prices in the above countries from 2015 to 2023. The electrolyser efficiency is set at 70% and the power factor at 95%. As a result, green hydrogen prices are approximately €6.00/kg, €5.50/kg and €5.00/kg respectively. We use a CO2 price of €85/t and assume that all CO2 is taxed (no free allowances). Natural gas and carbon prices result in gray hydrogen costing €2.40/kg and blue hydrogen costing €2.55/kg. Coal and oil prices are set at US$100/t and US$75/barrel, the exchange rate is US$1 = €0.93, and iron ore pellets are priced at €110/t. Please note that these represent spot and futures prices (2023) for the North West European energy market as of early June 2023. We apply a CCS capture rate of 85% for blue hydrogen and a CCS capture rate of 80% for steel production at based on coal in blast furnaces. The discount rate is set at 8% and the operating expense (OPEX) inflation rate is 3%. Note that we have not yet studied natural gas-based steel production, since natural gas is often viewed only as a transition fuel and not as a primary source of energy in a net-zero economy. This effect is due to completely green hydrogen (from solar, wind, hydro or nuclear energy).
“Switching from conventional steel to green steel doubles costs, but has virtually no effect on the final price of steel products”
Steel is a very cheap product. When using coal technology, the cost per kilogram is only about 50 euro cents, which is cheaper than a kilogram of potatoes or a liter of milk. Another surprising fact about steel is its negligible role in the final price of a product. Take cars and offshore windmills for example. Both contain large amounts of steel – about a ton for a car and about 1,000 tons for a windmill. Switching from conventional steel to green steel doubles costs but has little impact on the final price of steel-based products. This will only increase the price of the car by 1-2%, depending on the selling price. Depending on the location of the wind farm (shallow water or deeper water), the capital required to invest in a windmill increases by 2–6%.
Estimated price impact of switching from traditional coal steel to hydrogen-based steel, assuming the price of hydrogen-based steel is twice as high
For a typical car, the price increase for green steel is only a few hundred euros. This may not seem like a big deal considering consumers are spending thousands of dollars on showroom listings. If green steel were an option, it would cost much less than choosing optional extras such as alloy wheels. More and more consumers are expressing a willingness to pay higher prices for organic products. Increased costs for cars and offshore wind are within green premium estimates. From this point of view, the steel industry is very different from the transportation industry. Steel typically accounts for only a small portion of the total cost of the final product. Air travel or shipping is more sensitive to fuel costs. Let’s take aviation, for example. Replacing traditional aviation fuel with hydrogen-based synthetic fuel will increase the cost of a round trip ticket from Amsterdam to London by approximately 150%, and to New York and Sydney by 400% and 450%. Given this, it is not surprising that companies such as Volkswagen are partnering with large steel producers such as Salzgitter AG to produce environmentally friendly steel. Volkswagen plans to use this low-CO2 steel in important future projects from the end of 2025, such as the Trinity1 electric model, which will be produced in Wolfsburg from 2026.
This transformation of the steel industry is more than just a theoretical exercise: the world’s largest steel producers are now on track to achieve net-zero emissions. More than 615 million tonnes of steel, representing 18% of global production, has fallen short of net zero targets, with most aiming to become carbon neutral by 2050, according to Bloomberg New Energy Finance (BNEF). BNEF’s analysis of the companies suggests that consensus will be reached in the short term. Nearly all steelmakers agree that the focus should be on improving recycling rates and improving the energy efficiency of traditional coal processes, as well as piloting deep decarbonization technologies such as CCS and hydrogen. Looking to the future, there is less consensus due to different long-term technology options. between companies. Diversified giants such as Baowu (China) and ArcelorMittal (Luxembourg), two of the world’s largest steel companies, are testing CCS and hydrogen technologies. ThyssenKrupp (Germany), Posco (South Korea) and Tata Steel IJmuiden (Netherlands) plan to completely convert their fleets to hydrogen-based production. They are developing new equipment to process low-grade iron ore into hydrogen-based steel production. SSAB (Sweden) is at the forefront of hydrogen-based steel production, but plans to rely mainly on cleaner iron such as recycled steel. Nippon Steel and JFE (both from Japan) are seeking to reduce emissions by applying CCS technology to existing coal-fired blast furnaces, but have also recently begun research into using hydrogen. Although US Steel is somewhat behind its competitors, it may launch CCS and hydrogen pilot projects as the US increases policy support for hydrogen and CCS. But the real change may not come from the steel giants, which already have billions of dollars of coal-fired steel assets on their balance sheets. The upside is that this gives them the ability to develop CCS and hydrogen. On the other hand, this may limit real change as existing assets may struggle when hydrogen technology becomes dominant. Disruptive change could come from new entrants a la Tesla. Vulcan Green Steel from Oman is a new player in the industry and plans to build a hydrogen-based steel mill from scratch. Blastr is doing something similar in Norway and Finland. The French company GravitHy specializes in the production of cast iron. Van Merkstein plans to build a green steel plant in Eemshaven, the Netherlands, to produce specialty steel products (wire rods). The H2 green steel plant in northern Sweden is currently the most advanced green steel project in Europe. Finally, Ukraine can become a country that will become a driving force for change in the industry. As the war continued, the financial attention of politicians and financiers turned to issues of short-term financing. But gradually they are also starting to think about long-term recovery efforts. The World Bank estimates that rebuilding Ukraine will cost more than $400 billion. Ukraine is seeking up to $40 billion to finance the first part of its “Green Marshall Plan” to rebuild its economy. Focus on developing the steel industry and build a green steel industry with a capacity of 50 million tons.
