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Iron and Steel

Not on track
Bernard Hermant Zpdb7 Owcpw Unsplash

About this report

The direct CO2 intensity of crude steel production has been relatively constant in the past few years. In contrast, in the Net Zero Emissions by 2050 Scenario it falls an average 4% annually between 2020 and 2030. Achieving this reduction and maintaining it after 2030 will not be easy. Potential for energy efficiency improvements will likely soon be exhausted. Thus, innovation in the upcoming decade will be crucial to commercialise new low-emissions processes, including those that integrate CCUS and hydrogen, to realise the long-term transformational change required. Governments can help by providing RD&D funding, creating a market for near-zero-emissions steel, adopting policies for mandatory CO2 emissions reductions, expanding international co‑operation and developing supporting infrastructure.

Direct CO2 intensity of steel production in the Net Zero Scenario, 2018-2030

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Tracking progress

Over the past decade, expanding steel production has raised total energy demand and CO2 emissions in the subsector. Substantial cuts in energy demand and CO2 emissions will therefore be needed by 2030 to get on track with the Net Zero Emissions by 2050 Scenario. 

Short-term CO2 emissions reductions can be achieved largely through energy efficiency improvements and increased scrap collection to enable more scrap-based production. 

However, longer-term reductions will require the adoption of new direct reduced iron (DRI) and smelting reduction technologies that facilitate the integration of low-carbon electricity (directly or through electrolytic hydrogen) and CCUS, as well as material efficiency strategies to optimise steel use. The groundwork for commercialising these technologies needs to be laid in the next decade.

Demand for steel, which drives steel production, is a key determinant of energy demand and steel subsector CO2 emissions. Global crude steel production increased by an average of 3% per year, including a period of relatively flat demand from 2013-2016. In 2020, steel production fell by 0.9%, a relatively small decline considering the scale of the slowdown in other parts of the economy. 

As China accounts for about half of global steel production, its activities are a key driver of global trends. After stagnating in 2013‑2016, production expanded 6‑8% annually in 2017-2019. In recent years, China has made efforts to close excess steel production capacity, including illegal mills. This may partially explain the production increase registered in official statistics, as legal plants have taken up some of the production of closed, illegal ones. In 2020, production in China increased by 5%, largely owing to infrastructure stimulus projects to help the economy recover from the Covid19 crisis. This increase in China together with considerable declines in many other countries led to only a moderate decline at the global level. 

Driven by population and GDP growth, global steel demand will likely recover and continue to increase. This is especially because of economic expansion in India, the ASEAN countries and Africa, even as demand in China is expected to peak and begin to decline within the next few years. 

Adopting material efficiency strategies to reduces losses and optimise steel use throughout the value chain can curb demand growth and thus help the subsector get on track with the Net Zero Emissions by 2050 Scenario. Material efficiency strategies include increasing steel and product manufacturing yields, lightweighting vehicles, extending building lifetimes and directly reusing steel (without melting). In the Net Zero Scenario, steel demand is 7% lower in 2030 than in a baseline scenario that follows current trends. 

Global steel production in the Net Zero Scenario, 2010-2030

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The energy intensity of steelmaking1 has shown little change in the past few years. The steel sector is still highly reliant on coal, which meets 75% of its energy demand. 

The energy intensity of crude steel needs to decline by 0.2% annually during 2020‑2030 to attain the Net Zero Emissions by 2050 Scenario level. While energy efficiency is important for Net Zero by 2050 alignment, on its own it cannot decarbonise the sector. Transformational change is required, and the groundwork for breakthrough technologies needs to be laid before 2030.

Iron and steel final energy demand and energy intensity in the Net Zero Scenario, 2018-2030

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Scrap-based steel production (also referred to as secondary or recycled production) can be valuable in reducing energy demand and CO2 emissions, as it is considerably less energy-intensive than primary production from iron ore. Scrap is used as the main ferrous feed in electric arc furnaces (EAFs), as well as in induction furnaces to a lesser extent. Scrap-based production in EAFs and induction furnaces accounted for about 20% of production in 2020, a similar share to previous years. 

Scrap is also used with ore-based inputs in blast furnace-basic oxygen furnace (BF-BOF) production, usually at a rate of 15‑20%, which improves the energy efficiency of this method. Furthermore, scrap is normally blended at a rate of ~10% with DRI production. Altogether, scrap inputs account for ~30% of total crude steel production. 

Scrap-based production tends to cost less than primary production, so the key constraint is scrap availability. The global scrap collection rate is currently ~85%, with rates by end use varying from as low as 50% (for structural reinforcement steel) to as high as 97% (for industrial equipment). 

