Steel

The number of low-emission steel production announcements is constantly growing and expanding around the world, gaining momentum in Canada, the Middle East, Australia, and China. For near zero-emission steelmaking, the most notable progress has been in the following countries:  

• Besides many project announcements moving forward (e.g. SALCOS or tkH2Steel), the European Union launched a strong push on industry transition with the February 2023 release of its Green Deal Industrial Plan. In April 2023, the introduction of the Carbon Border Adjustment Mechanism (CBAM) was approved, ending free Emissions Trading System (ETS) allowances for steel producers by 2035, while several other initiatives such as the European Hydrogen Bank or hydrogen pipeline corridors support the uptake of low-carbon hydrogen. 
• The United States announced important new funding in 2022 under the Inflation Reduction Act (IRA), which is expected to boost hydrogen and carbon capture, utilisation and storage (CCUS) project development. With a budget of USD 5.8 billion for industrial decarbonisation, the steel sector has a significant opportunity to invest in new technology for deep decarbonisation. 
• In Sweden, SSAB has become the first steel producer to offer a scrap-based steel product that could comply with several available near zero-emission steel production thresholds, if claimed values are achieved. Construction of the two first commercial H2-DRI projects, HYBRIT and H2 Green Steel, is progressing, and announcements of several off-take agreements indicate demand for their operation by the middle of this decade.

Total CO₂ emissions from the iron and steel sector have risen over the past decade, largely owing to increases in steel demand. Substantial cuts in CO₂ emissions are essential to get on track with the NZE Scenario, under which emissions intensity falls by about a quarter by 2030.

Short-term CO₂ emission reductions can be achieved mostly through energy efficiency improvements and increased scrap collection to enable more scrap-based production. However, the technical potential for energy efficiency improvements is limited and the supply of scrap is finite; the industry already has an incentive to make gains in these areas to reduce production costs. More substantial reductions in emissions intensity will require the adoption of new technologies, such as electricity-based production, hydrogen usage and CCUS.

Coal currently meets around 75% of the energy and feedstock demand of the sector, comparable to its share over the past decade. Alongside a higher use of bioenergy, low-carbon electrification needs to accelerate rapidly to substitute coal in the NZE Scenario, rising by more than 5 percentage points between now and 2030 through increased scrap-based production (often referred to as “secondary production”), electrolytic hydrogen and electric arc furnaces. This compares with an increase of just 1 percentage point over the past decade.

Steel production decreased by 4.2% in 2022, driven by the global energy crisis and the slowdown of the Chinese economy. Looking ahead, even though China’s production is expected to peak in the coming few years, population and GDP growth in India, ASEAN countries and Africa mean that global growth will likely continue, albeit at a slower pace than during the previous decade.

Adopting material efficiency strategies to reduce losses and optimise steel use throughout the value chain can help limit demand growth in all countries, without reducing the quality of the end-use service, thus helping the iron and steel sector to get on track with the NZE Scenario. Material efficiency strategies include increasing steel and product manufacturing yields, light-weighting vehicles, extending building lifetimes and directly reusing steel (without melting). In the NZE Scenario, steel production is around 5% lower in 2030 than in a baseline scenario that follows current trends.

In the NZE Scenario, by 2030 the share of emissions-intensive blast furnaces in the production of iron declines by around 10 percentage points through the phase-out of existing plants, while the share of scrap-based production increases by over 5 percentage points through more scrap availability. Scrap-based production is considerably less energy-intensive than producing steel from iron ore (so-called “primary production”) via blast furnaces or direct reduction, leading to significant emission reductions without innovation. The main constraint governing this route is the availability and quality of scrap. The scrap collection rate is currently about 85%.

Innovative technologies for primary steel production need to be deployed at commercial scale before 2030. In the NZE Scenario, near zero-emission production – the H2-DRI route and CCUS-equipped routes – commences at scale in the 2020s, accounting for more than 8% of primary production by 2030. Despite a constantly increasing H2-DRI project pipeline, which has doubled within the past year, around 30 additional projects of a size similar to current projects are needed by 2030 to fill the gap between currently announced projects and the NZE milestones. There is also a need for increased transparency about the many DRI projects that mention hydrogen use but lack clear project plans, start-up dates or operational parameters, such as the use of natural gas. Regarding CCUS, it is also necessary to proceed with the exploration and development of geology or infrastructure suitable for CCS.

Low Temperature Electrolysis (LTE) and Molten Oxide Electrolysis (MOE) production routes are progressing and provide an opportunity to decarbonise steel production from the end of this decade onwards. In 2023, the SIDERWIN project of a first LTE trial in an industrial-size production unit and has been completed, with investment approval for an industrial plant the next step, and Electra is building a facility with several commercial-sized units. High-value metals were produced commercially using MOE for the first time in 2023, while steel is expected to be available from 2026. The apparent modularity of these production routes presents a potential opportunity to increase scale and reduce costs, which may be more challenging for more bespoke production routes.

