Towards a strategic decision tool for decarbonizing EU steel, seeks to define the concept of green steel

The Paris Agreement of 2015 mandates that we must achieve a zero global greenhouse gas emission level between 2050 and 2070. According to the Common But Differentiated Responsibilities principle enshrined within the Climate Convention (UNFCCC), developed countries should lead this process and reduce emissions at a faster rate than the global average. Steel production is one of the primary emitters of greenhouse gases globally, responsible for 5% of total emissions. It is also one of the most difficult economic sectors to decarbonize due to intense global competition, the reliance of its production process on carbon, and the need for cutting-edge technology with high abatement costs and long investment cycles. As a result, the steel industry faces significant challenges in achieving the emissions reduction targets mandated by the Paris Agreement.

In Europe, a range of technologies has been identified with the aim of developing breakthrough technologies, and numerous research projects are underway to achieve this goal. Two distinct strategies are being followed by most of these projects. The first involves the use of renewable fuels such as hydrogen, electricity, and biomass, while the second involves end-of-pipe capturing of CO2. The successful commercialization and diffusion of these “low-carbon” technologies for the steel industry will require substantial public support, particularly given the short time horizon mandated by the threat of climate change.

The pricing of carbon on a “free” carbon market has been the prescribed solution for reducing emissions in response to climate policy. However, actual experiences from the development of renewable energy and innovation theory strongly suggest that a carbon price must be complemented with directed, technology-specific support to create an early niche market for new innovative technologies. This is especially true for steel companies, which face strict global competition and are subject to different climate regulations in the various countries they operate in.

Innovative and climate-neutral steel comes with higher production costs compared to business as usual and faces several other systemic barriers, including a lack of infrastructure, weak trust in long-term climate policy, technical uncertainties, and immature market knowledge. Carbon pricing alone cannot alleviate all of these disadvantages. An effective technology policy must contain both a supply push and a demand pull.

The EU ETS primarily governs the emissions of CO2 in the steel sector in the EU. It covers 45% of EU emissions and includes both the power sector and all large industrial installations. The EU ETS sets an emission cap that declines down to -40% by 2030 with an indicative target of minus 80-95% by 2050. In order to avoid the negative societal consequences of a carbon price and to align with industrial policy objectives, it is complemented with several other policy instruments. The most salient of these include the free allocation of emission allowances to protect energy-intensive industry from carbon leakage and various supply push technology policies such as the R&D programme Horizon 2020 and ULCOS.

Given the challenges that innovative and climate-neutral steel faces, the transition to low-carbon technologies will require significant public support. The short time horizon mandated by the threat of climate change means that this support must be forthcoming soon. Carbon pricing alone cannot alleviate all the disadvantages faced by the steel industry in this regard. An effective technology policy must contain both a supply push and a demand pull. This is particularly true for steel companies, which face strict global competition and are subject to different climate regulations in the various countries they operate in.

The development of these breakthrough technologies requires the involvement of multiple stakeholders, including policymakers, industry, and research institutions. Collaboration between these stakeholders is essential for the successful commercialization and diffusion of low-carbon technologies for the steel industry. The transition to low-carbon technologies will require substantial investment, and public support will be crucial in this regard.

The successful transition to low-carbon technologies will require the creation of an early niche market for innovative technologies. This can only be achieved through directed, technology-specific support in addition to carbon pricing. The steel industry faces several systemic barriers, including a lack of infrastructure, weak trust in long-term climate policy, technical uncertainties, and immature market knowledge. These barriers must be addressed through an effective technology policy that contains both a supply push and a demand pull.

The EU ETS, which primarily governs the emissions of CO2 in the steel sector in the EU, is complemented with several other policy instruments. The free allocation of emission allowances to protect energy-intensive industry from carbon leakage is one such instrument. Various supply push technology policies, such as the R&D programme Horizon 2020 and ULCOS, are also in place to align with industrial policy objectives.

The development of low-carbon technologies for the steel industry is a complex challenge that requires the involvement of multiple stakeholders. Collaboration between policymakers, industry, and research institutions is essential for the successful commercialization and diffusion of these technologies. Public support will be crucial in this regard, particularly given the short time horizon mandated by the threat of climate change. An effective technology policy must contain both a supply push and a demand pull to address the systemic barriers faced by the steel industry.

Up until the year 2010, the primary focus of the European Union’s climate governance for the steel industry was centered around short-term, marginal reductions through energy efficiency measures and the safeguarding against carbon leakage. This approach was primarily geared towards preserving existing industrial structures rather than promoting innovation and change. However, since the adoption of an indicative reduction target for the year 2050, the focus of the EU’s climate governance for the steel industry has shifted towards innovation and technology support.

The EU 2050 ambition has introduced a strict timeline for the decarburization of steel production in the EU. This has brought about a transformation of the policy framework towards innovation and technology support, which is more aligned with the Paris Agreement. Recently, the Commission has even adopted a more ambitious target of net-zero emissions by 2050. Despite having a basic policy framework and ample funding for research and development and demonstration projects, there is still a need for a demand pull policy to create an early niche market for climate-neutral steel.

