The Low-carbon Transition for Steel

The pursuit of a net zero transition for steel requires collaboration, innovation and transparency by all stakeholders, says Ali Amin, Data Analyst at the Transition Pathway Initiative.

Steel, a cornerstone of modern society, forms the bedrock of our infrastructure. The introduction of the Bessemer process in the mid-19th century provided the breakthrough to manufacture high-quality steel at a low cost, accelerating the industrial revolution. In the following 170 years, steel production contributed to a cascade of economic growth and technological progress.  

According to the World Steel Association, global crude steel production reached around 1.9 billion tonnes in 2022. This immense quantity could theoretically be used to manufacture over 1.3 billion cars – enough to replace nearly all existing cars on the planet with only one year’s steel production.  

However, steel’s indispensable role in the modern economy should not exempt its production from the urgent need for decarbonisation. At present, the iron and steel sub-sector is among the top five greenhouse gas (GHG) emitters worldwide, directly responsible for ~7% of global GHG emissions. This presents an opportunity for the industry to not only decarbonise but also secure its long-term viability. By directing capital towards steel manufacturers that prioritise decarbonisation and invest in innovation, investors can play a pivotal role in driving the industry’s transformation. 

A peek at progress 

The Transition Pathway Initiative (TPI) Centre at the London School of Economics and Political Science provides investors with research and data to track corporates’ low-carbon transition. The Centre currently assesses 40 publicly listed steel companies, including major ones like ArcelorMittal, China Steel and Nucor. Preliminary analysis reveals that 50% of steel companies have 2050 targets aligned with 1.5°C, offering a source of optimism for the sector. In contrast, 18% of companies do not align with any 2050 climate goals, and another 18% fail to disclose relevant emissions or production data.  

However, it is not enough to just look at 2050. The entire trajectory of a company’s emissions up to 2050 should be considered, including short- and medium-term targets, to avoid creating an illusion of progress based on long-term commitments alone. Firstly, this is because global temperatures depend on cumulative CO2 emissions, not just emissions in a particular year. Secondly, intermediate targets strengthen the credibility of long-term targets. Here, steel sector alignment is much weaker: 40% of companies are not aligned with any climate benchmark in 2025. 

Many factors influence the steel sector’s emissions and decarbonisation journey. Key factors include technology choice, scrap steel availability and utilisation, readiness of green hydrogen, price competitiveness, and global steel demand growth, specifically in developing markets. Much like other hard-to-abate sectors, in the absence of a silver bullet, the decarbonisation of the steel sector means discontinuing current high-emitting processes and adopting relatively lower emitting options.  

What options does the sector have?  

Steel is mainly produced via two processes: primary steel is produced from iron ore using a blast furnace (BF)/basic oxygen furnace (BOF), while secondary steel is produced from scrap steel using an electric arc furnace (EAF). Primary steel production is up to 10 times more energy intensive than secondary steel production. Approximately 70% of the world’s total steel production depends on coal and iron ore inputs through the BF/BOF route. 

There are several options that can reduce emissions from steel production. These include: 

Increasing secondary steel production: Secondary steel is significantly less energy-intensive and therefore less emissions-intensive than primary steel. Their different emissions profiles are due to the different energy sources used in each process, with secondary steel relying on electricity, while primary steel relies on metallurgical coal. The International Energy Agency and Mission Possible Partnership models forecast an increase in the share of secondary steel from current levels of approximately 30% to 40% in 2050, under a 1.5°C scenario. However, some applications and quality constraints require the use of primary steel, which cannot be entirely replaced by secondary steel. Additionally, the availability and quality of scrap steel can vary regionally, which may affect the feasibility of increasing the usage of secondary steel in certain areas. 

Carbon capture and usage: Another avenue involves using captured carbon emissions from steelmaking processes for other purposes, such as bioethanol production. However, there are challenges related to technology availability and cost of carbon capture technologies. In May 2023, ArcelorMittal and LanzaTech Global successfully produced initial samples of ethanol from ArcelorMittal’s carbon capture and utilisation (CCU) integrated steel mill in Ghent, Belgium.   

DRI EAF with green hydrogen: direct reduced Iron (DRI) production replaces traditional coal-based reduction with hydrogen, drastically reducing process emissions. However, the widespread adoption of this technology depends on new supply chains for affordable green hydrogen at scale. Producing sufficient green hydrogen requires significant investment in renewable energy infrastructure, and its cost-effectiveness is still a challenge. According to the European Commission’s Joint Research Centre, the EU steel industry is mainly focusing on hydrogen-based steelmaking as its primary strategy for decarbonisation. 

Where does that leave us?  

Collaboration among steel companies and key stakeholders including policymakers, investors, steel purchasers and research institutions is vital for meaningful progress on all these fronts. For example, SteelZero Initiative, led by the non-profit organisation Climate Group, involves collaboration between steel-using companies and suppliers committed to procuring 100% net-zero steel by 2050. Investors in particular can play a crucial role as funders of the transition to a low-carbon economy by allocating capital towards sustainable practices.  

However, to make well-informed decisions, investors require accurate data and tools which recognise the unique challenges faced by specific sectors. To improve the Carbon Performance assessments of steelmakers, the TPI Centre’s recently published steel discussion paper proposes separate emissions intensity benchmarks for primary and secondary steel production, allowing investors to gain valuable insights into the alignment of steelmakers’ different activities against climate goals. The discussion paper aims to improve the understanding of the challenges that steel companies face and spotlight those that are making the most transparent and ambitious efforts to transition to a low-carbon economy.  

In the pursuit of a low-carbon future, collaboration, innovation, and transparency are key frontiers to driving the steel industry’s transformation. 

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