BloombergNEF: Steel could be made with almost no carbon emissions through 2050

According to a report from BloombergNEF (BNEF), a strategic research provider covering global commodity markets and the technologies driving the transition to a low-carbon economy, steel producers virtually could eliminate carbon emissions through $278 billion of extra investment by 2050, with hydrogen and recycling playing pivotal roles.

The firm says the steel industry is responsible for roughly 7 percent of man-made greenhouse gas emissions every year and is among the most polluting industries globally. However, efforts to decarbonize steel production are central to the net-zero aspirations of China, Japan, Korea and the European Union, while corporate net-zero commitments also are exerting pressure on the industry to negate emissions by 2050.

The report “Decarbonizing Steel: A Net-Zero Pathway,” which was launched in time for the virtual BNEF Summit Shanghai, outlines the path to making profitable, low-emissions steel and describes how a combination of falling hydrogen costs, cheap clean power and increased recycling could reduce emissions to net zero, even while total output increases, BNEF says.

By 2050, according to BNEF, green hydrogen could be the cheapest production method for steel and could capture 31 percent of the market. Another 45 percent could come from recycled material, and the rest from a combination of older, coal-fired plants fitted with carbon-capture systems and innovative processes using electricity to refine iron ore into iron and steel. Today, approximately 70 percent of the steel made globally is produced in coal-fired blast furnaces, while 25 percent is produced from scrap in electric furnaces and 5 percent is made using direct reduced iron, or DRI, reduction, the report states. Converting a significant portion of the production to hydrogen would require more DRI plants and more electric arc furnaces (EAFs), BNEF says. Blast furnace production would fall to 18 percent of capacity in this scenario.

"The steel industry cannot afford to wait for the 2040s to start its transition,” Julia Attwood, head of sustainable materials at BNEF and lead author of the report. “The next 10 years could see a massive expansion of steel capacity to meet demand in growing economies, such as India. Today’s new plants are tomorrow’s retrofits. Commissioning natural gas-fired plants could set producers up to have some of the lowest-cost capacity by retrofitting them to burn hydrogen in the 2030s and 2040s. But continuing to build new coal-fired plants will leave producers with only bad options toward a net-zero future by 2050.”

Kobad Bhavnagri, head of industrial decarbonization at BNEF, says, “The global steel industry is poised to begin a titanic pivot from coal to hydrogen. Green hydrogen is both the cheapest and most practical way to make green steel, once recycling levels are ramped up. This transition will cause both great disruption and great opportunity. Companies and investors don’t yet appreciate the scale of the changes ahead.” 

BNEF says the sector could consider five key actions to make the transition:

• boost the amount of steel that is recycled, particularly in China;
• procure clean energy for electric furnaces;
• design all new capacity to be hydrogen or carbon-capture-ready;
• begin blending hydrogen in existing coal- and gas-based plants to lower the cost of green hydrogen;
• and retrofit or close any remaining coal-fired capacity by 2050.

Producing green steel from hydrogen and electric furnaces will require massive amounts of clean energy and a shift to higher grades of iron ore, according to the report, potentially changing where most steel is made or the mining industry. Russia and Brazil have access to high-quality iron ore reserves and to clean power. Moreover, Brazil is expected to have one of the lowest costs for hydrogen production by 2030, according to BNEF’s research. South Africa and India have good iron ore reserves and the potential to produce a large amount of low-cost clean power. The world’s largest iron ore producer, Australia, however, currently produces lower grade ores and could lose its number one place in the supply chain if it does not invest in equipment to upgrade its product, according to BNEF’s analysis. 

China is now home to 57 percent of the world’s steelmaking capacity, so its path to lower emissions will set the direction for the industry as a whole, BNEF says. The Chinese steel industry intends to focus first on increasing recycling and energy efficiency before adopting early-stage technologies such as hydrogen and carbon capture.

The support that policymakers provide for industrial decarbonization also could influence steelmakers’ decisions. Subsidies for key enabling technologies, such as the hydrogen and carbon capture tax credits in the U.S.’ pending Build Back Better Bill; green steel procurement mandates for the public sector, such as the Industrial Deep Decarbonization Initiative announced at COP26; or rising carbon prices, such as those in the EU’s Emissions Trading Scheme, could all help green steel to compete with fossil-fuel-based production.

BloombergNEF estimates that new clean capacity and retrofits for lower emissions will cost the steel industry an additional $278 billion compared with traditional capacity growth. The firm says this is a “relatively modest figure,” citing the $172 trillion investment it estimates is needed to decarbonize the global energy sector.

BNEF says most of the costs to make green steel come from operations rather than capital costs. This makes reducing the cost of green hydrogen critical, and BNEF estimates that this cost should fall more than 80 percent by 2050 to under $1 per kilogram in most parts of the world.

Recycling is a cost-effective and immediate solution, according to BNEF. The use of scrap in EAFs powered by 100-percent-clean electricity would only require a 5 premium to match costs for recycled material today. By 2050, with lower clean power costs, this premium could shrink to less than 1 percent.