The creation of a stable demand for green steel is of utmost importance to lower the risks associated with the first large investments in breakthrough technologies. The new 2050 ambition has reduced long-term uncertainty and narrowed down the technological options to only a few that are capable of achieving net-zero emissions. It is therefore essential to make effective business investment decisions and garner public support for the steel industry that aligns with this target while avoiding inducing carbon lock-in.

The aim of this article is to analyze the implications of a net-zero 2050 target for future investments in the EU steel industry. The methodology presented in this study can be used as a decision-making tool for strategic investment by industry as well as for defining what “green steel” is and what should be supported by policy to comply with climate targets. The methodology is based on a life cycle perspective and connects the 2050 targets and the possible technical pathways for the steel industry.

 The shift towards steel production practices in the European Union is currently underway

The production of steel in the European sector in 2017 was 168 million tonnes, which unfortunately resulted in the emission of 128 million tonnes of CO2. The blast furnace – basic oxygen furnace route was accountable for 60% of the total steel produced, while the remaining 67 million tonnes were produced through recycling of scrap. Additionally, there was only a single direct reduction plant in the EU. Unfortunately, due to the demand being saturated, it is projected that the EU steel demand in 2050 will be similar to, or slightly below, current levels. However, the availability of scrap is expected to increase, and it may reach 136 Mt by 2050. As a result, primary and secondary steelmaking production volumes might reverse, with secondary steelmaking becoming the dominant production route by 2050. This shift towards more secondary steel is not only due to increased scrap availability, but it will also be driven by the EU circular economy policy. In line with the trend of a declining share of primary production in the EU, several European primary steelmaking sites may be converted to secondary steelmaking, or new mini-mills may open up, and integrated plants may close. However, it is expected that primary steelmaking will still be responsible for approximately 60 million tonnes of CO2 in 2050, assuming current production technologies are used. Moreover, the direct emissions from secondary steel will amount to 7 million tonnes with current practice. This highlights the need to develop new and innovative ways to produce steel that will reduce the amount of CO2 emitted. The steel industry is a vital component of the European economy, and it is essential to ensure that it remains sustainable. Moving towards secondary steelmaking is a step in the right direction, but it is not the only solution. There needs to be a concerted effort to invest in research and development to create new technologies that will help reduce the amount of CO2 emitted during steel production. Additionally, it is important to promote the use of recycled steel and to encourage consumers to make choices that are environmentally friendly.

Anticipated routes for the steelmaking are currently under consideration

The process of steelmaking demands a comprehensive approach to decarburization, which involves implementing various strategies such as material efficiency, dematerialization, and maximized recycling. The potential for material-efficient production and usage of steel is immense and remains largely untapped. However, the increasing global demand for steel necessitates primary production to meet the growing societal needs. The blast furnace is the most significant emission source in the steel value chain, and further efficiency gains are limited in this area. To achieve net-zero emissions, the steel industry must adopt low- or zero-emission production processes to replace the current primary production processes, namely the blast furnace route. The implementation of these approaches will require significant investment, innovation, and collaboration across the steel value chain. We must work together to develop sustainable steel production solutions that protect our environment and meet the needs of society.

Table 1 showcases the emission intensity of varied steelmaking methods. The indirect emissions have been omitted and the emission backpack of scrap has been assigned a value of zero, as elaborated in section 3. The unit of measure used is kgCO2eq/t steel.

Table 1 presents a comprehensive list of emission levels associated with various steel production processes as documented in literature. To maintain the blast furnace, it is imperative to install Carbon Capture and Storage (CCS) to eliminate greenhouse gas emissions. Additionally, a portion of coal injection must be replaced with biogenic carbon, which has a net-zero carbon footprint, to keep the blast furnace running (BF CCS/CCU; BF Bio, BF BioCCS). It is theoretically possible to achieve zero emissions with a blast furnace by replacing up to 40% of coal use with biomass and complementing it with CCS on major point sources. Direct reduction with natural gas (NG-DR) coupled with an Electric Arc Furnace (EAF) has a significantly lower carbon footprint than current blast furnaces. The use of renewable hydrogen (H-DR) in direct reduction plants offers a zero-emission alternative. The only residual emissions in the EAF come from graphite electrode consumption, natural gas usage, and lime usage. Mitigating these emissions requires research into new electrode materials and slag foaming, but the innovation challenge is significantly smaller than that for primary steelmaking.

Producing secondary steel from scrap in an EAF is much less carbon-intensive if indirect emissions from electricity are excluded, and natural gas is replaced with renewable heat sources. Electrowinning, which allows the production of iron directly in an electrolytic process, can also be used for steel production when integrated with an electric arc furnace. Although electrowinning uses electricity, it has yet to be tested at full-scale and in an integrated production system. Currently, a pilot plant is running in Europe, and another project in the US has entered the demonstration phase. Figure 1 outlines various pathways that can lead from the blast furnace route to steelmaking processes with low emissions.

