Market Told Not to Wait for Cheap Green Steel
A new report presents an optimistic view for the roll-out of zero-carbon green steelmaking technologies.
Businesses should start buying green steel immediately regardless of its price in order to stimulate demand for the low-carbon metal, a joint report by Transition Asia, Global Efficiency Intelligence and Solutions for Our Climate has argued.
Even at today’s high prices, green steel would only add 1% to the average cost of a car – a ‘green premium’ more than worth paying to stimulate demand for low-carbon steel, according to the report authors.
In addition, a relatively modest carbon price could significantly boost zero-carbon steel, making it cost-competitive with the coal-intensive manufacturing methods that currently dominate, and which are responsible for around 8% of the world’s carbon emissions.
All this paints an optimistic picture for the future of green steel, argued Ali Hasanbeigi, CEO of Global Efficiency Intelligence and lead author of the report. He urged carmakers and other buyers to increase their use of green steel “immediately”.
“With hydrogen prices expected to drop significantly in the near future, the green premium will likely vanish, making green steel a cost-effective option compared to conventional [coal-intensive] steelmaking,” Hasanbeigi said.
“We call on car manufacturers and the private sector to step up their procurement of green steel, as the additional costs of final products (per car or per building units) are negligible and will further reduce as hydrogen prices decrease.”
The challenge
Decarbonising steel is one of the biggest challenges in the push to net zero. The ubiquitous building material’s enormous carbon footprint is a key cause of global warming, and makes it one of the hardest sectors to abate.
The most common way of making steel today is through blast furnaces (BFs), which mix iron ore with coal to reduce the ore to iron. This is then fed into basic oxygen furnaces (BOFs), to be finished into steel. The carbon-spewing BF-BOF method accounts for almost all the steel made in China, the world’s biggest producer of the metal.
Lower-carbon methods do exist, though. In the US, for example, the dominant technology is electric arc furnaces (EAFs), which run on electricity and therefore can be carbon-free if powered by renewables. However, these are mostly fed by scrap metal, and cannot convert iron ore into steel.
At this stage, the most promising zero-carbon method to turn iron ore into steel uses direct reduced iron (DRI) technology, combined with EAFs. Currently, most DRI plants use natural gas to reduce the ore to iron, which is then fed into an EAF to be finished into steel.
While natural gas produces carbon dioxide when burnt, hydrogen doesn’t – and it can be used instead of gas in a process designated as ‘H2 DRI-EAF’. Some producers in Europe are already doing this at a small scale.
The optimistic view
The report, entitled ‘The Economics of Green Steel’, also examined how cheap green hydrogen needs to become before it can begin to rival coal as the dominant fuel for reducing iron ore to iron.
It found that without a carbon price, the cost of green hydrogen would need to plummet to US$2 per kilogram (kg) to compete with coal-reliant technologies. Currently, green hydrogen costs between US$4.7 per kg and US$12 per kg, according to BloombergNEF.
However, a carbon price of US$50 a tonne – which is well below the carbon price fixed by the EU Emissions Trading System (ETS) – would require green hydrogen costs to fall to US$2.80 to compete with coal-reliant methods.
Although China – which produces around half of the world’s steel – has not imposed carbon pricing on steelmakers to date, it is currently considering bringing the steel sector under its ETS, where the price has been around US$10 per tonne in recent months.
But even without a carbon price, green steel need not massively increase the cost of manufacturing steel-intensive products such as cars, the report stated. In fact, even if green hydrogen cost as much as US$5 per kg, green steel would only add US$203 to the price of an average passenger car, representing a 1% ‘green premium’.
The report also urged governments to subsidise H2 DRI-EAF steelmaking technologies to help boost the sector.
The pessimistic view
Not everyone is enthusiastic about the outlook for green steel, though.
Wade Wright, a US-based metals expert and former director of steel producer AK Steel, said the H2 DRI-EAF method was unlikely to be competitive until at least 2050. As such, he argued the emphasis today should be on “greener”, rather than “green”, steel – that is, on reducing the emissions intensity of existing technologies.
Speaking at a briefing hosted by Jefferies on Monday, Wright pointed out that vast amounts of renewable energy would need to be built to produce the green hydrogen needed in H2 DRI plants, as well as to power the EAFs required to finish the steel.
“When we truly talk about green steel, it’s not only the electricity available – it’s about the amount of renewable electricity available,” he said. “That’s a key point for this, because if you’re using fossil fuels to power the system, that’s not truly a green environment.”
Wright does not envisage the transition to a green steel environment until at least 2050 – a timeline he stills views as “optimistic”.
“I have seen no evidence that carmakers are prepared to spend the extra money to build their vehicles out of green rather than conventional steel,” he added.
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