Arab Steel Summit

Towards an environmentally friendly steel industry

Lars Paulson

Steel is one of the world’s most vital commodities, and its manufacture is a major contributor to global warming carbon dioxide emissions. The demand for the alloy will increase with the expansion of investment in infrastructure and buildings due to the increase in population. The steel industry still relies mainly on production methods invented over a century. However, the race is on to develop a green industry before stricter environmental taxes and pollution rules make much of the industry obsolete.

The steel industry is responsible for about 7% of global carbon emissions.

Traditional industry releases carbon dioxide twice: once when coal is heated to produce coke and again when coke is burned to melt iron ore in furnaces that can reach temperatures of 2,000 degrees Celsius.

According to the World Steel Association forecasts, the global steel demand is set to increase by 20 per cent from its current levels by 2050, and making the iron industry carbon-free by the middle of the century will require an investment estimated at $ 1.4 trillion, according to an estimate by the consulting firm «Wood Mackenzie».

There is no real difference in the product itself, but the manufacturing method determines its environmental friendliness. Several newer approaches are being trialled in the industry, all at an early stage of development. One of the most promising approaches involves replacing coal with green hydrogen synthesized using alternative energy. Biomass, derived from plants and animals, is also being tested as an alternative fuel.

Steel producers are considering recycling as another way to reduce emissions. Melting scrap metal in an electric arc furnace requires less energy than making new steel from pig iron. Emissions could be cut further if the electricity came from renewable energy sources. There are significant obstacles in the way of this transition.

First, there is a huge cost of rebuilding a large, well-established industry from scratch, while manufacturers are likely to invest in this transformation only if they can make a decent return. In other words, the steel companies and banks that will finance these developments are to be confident that green steel will achieve a significant premium to ensure the project’s profitability.

While many old coal-fired steel producers in Europe and Asia have plans to transition to green steel, US counterparts have yet to come up with serious proposals. Nippon Steel, Japan’s largest steel producer, has asked the government for support to help fund its transition to a green industry.

The Chinese government has said the country’s industry will reach peak carbon emissions by 2030 and zero emissions by 2060. Some world’s leading steel producers are taking steps to green their products or setting targets to stop using fossil fuels within the next decade or beyond.

Below is a snapshot of what the companies do:

 The Swedish company SSAB presented its first production of green steel in 2021 and began commercial production in 2023 under the name “SSAB Zero”. It aims to sell 100,000 tonnes annually by 2025. This represents only a small percentage of its total production capacity of 8.8 million tonnes.

H2 Green Steel obtained approval last June to establish a new plant in northern Sweden, aiming to produce five million tonnes annually of green steel by the end of the current decade.

London-based Rio Tinto and China Baoyu Steel Group, the world’s two largest steel producers, are considering jointly establishing green steel plants in China and Australia.

Rio Tinto has a pilot project that uses biomass instead of coke. The Japanese company Nippon Steel plans to promote the use of hydrogen in its blast furnaces. Fortescue Metals Group, the world’s fourth-largest iron ore miner, is working with Japan’s Mitsubishi and European steelmaker Voestalpine to develop a carbon-neutral plant with hydrogen and electro smelting furnaces in Austria.

ArcelorMittal intends to use green hydrogen in an iron ore processing plant that will be built in Spain by 2025. According to Bloomberg’s New Energy Finance organization, the new SSAB product will receive a premium to the price of ordinary steel estimated at about 300 euros per tonnes, or between 20 and 30 per cent.

The price differential may narrow as greener technologies are more widely adopted and economies of scale begin to work. The end consumer may see that the difference is generally small.

Bloomberg estimated that high-quality finished product price would increase by only about 1 per cent with the shift to green steel, making it “affordable” for the auto industry.

McKinsey said the average person in Europe directly spends 200 euros ($231) a year on steel, and using low-carbon methods would add 60 euros.

Carbon pricing – which charges greenhouse gas emissions – has helped prompt manufacturers to make their industry greener. More policies that are recent include a mechanism put in place by the European Union to tax products imported from countries with more lenient carbon requirements, to ensure that overseas producers do not gain a competitive advantage by investing less in cleaner technologies.

In the United States, President Joe Biden’s Inflation Reduction Act involves investing billions of dollars to decarbonize the domestic steel industry; however, it is not clear yet how the money will be spent.