The transition from current production to fossil-free steelmaking can be gradual and may not require a single significant change. Bridging technologies such as switching to arc furnaces or natural gas direct reduction, or alternatively CCU, top-gas recycling, or injecting biomass into the blast furnace, can be introduced to facilitate the transition. A change in production from the blast furnace to EAF mill or a complementation of the blast furnace with CCS can be the first steps taken towards a change to fossil-free steelmaking. The range of low-emission processes becomes narrower once an investment in bridging technology is made, as it creates some path dependency and makes some later alternatives more suitable than others. Therefore, the initial investment step is likely to determine whether the blast furnace shall remain or go. In the case of scrap steelmaking, operators have greater flexibility as they can combine several ironmaking processes with electric arc furnaces.

Figure 1: Technical emission reduction pathways for primary steelmaking. Abbreviations: BF: blast furnace; EAF: electric arc furnace; NG-DR: natural gas direct reduction; CCU: carbon capture and utilization; CCS: carbon capture and storage; Bio: use of biomass; HBI: hot-briquetted iron; H-DR: hydrogen direct reduction.

Investing in a carbon capture facility may pose as a challenge if a site intends to reorient away from the blast furnace in the future. This is due to the presence of sunk costs, infrastructure, and accumulated experience with the process. As a result, such a site is more likely to continue with carbon capture and storage and employ the use of biomass. The decision to invest in a carbon capture facility should, therefore, be made after careful consideration of the long-term implications it may have on the site’s operations.

Steel, viewed through a holistic lens of its life cycle, is a topic of great importance

Different tools for life cycle assessment (LCA) can be utilized to evaluate the carbon footprint of steel production. The Life Cycle Inventory (LCI) refers to the compilation of data on emissions concerning their source and serves as the foundation of an LCA. The World Steel Association has compiled an LCI database for various steel products. LCA involves the interpretation of LCI data at a systemic level and entails several decisions on system boundaries and the allocation of emissions to different parts of the system. Therefore, interpretations of the same LCI data may result in considerably different LCAs. In the last two decades, two principal schools of thought have emerged in LCA: attributional or consequential LCA. Attributional LCA can be likened to a book-keeping instrument where the actual emission from a specific value chain is assigned to end-user products. On the other hand, consequential LCA interprets the outcomes of a change in a value chain or the emergence of a new value chain. Consequential LCA is a forward-looking tool that is better suited for strategic decision-making purposes, such as comparing future investments.

In the following paragraphs, we will delve into three methodological issues that arise when determining the carbon footprint of the alternative steelmaking routes reviewed in section 2: indirect emissions from electricity use, the emissions backpack of end-of-life scrap, and how to calculate embodied emissions of the CO2 used as a feedstock for the chemical industry via CCU. Additionally, we will analyze how appropriate these approaches are regarding incentivizing a decarbonized and more circular steel system.

The first methodological issue concerns indirect emissions from electricity use. These are emissions that occur outside the actual steel plant boundary, such as those arising from electricity generation. The steel industry is a significant consumer of electricity, and as such, indirect emissions can account for a significant portion of the steel industry’s carbon footprint. It is therefore essential to account for these indirect emissions accurately.

The second methodological issue relates to the emissions backpack of end-of-life scrap. This refers to the emissions that arise from the production of steel using scrap metal. The production of steel using scrap metal is often considered to be a more sustainable alternative to using virgin iron ore. However, the emissions backpack of end-of-life scrap can be considerable, and it is crucial to consider these emissions when assessing the carbon footprint of steel production.

The third methodological issue is how to calculate embodied emissions of the CO2 used as a feedstock for the chemical industry via CCU. Carbon capture and utilization (CCU) is a technology that captures CO2 emissions from industrial processes and uses them as a feedstock for the production of chemicals or fuels. CCU has the potential to reduce emissions from the steel industry significantly. However, it is essential to account for the embodied emissions of the CO2 used as a feedstock for the chemical industry via CCU accurately.

Incentivizing a decarbonized and more circular steel system requires a comprehensive understanding of the carbon footprint of steel production. Indirect emissions from electricity use, the emissions backpack of end-of-life scrap, and the embodied emissions of the CO2 used as a feedstock for the chemical industry via CCU are all crucial factors to consider when assessing the carbon footprint of steel production. Additionally, the choice between attributional and consequential LCA approaches can significantly impact the results of the assessment. Therefore, it is vital to use the appropriate LCA approach and account for all relevant methodological issues to incentivize a decarbonized and more circular steel system.

