How we can reduce one-tenth global carbon footprint with ‘net-zero steel’
Environment

How we can reduce one-tenth global carbon footprint with ‘net-zero steel’

Net-zero steel will cost more than conventional steel. Bridging this cost differential is key to unlocking investment at the scale and pace required.

   
Representational Image | pxhere

Representational Image | pxhere

  • A 10% decarbonization of the steel industry can be achieved by 2030 with little cost to the industry or consumers.
  • Deeper emission cuts require regional and international cooperation to mitigate the green premium while preserving competition and fairness in the industry.
  • The World Economic Forum and its partner the Mission Possible
    Partnership are launching the Net-Zero Steel Sector Transition
    Strategy, which outlines how these goals can be achieved — and the
    catalyzing effect they could have on the global net-zero transition.

Driving emissions out of the steel sector is key to broader decarbonization. It has the potential to provide early wins that can help keep warming to below 1.5°C, with low costs to the industry as a whole and consumers.

But achieving decarbonization of steel requires collaboration across the industry, throughout its value chain and with policymakers and investors. Net-zero steel will cost more than steel made with conventional processes, even in the medium term. Bridging this cost differential is key to unlocking investment at the scale and pace required.

Transitioning to net-zero steel

Already, this collaboration is beginning to happen. On September 19, supported by the World Economic Forum, the updated Net-Zero Steel Sector Transition Strategy will be launched. Drawn up by the Mission Possible Partnership’s Net-Zero Steel Initiative, the strategy uses industry-validated data and open-access modelling to detail the pathways to net-zero in the steel sector and what is needed to get there. The strategy builds upon the original edition published in October 2021, which was backed by leading steel producers.

The strategy is clear: action now is vital for our longer-term climate goals and for ensuring a smooth transition to net-zero. Long asset lifecycles mean that investments in new or existing steel plants from 2030 must be compatible with a net-zero 2050 objective or risk those plants becoming stranded. This decade is critical. Commercial-scale near net-zero plants need to be operating before 2030 to provide proof of concept.


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Net-zero steel: the numbers

An aggressive ramp-up this decade could deliver substantial emission reductions that could help the planet stay within its 1.5°C carbon budget. Incremental reductions of some 10% by 2030 could be delivered at little additional cost. However, additional regulatory and policy measures equivalent to a carbon price of $52 per tonne of CO2 by 2030 could unlock a 33% reduction. That would avoid 1 gigatonne (Gt) of emissions annually by 2030 and an additional 15 Gt of cumulative emissions savings by 2050 compared to a delayed transition — more than China’s entire annual emissions, and equivalent to 3% of the remaining global carbon budget.

The Net-Zero Steel Sector Transition Strategy identifies a suite of technologies that the sector can deploy to decarbonize. Direct reduced iron steelmaking using natural gas offers a saving of just under one tonne of CO2 per tonne of crude steel, or around 45% compared with the average emissions intensity of primary steel production. Carbon capture and storage (CCS) equipment can be fitted to existing blast furnace-basic oxygen furnaces for deeper reductions. As the cost of producing zero-carbon hydrogen from renewables falls, its use in steelmaking becomes increasingly competitive. The attractiveness of these options will depend on the local infrastructure available and access to various energy sources.

The sector will, however, face some residual emissions that are near impossible to reduce to zero. The Forum’s analysis suggests that these could equate to around 300 million tonnes a year — roughly 10% of the sector’s current emissions — primarily due to CCS capture rates of less than 100% and from the breakdown of electrodes in electric arc furnaces. These residual emissions require investment either in technology that removes carbon from the atmosphere or nature-based solutions.

In the context of aggregate investment needs within the steel sector out to 2050, the additional costs to decarbonize the sector are modest. However, additional necessary investments that fall outside the sector — primarily in supporting infrastructure such as energy generation and carbon storage —are likely to be higher. The average cost of steelmaking in 2050, in a deeply decarbonized world, would likely be only 15% higher than if no concerted action were taken to decarbonize the sector.

A decarbonized steel sector promises to unlock decarbonization throughout the economy. It would enable zero-carbon commitments from the construction, automotive, transport, energy and packaging sectors. Crucially, it would also create demand for other technologies critical to the low-carbon transition, such as hydrogen and CCS, helping to bring down their costs.

Overcoming the green premium

But there are significant obstacles in the way — not least that first movers will face a formidable green premium. In a globally competitive marketplace, where the price is set by the marginal producer, this first-mover disadvantage threatens to, at best, significantly delay the sector’s low-carbon transition.

This is where the Sector Transition Strategy connects the dots across sectors. The Strategy drives continued momentum and utilizes supply-chain collaboration to bridge the ‘green premium’ that low carbon steel will incur. This is essential for enabling early
action on steel decarbonization. Reports by the World Economic Forum show that full decarbonization has a low impact on end price, and could be done at below €500 or for less than a 2% cost increase on a €30,000 car.

Other tried and tested policy measures also exist to address this green premium. They include public procurement commitments, government subsidies, carbon taxes, emissions trading systems and emissions performance standards. Bilateral commercial agreements can create demand for low-emissions steel. Such agreements are beginning to emerge, such as Gestamp’s cooperation with ArcelorMittal and BMW’s partnerships with Salzgitter and HBIS.

It is vital that a level playing field be created to enable the transition at scale. This means agreeing to rigorous CO2 standards to define ‘green’ steel. It also requires regional agreement between steel producers, consumers and governments to align and harmonize carbon pricing and comparable regulations at the multinational level.

There is a clear need for a new international forum that can bring together the highest ambition elements of the industry, its value chain and government representatives to forge a way forward that addresses obstacles to the low-carbon transition of the steel sector. Unlike inherently international sectors like aviation and shipping, steel is both a domestic priority and a trade-exposed industry. With a critical mass of steel companies and their host governments targeting net-zero emissions by mid-century, a new convening body that is separated from long-standing global overcapacity and trade disputes is needed more than ever.

Decarbonizing the steel sector will be a challenging undertaking. There is much work to be done. But the Forum-supported Steel Transition Strategy sets out a pathway for achieving net-zero that is realistic, affordable and achievable.

Not only will net-zero steel massively reduce emissions and help to deliver on global climate goals, but it also has the potential to lead the global economy in stimulating new technologies and new approaches that will see us avert a full-on climate crisis.

This article was originally published in The World Economic Forum.


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