The most important technological progress on H2-DRI projects is the test phase of 100 000 m³ of hydrogen storage for the Hybrit project, while despite few announcements for CCUS technologies, Norway’s Northern Lights project provides the opportunity to store in its first phase up to 1.5 Mt carbon captured in Europe.

The decarbonisation of scrap-based steelmaking is also advancing, with solutions such as substituting natural gas-firing for hydrogen, biomass, biocarbon or substituting charge and injection carbon for biogenic or rubber-/plastic-based alternatives. This progress results in the offer of a fossil-free steel product which, if the claimed values are achieved, would constitute commercial-scale use of scrap for near zero-emission steelmaking as defined in the 2021 IEA report Achieving Net Zero Heavy Industry Sectors in G7 Members.

With electricity, hydrogen and CCUS as three main pillars to achieve substantial emission reductions in the iron and steel sector, infrastructure needs to be developed to support the deployment of these innovative technologies.

In the NZE Scenario, around 250 TWh additional low-carbon electricity generation is needed by 2030 to supply H2-DRI plants, integrated on the grid and contracted, for example, through power purchase agreements. Hydrogen needs to be either produced onsite by electrolysers, or imported, requiring infrastructure and transport sufficient for national and international trade. Plants equipped with carbon capture will require either suitable storage infrastructure or CO₂ networks to transport the captured CO₂ to other industrial end uses. 

Many countries have introduced policies addressing industrial decarbonisation, with relevant policies specifically for steel including:  

• China – responsible for producing well over half of the world’s steel in 2022 – has announced that its ETS will begin covering emissions from heavy industry in 2023 or 2024. Furthermore, as part of the 14th Five-Year-Plan (2021-2025), China will prioritise the creation of a circular economy, seeking an increase in the use of scrap steel to 320 Mt by 2025 and peak steel production and sectoral emissions before 2030. This follows India – the world's second largest steel producer – highlighting the importance of scrap as a means to halve the CO₂ intensity of its domestic steel production by 2030.  
• The European Union has approved the CBAM, which will start its pilot phase in October 2023 and become effective in January 2026, gradually ending free ETS allowances for steel until 2034 and phasing in CBAM. These policies apply tariffs on imported emissions-intensive goods from jurisdictions with weak or absent emissions policy, in an effort to limit carbon leakage (loss of competitiveness from emissions policy due to cheaper emissions-intensive imports), and incentivise stronger emissions measures overseas. The United Kingdom has opened consultations on addressing carbon leakage risk to support decarbonisation.
  

Policy makers are increasingly co-ordinating on steel decarbonisation, including to address the threat posed by carbon leakage, and the need for more investment into developing and deploying clean technology. Recent developments include:   

• Under the 2023 G7 Industrial Decarbonisation Agenda (IDA), the Japanese G7 Presidency sought to develop a common understanding and agreement around key emissions measurement methodologies and data collection frameworks for a net zero steel industry.  
• Following last year’s German G7 Presidency, a Climate Club has been established, with a joint interim secretariat between the Organisation for Economic Co-operation and Development (OECD) and the IEA. It aims to bring together countries at various stages of development to support the industrial transformation.  
• The Industrial Deep Decarbonisation Initiative (IDDI), launched in 2021, published a pledge at COP27 in November 2022 to drive the development of Green Public Procurement (GPP) criteria for steel and cement, including requirements for low-emission materials in public construction projects and near zero materials in “signature projects”. 2022 also saw the United States, Japan, Sweden and Saudi Arabia join as members.  
• The Breakthrough Agenda, which launched a Steel Breakthrough at COP26, has 44 countries supporting 5 priority actions on steel in response to the Breakthrough Agenda Report 2022. These include developing definitions for near zero steel, ramping up the number of demonstration projects, accelerating green public procurement and implementing funds for industrial transitions.
  

Many private sector and non-governmental actors in the steel industry are beginning to take important steps towards transitioning to a zero-emission steel industry. 

• A number of companies, some of which are organised in the Net-Zero Steel Initiative, have declared a dedicated net zero emissions target for 2050 or earlier. More than half of the top ten producers – and companies accounting for almost 30% of global steel production – now have a defined target.  
• On the demand side, the First Movers Coalition and the SteelZero Initiative increased their number of member companies. Besides bilateral off-take agreements, these initiatives constitute an important demand signal to secure investments in near zero- and low-carbon steel production.
  

• Patricia Colaferro, Alacero, Reviewer 
• Jean Theo Ghenda, EUROFER, Reviewer 
• Hiromi Kawamata, JISF, Reviewer 
• Rafal Malinowski, Systemiq, Reviewer 
• Cécile Seguineaud, OECD, Reviewer 
• Caitlin Swalec, Global Energy Monitor, Reviewer 
• Wido Witecka, Agora Energiewende, Reviewer