Indirect emissions arising from electricity consumption are a significant concern

Attributional life cycle assessment (LCA) is a methodology used to evaluate the carbon dioxide (CO2) emissions from electricity, based on the actual emissions at the time of analysis. The World Steel Association practices this methodology by calculating emissions from electricity use, utilizing the grid emission factor within the relevant region or country. Thus, the location of a plant plays a vital role in this analysis. For instance, the grid factor was 296 grams CO2 per kWh for the whole of the European Union (EU), but it varies significantly across the Member States. As of now, the current Polish grid factor is more than twice the EU average, whereas Sweden’s grid factor is close to zero.

It is crucial to note that when analyzing change, using attributional LCA will only provide a static view. On the other hand, when evaluating the environmental impact of a product or process, attributional LCA can be very useful. This methodology is particularly useful when comparing two products or processes that perform the same function and are produced in different locations. By accounting for the location-specific grid factors in the LCA, the analysis can provide a more accurate representation of the environmental impact of the product or process.

Moreover, the use of attributional LCA can also help identify areas where improvements can be made to reduce the environmental impact of a product or process. For example, if a company is considering building a new manufacturing plant, they can use attributional LCA to evaluate the environmental impact of the plant in different locations. By comparing the environmental impact of the plant in different locations, the company can choose the location that has the least environmental impact.

A consequential life cycle assessment (LCA) provides two primary methods for analyzing the changing electricity system, namely, the short-term marginal production approach, and the long-term marginal production approach. The difference between these two methods is significant. The short-term marginal effect represents the immediate change in the system, where the response to an increasing load is based on the margin with dispatchable electricity supply of high operating expenses (OPEX) and medium capital expenses (CAPEX) power facilities. The short-term marginal electricity production is not useful when analyzing long-term trends where we assume that the increase in electricity demand will influence the system, calling for more investments, and that the electricity system, in itself, changes due to other factors such as the EU Emissions Trading System (ETS) and the EU’s climate and energy policies.

The way the electricity market regime is designed, and the way the grid operates today, the short-term marginal electricity production is almost exclusively based on either coal or natural gas with relatively high emission factors. The short-term marginal view assumes that the electricity system does not change, but that the increasing electricity is merely an operational adaptation for keeping the system in balance. Currently, the new investments made in electricity production in the EU are dominated by renewables such as wind and solar photovoltaic (PV) sources. Taking a look at the added capacity during the last years, one can get a glimpse of what the dynamic effects of increasing electricity demand will be.

On top of this, taking into account climate policy targets and the rapidly decreasing cost of renewables vis-a-vis large-scale thermal power plants (with or without carbon capture and storage (CCS)), the electricity system will become increasingly renewable and eventually be decarbonized by 2050, at the latest. This suggests that a long-term dynamic marginal production approach is more suitable when analyzing emissions from electricity production in steelmaking. This approach then assumes that all new investments in electricity will be renewable.

Moreover, the short-term marginal approach assumes that the electricity system operates within a fixed capacity, such that an increase in electricity demand is met by ramping up the production of existing power plants. However, in reality, the electricity system undergoes significant changes in its capacity, such as the addition of new power plants, decommissioning of old plants, and the modification of existing plants. The long-term marginal approach considers the dynamic changes in the electricity system’s capacity, where new investments in renewable power plants replace the older fossil fuel-based power plants.

Therefore, the long-term marginal approach is more appropriate for analyzing the emissions from steelmaking, as it considers the changes in the electricity system’s capacity over time. The long-term marginal approach can be used to model the electricity generation mix, taking into account the expected investments in renewable energy sources. This approach can help estimate the emissions intensity of electricity consumed in steelmaking, which can then be used to develop strategies to reduce emissions.

Emissions from recycled steel and the advantage of CCU 

For end-of-life (EoL) metal scrap, a major concern is whether it should carry an “emission backpack” from previous life cycles or not. In an attributional life cycle assessment (LCA), the embodied emissions in recycled steel are calculated using either the “recycled content approach” (or cutoff, 100-0) or the “avoided burden approach” (or EoL, 0-100). The recycled content approach allocates all emissions to the primary steelmaking process (thus “100-0”), whereas in the avoided burden approach, the recycled scrap bears a portion or the entire burden from earlier life cycles. The precise share and how to determine the footprint for a product system varies depending on the method used. The World Steel Association’s “net-scrap” method is based on the avoided burden approach. In this method, the size of the burden depends on whether products increase or decrease society’s scrap pool. If external parameters are held constant, taking a consequential perspective on the net scrap approach demonstrates that the method encourages products that “produce” (i.e., make available) more scrap than is used in their production. As a result, the net-scrap approach is unsuitable for incentivizing the increased use of recycled content in products, or at least only up to a certain limit. The recycled content approach encourages the increased use of recycled content in steel products, which is more in line with circular economy goals and the obstacles to increasing secondary steel use. However, there is no optimal allocation here, and the recycled content approach is dependent on supplementary policies for better scrap availability, such as ensuring the quality and economy of good scrap.