As companies begin to push for change, they may also change the steel industry’s business model. Nowadays, most steel mills are responsible for the entire steel production process. Almost every industry processes iron ore into steel. The first stage of converting iron ore into iron is by far the most energy and carbon intensive, accounting for about 80% of emissions from coal-based steel production. In the future, this process may move from regions with high energy and hydrogen costs to regions with lower costs. For example, Australia, the Middle East and the US may have a competitive advantage in hydrogen production. Iron production is likely to be concentrated in these regions and then shipped to higher cost regions such as Europe in the form of hot briquetted iron (HBI). Alternatively, it could be moved to areas of Europe where prices for electricity from clean energy sources are lower, such as the northern regions of Norway and Sweden, where there is ample available space and large amounts of hydroelectricity that can serve as the base load for clean steel production . In this regard, it is not surprising that the most modern green steel production plant is planned to be located in the Swedish city of Boden. HBI is a compact form of direct reduced iron (direct reduction of iron ore into iron using hydrogen instead of coal). These briquettes can be transported over long distances and are easily melted and turned into steel. The second step can be performed in an electric arc furnace, which can further electrify and “green” the steelmaking process if the furnace is powered by low-carbon energy sources such as solar panels, wind turbines, hydroelectric or nuclear power plants. As a largely integrated business, the supply chain is likely to evolve into more global pure iron production centers and local factories specializing in the final stage of processing iron into various grades of steel.
The steel industry is widely considered a conservative industry in which large companies rely on coal technology. Barriers to entry are high, so change is slow. Technology today offers significant opportunities to green the industry, either by applying CCS technology to current coal-based technologies or by redesigning the iron ore-to-iron process using hydrogen instead of coal. This may seem radical, but in reality it is more of an evolution than a revolution. Direct iron reduction technology is used in gas-fired steel production. When there is enough green and blue hydrogen, it will be able to replace them. Electrification can help make both routes greener by replacing oxygen converters with electric furnaces.
Basically, having two available routes often leads to heated debates about which route is dominant. We don’t think it’s so black and white and believe both paths are critical to achieving the goal of a net-zero steel industry. Developed countries may want to invest more quickly in the hydrogen route, while developing and coal-rich countries such as India and China may choose to rely more on CCS technology. Climate benefits from both, and discussions should focus on the pace of change rather than the battle between technologies. Finally, such arguments should not distract attention from the suppression of steel demand, since the climate benefits most from the cessation of steel production. Basic economic data clearly shows that green steel costs more – although, fortunately, this premium appears to have a relatively small impact on consumer prices for many steel products. Unfortunately, this price gap is not easy to overcome. Our calculations show that, other things being equal, hydrogen steel corresponds to the price of coal steel if:
To increase the price of carbon or coal, policymakers could initiate pricing mechanisms that reflect the environmental impacts of coal-based steel and make green steel more competitive. The falling cost of green hydrogen could be a key driver for policymakers to act. Research and development (R&D) policies aimed at reducing the cost of (domestic) electrolyser production. It could also encourage policies to reduce operating costs, for example by increasing the share of renewables in the grid, which could lead to lower electricity prices. Finally, steel producers may be forced through regulation to produce green steel, and green steel consumers may be willing to pay a premium. If these factors come together, the steel industry could begin to accelerate sooner rather than later.
Post time: Jun-24-2024