Why does the Decarbonization Process Need to Be Led by the Steel Industry?

Steel production is the largest emitting manufacturing sector on the planet, accounting for 7% of total man-made greenhouse gas emissions. This is because steel is heavily dependent on high-carbon coal in its production process. However, the steel industry has the potential to be one of the best players in leading the global decarbonization cause.

The key to realizing green steel(steel produced without the use of fossil fuels) commercially at scale lies in cross-industry collaboration.

The World Economic Forum calculates that building the necessary capacity to bring green steel to the forefront will ultimately require capital expenditures of between €2 trillion and €3 trillion. Moreover, although this investment is already large in scale, it only covers the conversion of steel production capacity and cannot support the construction of the necessary green energy to power production. The latter still requires trillions in funding.

Find a steel partner

It is unlikely that any single steelmaker, or even the industry as a whole, will be able to afford capital expenditures of this magnitude between now and 2050. However, the steel industry can pool resources by forming partnerships, joint ventures and alliances with companies in other industries, and other industries will also benefit from the transformation of the steel industry.

These partners can be upstream suppliers to industries related to steel production such as energy, mining, chemicals and private capital. At the same time, these partners may also come from the downstream of the steel industry and from the many industrial end-users with high demand for steel, such as automobile, transportation and construction companies.

Steel is the cornerstone of the global economy. Almost every industry requires steel to some extent. The critical role of steel, combined with the increasingly urgent need to decarbonise, makes creating such an investment ecosystem not only possible, but logical. And, this is one reason why steel should be leading the way in decarbonization.

Why start with the steel industry?

Approximately 2 billion tons of crude steel are produced globally every year. If all this steel was green steel rather than carbon-intensive steel, emissions from the steel industry would be significantly reduced, as would the carbon footprint of industries such as automotive, construction, transport, energy and manufacturing.

For example, steel accounts for more than 50% of the vehicle materials of traditional cars, so steel accounts for the majority of the car’s carbon footprint. Therefore switching to green steel will automatically significantly reduce emissions for car manufacturers.

Another major reason why the steel industry is so well-suited for decarbonization is that most of the technologies used in its transformation are already mature. Take the electric arc furnace, which will eventually replace the blast furnace the steel industry has relied on for more than a century. Electric arc furnaces will be used to produce green steel in the future, but today about 29% of traditional steel is already produced in electric arc furnaces.

The difference between current steel production and future green steel is that current electric arc furnaces still use traditional energy sources, such as natural gas and coal. In the future of green steel production, electric arc furnaces will only use renewable energy, including water energy, nuclear energy, wind energy, solar energy or a combination thereof. And all of these technologies already exist, which is one of the great advantages of transforming the steel industry.

Not enough renewable energy

A completely new technology expected to emerge in green production is the use of green hydrogen in the direct reduction of iron. However, achieving this hydrogen production capacity requires significant additional capital investment.

But the global economy faces a bigger problem. Currently, the global supply of renewable energy is insufficient to produce enough green hydrogen at a competitive cost for commercial-scale green steel production, let alone to decarbonize the source of electricity generation. The new scale required for wind and solar energy alone will be four times the scale of expansion in 2020 (already a record), and in the words of the International Energy Agency, we need to usher in “an unprecedented period of investment in clean energy.”

Therefore, companies interested in leading the steel industry on a path to decarbonization should consider bringing energy producers into their ecosystems to help them build sufficient green energy. Two prominent pioneers in green steel – Sweden’s H2 Green Steel and the US’s Boston Metal – are doing just that.

In 2022, Hitachi Energy invested in H2 Green Steel; Finnish power company Fortum signed an agreement to provide H2 Green Steel with carbon-free electricity generated mainly from hydropower and nuclear energy. Boston Metal, on the other hand, is building its first full-scale green steel plant in Brazil (the world’s second-largest hydropower producer by installed capacity).

Pioneer in the green steel industry

Beyond energy, these pioneering companies are joining forces with one of the industries that will benefit from their success: automakers. H2 Green Steel has partnered with Mercedes-Benz, and Boston Metal has received investment from BMW. For large end-users such as car manufacturers, the advantage is the ability to secure green steel supply sources through pre-arranged supply agreements. This is important, especially in the early stages of the transition when green steel is in short supply.

If the steel industry is to become a leader in decarbonization, the next seven years will be a critical period that determines its success or failure, as it takes a long time to build the necessary ecosystem and create new production capacity. But as the impacts of climate change become increasingly clear, global economies need to start using resources efficiently to reduce emissions on the largest scale and fastest, providing a strong argument for prioritizing the transformation of the steel industry.

Article translated from World Economic Forum