In steelmaking, the large amount of CO2 generated represents a major waste stream. Instead of entirely avoiding CO2 emissions to the air, it can be captured and used as a feedstock for further processing into chemicals, replacing fossil feedstock. The steel and chemicals industries are collaborating on several respective innovation projects in the EU, such as Carbon2Chem, Steelanol, FresMe, Carbon4PUR, and others. In a consequential life cycle assessment with a long-term perspective, comprehending changes in surrounding systems is critical and has several implications for how to best allocate emissions for by-products and end-of-life waste. In transitioning to a low-carbon economy, steel will have numerous relevant by-products that must be accounted for, but their usefulness/value will change due to climate policy over time. Following this logic, the value of utilizing waste CO2 from blast furnaces to replace fossil feedstock will decrease for the chemicals industry, as this industry will face increasing pressure to use non-fossil feedstock in the future. The same applies to waste heat if the source is a process that runs on fossil or non-CCS fuels.

A tool of strategic decision making has been formulated to facilitate the process of decarbonizing steel

In this particular section, we present a methodology which can be used to identify steel production pathways that are consistent with the climate targets set for the long term. Our methodology is straightforward and relies on the carbon intensities of different steel production routes as well as an emission trajectory that is in accordance with the objective of achieving net-zero emissions by 2050. One should bear in mind that the steel industry is characterized by long investment cycles that last around 15 to 20 years between major rebuilding opportunities. This lack of flexibility in steel production makes it imperative to carefully consider the timing of large investments, as this can have a significant impact on the decarburization of the steel industry.

It is crucial to choose the right options, as endorsing the wrong ones can result in carbon-intensive investments that are locked in for 15 to 20 years, with the possibility of sites being shut down prematurely. This is because they may not be able to meet future climate requirements and may face high carbon costs or even lose their social license to operate. As we have demonstrated in the preceding section, calculating the carbon footprint from electricity, scrap use, and the use of CO2 as a feedstock can be accomplished in various ways from a life cycle perspective.

For the purposes of this paper, we adopt a consequential LCA perspective, which assumes that the surrounding systems will both decarbonize and substantially increase recycling and material efficiency. In this way, we consider electricity as renewable, scrap as carrying no backpack from previous cycles, and the benefits from using fossil CO2 as feedstock as diminishing over time. In Figure 2, we present the emission trajectory for the carbon footprint of steel production that aligns with the net-zero goal proposed by the European Commission. The starting point for this trajectory in 2020 is the current EU ETS benchmark level, which reflects the LCI-data for best performing installations for primary steelmaking in the EU.

From this starting point, the threshold decreases in a linear fashion until it reaches zero in 2050. Steel production that has a carbon footprint below the limit in a given year is in line with climate targets, as represented by the grey area. It is important to note that the pathway to decarburization for the steel industry will be complex and multifaceted. As such, the methodology we have proposed in this section represents only one approach to identifying steel production pathways that are consistent with the long-term climate targets. Nevertheless, we believe that our methodology can provide a useful starting point for further research and discussion on this topic. Ultimately, achieving the climate targets for the steel industry will require collaboration and cooperation between various stakeholders, including governments, industry, and civil society. By working together, we can ensure that the steel industry plays its part in achieving a sustainable and prosperous future for all.

Figure 2 illustrates a linear projection of emissions pertaining to the primary steelmaking in the European Union 28. The emission intensities associated with different production routes have been depicted by the horizontal lines, as listed in Table 1.

According to our analysis, the utilization of natural gas direct reduction can lead to a considerable reduction in emissions until 2032. Similarly, a blast furnace with CCS and savings of 60% can be a viable option until 2038. As a result, the production of steel through these methods may not qualify for public support beyond 2032 and 2038, respectively. It is worth noting that investment in BF CCS is highly constrained due to the lengthy investment cycles involved. For instance, if we assume a lifetime of 15 years for BF/CCS, the investment window for this option will close in 2023. Therefore, it is necessary to consider the long-term implications of investment decisions in the steel industry.

Figure 3: By introducing hydrogen via direct reduction or biomass through blast furnace, the bending emissions trajectories can be altered. Furthermore, the advantages of CCU are shown to diminish over time.

The emission intensity of a new investment is not necessarily constant throughout its entire lifetime. As demonstrated in Figure 3, existing production pathways can be gradually enhanced to remain in line with the declining emission trajectory. The introduction of renewable hydrogen or bio-based fuels can bend the emissions trajectory downwards. In the direct reduction process, blending hydrogen can replace natural gas, as seen in the SALCOS project. Alternatively, a higher percentage of scrap can be utilized in EAFs to reduce emissions per tonne of steel. Another option is to inject up to 40% of biomass into the blast furnace, but this would require a significant amount of sustainably sourced bio-energy. Natural gas can also be replaced incrementally by renewable hydrogen or bio-methane.

When it comes to carbon capture and utilization (CCU) on the blast furnace, our analysis demonstrates a contrary long-term trend, as shown in Figure 3. In the beginning, off gases can replace virgin fossil feedstock in the chemicals sector and have a positive impact on the climate. However, the chemicals sector will eventually face increasing pressure to meet climate targets and will no longer be able to rely on recycled fossil feedstock from steel production. Instead, inherently cleaner feedstock such as biomass or hydrogen combined with biogenic CO2 will be required.