To get on track with the Net Zero Emissions by 2050 Scenario, the global market share of scrap-based production by EAFs and induction furnaces combined needs to reach over 27% by 2030, even as total steel production increases. Scrap inputs should account for close to 40% of total crude steel production. 

Achieving this rate of scrap-based production could be facilitated by greater scrap availability, as steel produced during the past several decades is reaching the end of its lifetime. However, better scrap collection, enabled in part by improved sorting methods (particularly for end uses such as reinforced steel and packaging, which currently have the lowest collection rates), will be needed to ensure that all available scrap is used. Recycling measures will be especially important in emerging economies as greater amounts of steel-containing products begin to reach the end of their lifetimes. 

Even at higher recycling rates, scrap availability will put an upper limit on the potential for recycled production. Decarbonising emissions from primary production therefore remains important in the Net Zero Emissions by 2050 Scenario. 

For example, emissions can be reduced in the short term by increasing gas-based DRI production, which is less emissions-intensive than coal-based BF-BOF production and currently accounts for about 5% of steel production. DRI also has the advantage of being easier to retrofit with CCUS or to transition to hydrogen inputs. In the Net Zero Emissions by 2050 Scenario, the gas-based DRI process accounts for 8% of steel production by 2030, of which one-quarter is equipped with CCUS.  

Innovative primary production routes also need to reach market readiness and start being deployed before 2030. In the Net Zero by 2050 Scenario, the hydrogen-based DRI method and innovative smelting reduction with CCUS both start to be deployed commercially by the mid-2020s, each accounting for ~1.5% of production by 2030. 

Through increasing production from scrap, natural gas-based DRI and hydrogen-based DRI, coal’s share of energy consumption in the subsector falls to just below 60% by 2030 in the Net Zero Emissions by 2050 Scenario. 

Steel production by share of different process routes in the Net Zero Scenario, 2018-2030

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Innovation will be critical to reduce primary steel production emissions. Several RD&D efforts are under way, including those working towards near-zero-emissions production, such as: 

  • The HYBRIT project in Sweden, which is developing hydrogen-based DRI production. A pilot line began operations in summer 2020, and a trial delivery of the first fossil fuel-free steel took place in August 2021. The project is aiming to demonstrate the technology at industrial-scale production as early as 2026. Additional time would likely be required after that for scaled-up production and then full commercialisation. Other steel companies are also advancing towards hydrogen DRI development, including a demonstration plant being designed in Germany. 
  • The HISarna project’s testing of an enhanced smelt-reduction technology that could be combined with CCS. A pilot plant in the Netherlands has produced 60 kt of iron, and plans are under way for a second large-scale pilot plant (0.5 Mt) in India, which could open in 2025‑2030. 
  • Japan’s COURSE 50 project to develop lower-emissions steel production, based on the blast furnace but with several emissions-reducing features to recover gases from the blast furnace to reduce fuel input needs, reform coke oven gas into hydrogen to be used as fuel, and integrate carbon capture. Testing in an experimental blast furnace is ongoing, and the programme is aiming for commercial-scale demonstration by 2030. Similar technology is being tested by the IGAR and 3D projects at an ArcelorMittal plant in France.  
  • The Siderwin project, which is developing production via low-temperature electrolysis, known as electrowinning. Construction of an engineering-scale pilot began in early 2021, with testing expected to begin this year. 
  • Boston Metal’s work on high-temperature electrolysis, with a prototype cell commissioned in 2014 and plans to test full-scale cells by 2024.  

Continued efforts on these and other innovative projects will be integral to bring these technologies to full commercialisation in the coming decade.

Many steel producers are starting to make plans and set targets to achieve deep emissions reductions. Steel companies and regional steel associations accounting for roughly one-third of global steel production have set targets to achieve net zero emissions by 2050 or earlier. Most of these targets were set in the past three years. Regional roadmaps for reducing emissions have also been developed recently, including by Eurofer (the European steel association), the Japan Iron and Steel Federation and The Energy and Resources Institute in India.  

Governments will need to support steel companies by establishing a policy environment conducive to deep emissions reductions. Of the number of policies are already in place, key ones that target industry in general (which includes iron and steel) are the EU emissions trading system and India’s PAT scheme for improving energy efficiency.  

Some countries have policies that specifically target the iron and steel subsector. For instance, Sweden has developed a roadmap for the steel industry as part of its Fossil Free Sweden initiative. In 2019, the United Kingdom announced plans to set up a GBP 250 million (USD 320 million) Clean Steel Fund to support uptake of new lower-emission technologies, due to open in 2024 after a period of consultation and development. In addition, the EU Green Deal aims to develop technology for zero-emissions steel by 2030. Meanwhile, India has established a Steel Scrap Recycling Policy to increase steel recycling, and a Promotion of R&D in Iron and Steel Sector scheme to fund projects including those investigating lower-emissions steel production methods. 

