BloombergNEF warns steelmakers to prepare for major green transformation, as cost of shifting from coal to hydrogen and scrap metal could be far cheaper than previously thought
The steel sector could be ready to shed its ‘hard to abate’ moniker, with yet another fresh study strongly indicating the decarbonisation of the emissions-intensive industry may be not only possible, but also far cheaper than previously assumed.
Research published last week by influential clean tech research analyst BloombergNEF estimates the global steel sector emissions could be cut to near-net zero by 2050 with just $278bn of additional investment over that timeframe, thanks in large part to the adoption of low-cost green hydrogen technologies and the growth in recyling and use of scrap metal.
Sharing the findings on Twitter, BNEF’s head of sustainable materials Julia Attwood described the estimated $278bn price tag for decarbonising a sector responsible for some seven per cent of global emissions was a “bargain”. As a comparison, the analyst firm pointed to its estimate that the investment needed to transition the entire global energy sector to net zero by 2050 could come to as much as $172tr by 2050.
Roughly 70 per cent of steel is currently made in coal-fired blast furnaces, in which iron ore is smelted with heat generated from burning coal, with the fossil fuel also acting as a “reducing agent” to turn the ore into metal. The other, less common method to produce steel is in electric arc furnaces (EAFs), which use electricity to produce steel either from recycled scrap material or from iron ore that has been reduced by a gas in a process known as direct reduced iron (DRI). BNEF calculates that 25 per cent of steel is currently made in electric furnaces, with five per cent using DRI.
While the emissions from the latter method – known as DRI-EAF – vary depending on the power and fuel they rely on at various steps of the process, the emissions from the coal-fired blast furnace method are enormous.
In BNEF’s net zero scenario, blast furnaces would fall to just 18 per cent of the steel production market by mid-century. Green hydrogen will become the cheapest production method for steel, taking up 31 per cent of the market.
Meanwhile, 45 per cent of the steel market would be produced in electric furnaces from recycled scrap. The remainder of the market would be comprised of coal-fired plants that have been retrofitted with carbon capture systems or transformed to use “innovative processes” that refine iron ore into iron and steel using electricity, according to the analyst.
To achieve the desired transformation by 2050, rates of steel recycling – in particular in China – would need to be dramatically accelerated, BNEF said. All new steel plants would also need to be built “hydrogen or carbon capture ready”, with all coal-fired capacity retrofitted or closed, and steel producers would need to start procuring huge amounts of clean energy to power electric furnaces and begin blending hydrogen into existing coal and gas-based plants in order to bring down the costs of renewable hydrogen, it explained.
Given the green direction of the steel market, Attwood stressed that new investments in coal-fired power plants were becoming increasingly risky. “Today’s new plants are tomorrow’s retrofits,” she said. “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.”
Attwood also emphasised that action taken in the next decade would be crucial to ensuring a smoother transition for the sector as it expands to meet growing demand from emerging economies. “The steel industry cannot afford to wait for the 2040s to start its transition,” she warned.
Policymakers have a range of tools at their disposal to catalyse the growth of the green steel market and enable low carbon steel to compete with fossil based produced, according to BNEF. These include subsidies for key technologies, such as hydrogen and carbon capture, green steel procurement mandates from the public sector, and high carbon prices.
BNEF has predicted that the decarbonisation of the sector is set to drive major shifts in the geographical spread of the industry, given that ‘green’ steel made from hydrogen and electric furnaces requires huge amounts of clean energy and higher grades of iron ore. Russia, South Africa, India, and Brazil – all of which have access to high-quality iron ore reserves and low-cost clean power – are likely to benefit from the steel sector’s shift away from fossil fuels. Meanwhile Australia could lose its dominance in the supply chain due to its lower-quality ore, it warns.
The world’s number one steel producer, China, is also at risk of being undercut by green hydrogen producers if it does not start to retrofit its fleet of coal-fired power plants, BNEF warned. The country is likely to play a “pivotal role” in the global sector’s transformation, given it is currently home to 57 per cent of the world’s steelmaking capacity, it pointed out.
Kobad Bhavnagri, head of industrial decarbonisation at BNEF, said companies and investors were “yet to appreciate” the scale of the changes in store for the steel industry.
“The global steel industry is poised to begin a titanic pivot from coal to hydrogen,” he said. “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.”
BloombergNEF’s report is the latest of a string of studies in recent months that have highlighted the potential to decarbonise the steel sector might be far less difficult or expensive that has long been presumed. A separate report in October published by the Institute for Sustainable Development and International Relations (IDDRI) stressed that net zero was possible by 2050 “by several different means”. That came the same week as the Mission Possible Partnership’s “fully costed plan” to cut emissions across the steel sector by 2030, and just a few months after the Energy Transition Commission argued that major steel buyers could play a catalysing role in accelerating the growth of the ‘green’ steel market. Meanwhile, zero carbon steel and sponge iron has been produced using hydrogen at the pioneering HYBRIT facility in Sweden, a joint venture between SSAB, LKAB and Vattenfall.
Change is clearly afoot within the sector, but the precise pathway forward will as ever depend on the actions taken today by governments and businesses with the investment and regulatory powers to set the direction of travel. Emissions from steel have long been seen as ‘hard to abate’, but if a cleaner, greener future is possible for the sector, and at a “bargain” investment level over the next 20-30 years, the market could well be poised for a rapid transition. Those holding high carbon steel assets without their eye on plans for a greener future would be advised to take note.