Our analysis starts from the emission levels of the EU ETS benchmarks for hot metal, which are related to primary steelmaking. This means that we consider steel made from scrap in EAFs as green until 2049. This is supported by the increasing importance of the secondary production route in Europe, as highlighted in numerous scenarios. However, zero-emission recycling consistent with the Paris Agreement in 2050 will eventually necessitate technical solutions for emissions stemming from both the EAF electrode consumption and the lime calcination, with a shift to bio-based fuels or electricity.

 Investing in climate-resistant steel

Effective achievement of climate targets requires consideration of the path to zero emissions during the planning stage of decarburization projects. Failure to do so poses a risk of investing in technological dead ends and carbon lock-in. Project developers should prioritize ingraining zero-emission logic into project plans from the beginning. Firstly, investments should remain below the suggested trajectory for their entire lifespan. Secondly, it should be possible to increase ambition after the decarburization project’s end of life. Public support for such projects could be contingent on these requirements, and a “stress test” could be included in the grant application process to ensure alignment with climate targets. This test could be based on transparent communication of the mitigation potential of different projects, allowing for comparisons between contenders.

The outlined logic in this paper is valuable for decision makers in industry when planning and evaluating investment projects. The emission trajectory in Figures 2 and 3 suggests that business-as-usual, such as solely relining the blast furnace, puts investments at risk of being prematurely closed for not meeting climate targets. Steelmakers should factor in the emissions limits outlined here into their investment projects, which limits their decision space effectively. Decarbonizing the sector within 30 years renders unambitious and inflexible projects irrelevant.

CCS projects reducing emissions by 50% versus the ETS benchmark are not in line with climate targets, unless partially substituting coal with biomass. The same applies to natural gas DRI projects, which should have provisions for blending increasing shares of renewable hydrogen or scrap. A switch from primary to secondary steelmaking would significantly reduce a plant’s climate impact. Although the potential for this switch is limited, the increase in secondary steelmaking in the future suggests that it could be a viable path for some companies.

Investors should consider the proposed recommendations to achieve climate targets, as it will ensure that investments are future-proof and sustainable. The path to decarburization requires a holistic approach that considers emission limits during the planning stage of projects. The stress test in grant applications will ensure that projects are aligned with climate targets and are not investing in dead-end technologies.

The suggested trajectory for investments’ lifespan will ensure that investments are below the emissions limit and do not contribute to carbon lock-in. The capacity to increase ambition after a decarburization project’s end of life will ensure that projects remain relevant and contribute to achieving climate targets. Public support for projects should be contingent on these requirements to promote sustainable investment.

The mitigation potential of different projects should be transparently communicated to allow for comparisons between contenders, which will ensure that the best projects are selected to achieve climate targets. The logic outlined in this paper will be valuable to decision-makers in industry as they plan and evaluate investment projects.

Businesses should consider the emissions limits outlined in Figures 2 and 3 when investing in decarburization projects. The limits will ensure that investments are future-proof, sustainable, and contribute to achieving climate targets. Decarbonizing the sector within 30 years renders unambitious and inflexible projects irrelevant.

CCS projects aiming to reduce emissions by 50% versus the ETS benchmark should partially substitute coal with biomass to be in line with climate targets. Similarly, natural gas DRI projects should have provisions for blending increasing shares of renewable hydrogen or scrap. A switch from primary to secondary steelmaking would significantly reduce a plant’s climate impact, presenting a viable path for some companies.

Investors, decision-makers, and stakeholders should prioritize the path to zero emissions to achieve climate targets. It requires a holistic approach that considers emission limits during the planning stage of projects. The stress test in grant applications will ensure that projects align with climate targets and avoid investing in dead-end technologies. The suggested trajectory for investments’ lifespan and the capacity to increase ambition after a decarburization project’s end of life will ensure that projects are future-proof and contribute to achieving climate targets.

Demand-pull for green steel 

The rapid decarburization required to combat climate change necessitates public support through both supply-push and demand-pull policy interventions. While the European Union (EU) has made significant strides in this regard by implementing programs like H2020 and the upcoming Innovation Fund, creating markets for green materials through policy intervention has yet to receive the same level of attention. In contrast, the significant cost reductions seen in wind and solar power were a direct result of strong policy interventions such as technology-specific feed-in tariffs and renewable portfolio standards, which were implemented in addition to the carbon price. Given the success of demand-pull policy in the renewable energy sector and the ample evidence supporting the importance of a demand pull from innovation literature, the creation of green markets is necessary to accelerate the steel industry’s transition to sustainable practices.

