Steel is the most widely used metal in modern society. Each ton of steel produced results on average in 1.85 tons of carbon dioxide emissions, according to the World Steel Association. 1.86 billion tons of steel were produced in 2020, leading to 2.6 billion tons of carbon, equivalent to between 7-9% of annual global anthropogenic carbon emissions.
Moreover, global demand for steel is expected to rise by more than a third by 2050. The need to reduce greenhouse gas (GHG) emissions from the sector is therefore acute, not least because steel is also a critical component of the energy transition; steel is used in wind turbines, grid infrastructure, electric vehicles, solar installations and many other energy transition applications.
Steel can be recycled with no loss of quality, making the commodity well suited to the circular economy. The process requires energy, but only one-eighth that of primary steel production.
Each ton of scrap used avoids 1.5 tons of carbon dioxide emissions, the consumption of 1.2 tons of iron ore, 740 kg of coal and 120 kg of limestone.
Moreover, the energy required is electricity for use in Electric Arc Furnaces (EAFs) rather than coal-fired blast furnaces. Steel recycling, if powered by renewable energy, can already be low carbon.
The fact that recycled steel is both cheaper and lower carbon than primary steel production is undoubtably good news, but there isn’t enough of it.
Steel demand has grown almost continually, and steel products stay in the economy for about 40 years on average. The amount of scrap collected today therefore reflects a much smaller market – the steel produced and used in the early 1980s. So even if recycling rates are high – 85% in the steel sector – there is not enough scrap to satisfy demand.
For economies which underwent fast periods of economic growth decades ago, a form of ‘saturation’ does arrive because the intensity of steel use tends to fall as economies become more mature. A point of global saturation can be envisaged, but it remains far beyond the horizon of the energy transition; even then low purity scrap needs to be diluted with primary steel production to create high-quality products.
Increases in scrap and EAF capacity have certainly had a huge impact on primary steel production, but not enough to arrest its growth.
World production of iron ore has continued to rise over the last decade, from 1,970 million tons to 2,542 million tons in 2019 before dipping in 2020. The Covid-19 pandemic and war in Ukraine have created huge new uncertainties, but demand for steel is generally forecast to expand by around 4% a year over the next decade.
The energy transition needs steel, but it is not the primary driver of demand by any means. The primary driver is urbanisation. Buildings and other built infrastructure account for just over half of annual steel demand worldwide.
China, since the 1990s, has seen one of the largest rural-urban migrations in history which, along with its manufacturing industries, have made it the global epicentre of steel production and consumption.
The country, which has set a target of peak carbon emissions from its steel sector by 2030, should also see in the 2030s the start of a substantial increase in domestic scrap supply, based on its rapid economic expansion of the early 2000s.
This should enable a significant reduction in steel sector emissions as demand from its slowing real estate sector also cools.
Shifts in demand driven by different levels of economic development spurs new investment in capacity in the markets where it is needed, leaving spare capacity in more mature markets. Excess production capacity in fact has been identified as one of the key problems facing the industry by the OECD, yet globally the number of steel-making plants continues to grow.
China is still adding capacity to make more flat steel products, used in high-value manufacturing, despite reduced demand for long steel products, which are heavily used in buildings.
But, in the period to 2050, India is expected to overtake China as the world’s most populous country and undergo urbanisation as a result of both rural-urban migration and population growth. As a result, Indian steel demand and production capacity are expected to rise sharply. Indian business group Adani, South Korean steel maker Posco and AccelorMittal Nippon Steel India have all recently announced major multi-billion dollar investment in new steel capacity in India.
It is critical for the energy transition that this new steel-making capacity is low carbon.
Decarbonising primary steel production is a massive challenge, one in which EU steelmakers have taken a lead, but also one which cannot succeed unless it happens first and foremost in Asia, home to 67% of global steel-making capacity and, along with the Middle East, the site of the majority of new plant additions.
The IEA says that even with maximum recycling, efficiency gains in production and the development of lighter, more durable steel products, a broad portfolio of breakthrough technologies is needed to achieve deep reductions in emissions from primary steel production. The World Steel Association says that “an entirely new, transformative approach to iron-making is required.”
In effect, this means getting rid of coal as the reducing agent or mitigating its use. The options are to replace it with an alternative, for example hydrogen or sustainable biomass, or employ different forms of carbon capture, utilisation and storage to reduce emissions from traditional blast furnaces.
The World Steel Association sees each option as having potential, depending on local resources and policy environments, but all are expected to have cost implications in what is an already fiercely competitive market. As a result, support for green steel investment and the creation of markets for green steel appear necessary steps to protect steel makers willing to take on the risks of a fundamental shift in production techniques.
Hydrogen appears one of the most promising options as Direct Reduction Iron-EAF is a process already used in the sector on a large scale to produce steel from iron ore, using hydrogen and carbon monoxide as the reducing agent instead of coal.
Currently about 75% of the hydrogen required is derived from natural gas and the remainder from coal, but this could be replaced with sustainable hydrogen generated from renewable energy sources via electrolysis. Different projects are also looking at pure hydrogen DRI, rather than hydrogen plus carbon monoxide.
Once again in the discourse on hydrogen, the future of the one of the world’s most important industries hinges on developments in another – the power sector. Only with a massive expansion of renewable energy capacity can enough sustainable hydrogen be produced at a reasonable cost to deliver one of the most promising options for deep-rooted steel sector decarbonisation.
The ultimate goal would indeed be to become fully circular – with the steel used in today’s wind turbines and solar farms producing the clean fuel that makes tomorrow’s green steel.