Even though these and other initiatives have demonstrated some solid progress, further policy efforts in all countries will be required for deep iron and steel emissions reductions. Countries will need to adopt very ambitious and comprehensive policy frameworks to align iron and steel CO2 emissions with the Net Zero Emissions by 2050 Scenario. 

In the short to medium term (the next five to ten years), CO2 emissions reductions can be most easily achieved by promoting energy efficiency. Deployment of best available technologies should be pursued when economical, keeping in mind the longer-term need to transition to breakthrough near-zero-emissions technologies. 

Considerable energy efficiency improvements can be achieved by improving operational efficiency and process yields, as advocated by the World Steel Association’s Step-Up Programme that encourages all steelmakers to improve their operations to the level of the current top 15% of performers. This can be reinforced by implementing energy management systems. 

Secondary production should also be increased through more effective scrap collection and sorting. Stakeholders should work to increase scrap collection and recovery by improving recycling channels and sorting methods, and by better connecting participants along supply chains. Focusing on end uses that currently have low collection rates (e.g. reinforcement steel and packaging) will be important. The steel industry, steel product manufacturers and waste collectors could work together to ensure that manufacturing and end-of-life scrap is channelled back to steel producers. Engineers should consider reusability and recyclability in product and building design, and governments can assist by setting requirements and co‑ordinating channels for end-of-life material reuse and recycling. 

Participants all along the value chain (steel producers, engineers, construction companies and product manufacturers) can also adopt material efficiency strategies that reduce overall steel demand.  

The steel industry can also take advantage of opportunities for industrial symbiosis – including using the waste or by-products from one process to produce another product of value – to help close the material loop, reduce energy use and reduce emissions in the case of carbon capture and utilisation. Examples include using steel blast-furnace slag in cement production and carbon from steel waste gases to produce chemicals and fuels. 

In the longer term, deep emissions reductions will require the adoption of new process routes for primary steel production as well as other innovative technologies, including new smelting, direct reduction and CCUS technologies. 

Accelerating innovation over the next decade will be critical to enable technology deployment post-2030. Increased support for RD&D is needed from governments and financial investors, particularly to advance the large-scale demonstration and deployment of technologies that have already shown promise. 

Public-private partnerships can help, as can green public procurement and contracts for difference that generate early demand and can enable producers to gain experience and bring down costs. Government co‑ordination of stakeholder efforts can also direct focus to priority areas and avoid overlap. 

It will also be important to begin planning and developing infrastructure for the eventual deployment of innovative processes, such as CCUS pipeline networks to transport CO2 for use or storage, and electricity transmission grids and near-zero-emissions electricity generation to enable low-carbon hydrogen production. Gaining social acceptance for building this infrastructure, particularly CO2 transport and storage facilities, and ensuring affordable access to infrastructure and energy inputs will also be necessary. 

Policymakers can promote CO2 emissions reduction efforts by adopting mandatory reduction policies, such as a gradually increasing carbon price or tradeable industry performance standards that require average CO2 intensity for production of each key material to decline across the economy and permit regulated entities to trade compliance credits. 

Adopting these policies at lower stringencies in the short term (within the next three to five years) will provide an early market signal, enabling industries to prepare and adapt as stringency increases over time. It can also help reduce the costs of low-carbon production methods, softening the impact on steel prices in the long term. Complementary measures may be useful in the short to medium term, such as differentiated market requirements (i.e. a government-mandated minimum proportion of low-emission steel in targeted products). 

Ideally, mandatory policies should be applied globally at similar levels of ambition. Since steel is highly traded, measures will be needed to help ensure a level global playing field if the strength of policy efforts differs from one region to another. 

Possibilities include adopting border carbon adjustments or the free allocation of allowances for emissions below a targeted benchmark in an emissions trading system.  

Governments can extend the reach of their efforts by participating in multilateral forums to facilitate low-carbon technology transfer and to encourage other countries to also adopt mandatory CO2 emissions policies.

Improving the collection, transparency and accessibility of energy performance and CO2 emissions statistics on the iron and steel subsector would facilitate research, regulatory and monitoring efforts (including, for example, multi-country performance benchmarking assessments).  

Data on energy intensity for each separate steel production route is especially needed, to account for variability among routes and enable better performance assessments and comparisons. Increased industry participation and government co‑ordination are both integral to improve data collection and reporting. 

Resources
Notes and references
  1. Energy demand for steel includes blast furnace and coke oven energy consumption within the energy own use and transformation section of the IEA energy balance.

Analysis