However, steel is sold in a complex market with many variations, making it difficult to compare with the success of demand-pull policies for renewable electricity. Therefore, the point of intervention in the steel product value chain must be carefully analyzed to de-risk investment and create a first-mover steel market. Drawing inspiration from other sectors, we can see that several policy instruments for demand pull policy already exist. For example, an early voluntary policy, such as voluntary labels or certificates, can pave the way for more elaborate schemes later on, such as granting feed-in premiums or tendering on a project basis.

Green public procurement targets based on the presented carbon footprint trajectory could increase the use of green steel in infrastructure and buildings. Standards could also be implemented to regulate the maximum allowed footprint of vehicles or buildings. To endorse green products, a distinction between green and non-green must be made. The method presented in this article can be useful in reaching this distinction. Existing footprint accounting schemes, such as environmental product declarations (EPDs), can be useful in building the basis of a demand-pull policy for green steel.

Although in theory, a universal product footprint system would be preferable, the short time left to act on climate change calls for a pragmatic and simple-to-use scheme. Ultimately, a combination of supply-push and demand-pull policies is necessary to achieve rapid and effective decarburization in the steel industry. By creating markets for green materials, the steel industry can transition to more sustainable practices, benefiting not only the environment but also the economy. It is crucial for policy-makers to prioritize and implement these policy interventions to achieve a successful transition to a sustainable future.

Conclusions 

Climate change necessitates a rapid transformation of the global steel industry. In Europe, the proposed target of achieving net-zero emissions by 2050 provides us with a 30-year window to fully decarbonize the sector. It is incumbent upon governments and the European Union to do more than just provide research funding; they must also offer directionality, nurture early green markets, and phase-out fossil industries. In order to transform heavy industry, we must stop comparing breakthrough technologies and instead focus on analyzing pathways and stepwise changes that take into account industry characteristics.

This paper outlines a methodology that can be used to evaluate whether a decarbonization project is in line with the 2050 target. For the steel industry, timing new investments must take into account the long investment cycles and the declining emission trajectory. The proposed method is based on a linear trajectory from current best performers to zero emissions by 2050. A life cycle perspective is used to determine whether a steel process falls below the threshold. We employ a consequential LCA approach that builds on existing LCIs with minimal allocation and “gate-to-gate” system boundaries, making the calculation simple and understandable while focusing on major emitters in the steel value chain.

Drawing on the available technical options for decarbonizing steel, we can make some robust observations. The short time horizon and long investment cycles of the industry limit the available technological options. For instance, if a project has a lifespan of 15 years, it must reduce emissions by at least 50% compared to current levels. At their next investment windows, steel manufacturers must take the first step away from conventional blast furnace steelmaking. Given the increasing role of scrap in Europe, not all of today’s primary production will be necessary in 2050. Above all, public support should be given to projects that align with climate targets.

The challenge facing the industry is substantial, and the risks are high, necessitating large-scale public support to decarbonize the sector. Policy makers can utilize the presented method to determine which projects to support, to avoid carbon lock-in and prevent climate targets from being jeopardized. Moreover, demand pull policy for the steel sector can make use of the distinction between green and non-green steel outlined in this paper. The creation of markets where a green premium can be earned can provide additional incentives for steel companies to invest in alternative steelmaking technologies.

References 

[1] J. Rogelj et al., “Mitigation Pathways Compatible with 1.5°C in the Context of Sustainable Development. In: Global Warming of 1.5°C. An IPCC Special Report on the impacts of global warming of 1.5°C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty,” 2018.

[2] M. Fischedick et al., “Industry,” in Climate Change 2014: Mitigation of Climate Change. Contribution of Working Group III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, O. Edenhofer, R. Pichs-Madruga, Y. Sokona, E. Farahani, S. Kadner, K. Seyboth, A. Adler, I. Baum, S. Brunner, P. Eickemeier, B. Kriemann, and S. S. J. Savolainen, C. von Stechow, T. Zwickel and J.C. Minx, Eds. Cambridge, United Kingdom and New York, NY, USA: Cambridge University Press, 2014.

[3] IRENA, IEA, and REN21, “Renewable Energy Policies in a Time of Transition,” IRENA, OECD/IEA & REN212018.

[4] L. Butler and K. Neuhoff, “Comparison of feed-in tariff, quota and auction mechanisms to support wind power development,” Renewable Energy, vol. 33, no. 8, pp. 18541867, 2008.

[5] C. Mitchell, D. Bauknecht, and P. M. Connor, “Effectiveness through risk reduction: a comparison of the renewable obligation in England and Wales and the feed-in system in Germany,” Energy Policy, vol. 34, no. 3, pp. 297-305, 2006.

[6] D. Mowery and N. Rosenberg, “The influence of market demand upon innovation: a critical review of some recent empirical studies,” Research Policy, vol. 8, pp. 102-153, 1979.

[7] G. F. Nemet, “Demand-pull, technologypush, and government-led incentives for nonincremental technical change,” Research Policy, vol. 38, no. 5, pp. 700-709, 2009.

