Steel is a fundamental material of modern society; it is used extensively in many sectors, including construction (50%), automobiles, shipping, aviation, machinery and countless metallic consumer goods –there are no scalable substitutes for steel as of today. Manufacturing steel requires highly energy intensive processes to extract iron from iron ore and turn iron into steel – more than 85%of the energy used comes from fossil fuels. More than 50% of steel is made in China.
The steel industry generates about 7% of all man-made emissions –it is the largest emitting manufacturing sector. Steel demand is projected to rise 30% by 2050. Besides China, most regions, particularly India, Africa and South-East Asia, will see an increase in demand. Secondary steel production can be nearly carbon-neutral if powered by renewable electricity; it will play a significant role in decarbonizing steel supply. Primary steel will continue to be required to meet 60% of steel needs by 2050 and must be decarbonized.
Three pathways have been identified to decarbonize primary steelmaking: carbon capture, hydrogen and electrochemistry. Today, steelmaking using green hydrogen is seeing the most substantial momentum, with multiple projects under development worldwide. Technology costs for carbon capture and hydrogen use in the steel industry are expected to decrease over the decade but should remain at least 25-50% higher than traditional routes by 2030. Steelmaking via electrochemical processes is yet to be proven at scale and is not expected to become commercially available before 2035.
Besides investments in production assets, the technologies underpinning these three pathways will require at least $2 trillion in infrastructure investments in green hydrogen production, carbon transport and storage, and low-emission power generation – the latter is estimated at 921GW, which is equivalent to today’s European Union total capacity from all power sources combined. Low-emission steel is expected to reach the market by 2025 with a green premium of around 25-50% to steel buyers and below 1% to end consumers of steel products. To incentivize investments, demand signals from steel buyers are critical. This will require strengthening steel buyers’ confidence in their ability to pass the premium to end consumers.
Public policy and international cooperation on carbon pricing, carbon border tax adjustments or product specification standards can help create a differentiated and economically viable market for first movers into the low-emission steel industry. Investments to decarbonize the steel industry are estimated at $300 billion on top of business-as-usual investments, i.e. approximately $10 billion per year until 2050.However, the current business case and returns on low-emission assets do not encourage mainstream investments from the industry.
We emphasize five priorities for the steel sector:
1. Implement efficiency levers to maximize emission reduction in existing processes.
2. Boost the number of low-emission projects to accelerate the learning curve, drive costs down and bring forward the commercial readiness of clean steel technologies.
3. Develop the renewable power capacity, green hydrogen production and CO₂ transport, and storage infrastructure required to enable low-emission steel production.
4.Multiply demand signals for green steel to incentivize producers and investors to direct capital towards low-emission production assets.
5. Develop policies to support landscape supporting the four priorities above and strengthen the business case for low-emission steel production