[8] C. Wilson and A. Grubler, “Lessons from the history of technological change for clean energy scenarios and policies,” Natural Resources Forum 35, vol. 35, pp. 165–184, 2011.

[9] M. Åhman, J. B. Skjaerseth, and P. O. Eikeland, “Demonstrating climate mitigation technologies: An early assessment of the NER 300 programme,” Energy Policy, 2018.

[10] M. Åhman and L. J. Nilsson, “Decarbonising industry in the EU – climate, trade and industrial policy strategies. ,” in Decarbonisation in the European Union : internal policies and external strategies, S. Oberthur and C. Dupont, Eds. Basingstoke, Hampshire: Palgrave Macmillan, 2015, pp. 92-114.

[11] (2011). COM(2011) 112 A Roadmap for moving to a competitive low carbon economy in 2050. Available: http://eurlex.europa.eu/legalcontent/EN/TXT/?uri=CELEX:52011DC0112

[12] (2018). A Clean Planet for all: A European strategic long-term vision for a prosperous, modern, competitive and climate neutral economy.

[13] G. C. Unruh, “Understanding carbon lock,” Energy Policy, vol. 28, pp. 817-830, 2000.

[14] World Steel Association, “World Steel in Figures,” Brussels2018.

[15] Sandbag. EU ETS Dashboard [Online]. Available: http://sandbag-climate.github.io/

[16] S. Pauliuk, R. L. Milford, D. B. Muller, and J. M. Allwood, “The steel scrap age,” Environ Sci Technol, vol. 47, no. 7, pp. 3448-54, Apr 2 2013.

[17] B. J. van Ruijven, D. P. van Vuuren, W. Boskaljon, M. L. Neelis, D. Saygin, and M. K. Patel, “Long-term model-based projections of energy use and CO2 emissions from the global steel and cement industries,” Resources, Conservation and Recycling, vol. 112, pp. 15-36, 2016.

[18] M. Wörtler et al., “Steel’s contribution to a Low-Carbon Europe 2050,” VDEh2013.

[19] J. M. Allwood and J. M. Cullen, Sustainable materials: with both eyes open. Cambridge, England: UIT Cambridge Ltd. , 2012.

[20] R. L. Milford, S. Pauliuk, J. M. Allwood, and D. B. Muller, “The roles of energy and material efficiency in meeting steel industry CO2 targets,” Environ Sci Technol, vol. 47, no. 7, pp. 3455-62, Apr 02 2013.

[21] A. Frey, V. Goeke, and C. Voss, “Steel Gases as Ancient and Modern Challenging Resource; Historical Review, Description of the Present, and a Daring Vision,” Chemie Ingenieur Technik, vol. 90, no. 10, pp. 13841391, 2018.

[22] 2011/278/EU Commission decision determining transitional Union-wide rules for harmonised free allocation of emission allowances pursuant to Article 10a of Directive 2003/87/EC of the European Parliament and of the Council, European Commission, 2011.

[23] M. Arens, E. Worrell, W. Eichhammer, A. Hasanbeigi, and Q. Zhang, “Pathways to a low-carbon iron and steel industry in the medium-term – the case of Germany,” Journal of Cleaner Production, 2016.

[24] V. Vogl, M. Åhman, and L. J. Nilsson, “Assessment of hydrogen direct reduction for fossil-free steelmaking,” Journal of Cleaner Production, vol. 203, pp. 736-745, 2018.

[25] IEA, “Renewable Energy for Industry,” International Energy Agency, Paris2017.

[26] Eurofer, “A steel roadmap for a low carbon Europe 2050,” Eurofer2013.

[27] H. Mandova et al., “Possibilities for CO2 emission reduction using biomass in European integrated steel plants,” Biomass and Bioenergy, vol. 115, pp. 231-243, 2018.

[28] H. Mandova et al., “Achieving carbon-neutral iron and steelmaking in Europe through the deployment of bioenergy with carbon capture and storage,” Journal of Cleaner Production, 2019.

[29] D. R. Sadoway, “Radical Innovation in Steelmaking: Molten Oxide Electrolysis,” presented at the Kick-off Workshop for the IEA Global Iron & Steel Technology Roadmap Paris, 2017.

[30] C. Broadbent, “Steel’s recyclability: demonstrating the benefits of recycling steel to achieve a circular economy,” The International Journal of Life Cycle Assessment, vol. 21, no. 11, pp. 1658-1665, 2016.

[31] G. Finnveden et al., “Recent developments in Life Cycle Assessment,” Journal of Environmental Management, vol. 91, no. 1, pp. 1-21, 2009.

[32] World Steel Association, “Life Cycle Inventory Methodology Report,” World Steel Association, Brussels2017.

[33] EEA. CO2 emission intensity [Online]. Available: https://www.eea.europa.eu/dataand-maps/daviz/co2-emission-intensity-5

[34] Tenova, “HYL News,” ed. Monterrey, Mexico: Tenova HYL (HYL Technologies, S.A. de C.V.), 2018.