Iron and Steel
Not on track
Authors and contributors
IEA (2022), Iron and Steel, IEA, Paris https://www.iea.org/reports/iron-and-steel, License: CC BY 4.0
About this report
The direct CO2 intensity of crude steel production has decreased slightly in the past few years, but efforts need to be accelerated to get on track with the pathway in the Net Zero Emissions by 2050 Scenario. In contrast to the minor annual improvements in the last decade, the CO2 intensity in the Net Zero Scenario falls by around 3% annually on average between 2020 and 2030. Since the emissions reduction potential of energy efficiency improvements and fuel shifting using conventional process technology is limited, innovation in the current decade will be crucial to commercialise new near zero-emission steel production processes – including those that integrate carbon capture, utilisation and storage (CCUS) and hydrogen – to achieve deeper cuts in emissions.
Technological progress supported by high fossil fuel prices supported momentum for near zero steel production and particularly direct reduction of hydrogen (H2 DRI). After the Hybrit (Sweden) project successfully piloted the first fossil-free steel delivery to a customer in August 2021, many new projects and related funding have been announced tripling the global number of projects and leading roughly to a five-fold increase of expected hydrogen capacity. Recently announced projects include for example SALCOS (Germany), Liberty Steel DRI plant (France), Iberdrola – H2 Green Steel (Iberian Peninsula), or Green Steel - H2V CAP (Chile).
The current pipeline of projects clearly nonetheless falls short of what is required to meet the Net Zero Scenario. Governments can help by providing RD&D funding, creating a market for near zero-emission steel, adopting policies for mandatory CO2 emission reductions, expanding international co‑operation and developing supporting infrastructure.
Over the past decade, total CO2 emissions from the iron and steel sector have risen, largely owning to increases in steel demand and the required energy for production. Substantial cuts in CO2 emissions are essential to get on track with the Net Zero Scenario.
Short-term CO2 emission reductions can be achieved mostly through energy efficiency improvements and increased scrap collection to enable more scrap-based production. However, the technical potential for energy efficiency improvements is limited and the supply of scrap is finite; the industry is already well-incentivised to make gains in these areas due to the large share of production costs attributable to energy and raw material inputs. More substantial reductions in emissions intensity will require the adoption of new technologies, such as electricity-based production, hydrogen usage and CCUS.
Looking ahead, even though China’s production is expected to peak in the coming few years, the global growth trend is likely to continue, albeit at a slower pace than during the previous decade, driven by population and GDP growth in India, ASEAN countries and Africa.
Adopting material efficiency strategies to reduce losses and optimise steel use throughout the value chain can curb demand growth in all countries, thus helping to get the iron and steel sector get on track with the Net Zero Scenario. Material efficiency strategies include increasing steel and product manufacturing yields, light-weighting vehicles, extending building lifetimes and directly reusing steel (without melting). In the Net Zero Scenario, steel demand is around 7% lower in 2030 than in a baseline scenario that follows current trends.
Coal currently meets around 75% of the energy demand of the sector, comparable to its share over the past decade. Electrification needs to accelerate rapidly to substitute coal in the context of the Net Zero Scenario, rising by more than 5 percentage points between now and 2030 through increased secondary production, electrolytic hydrogen and electric arc furnaces, compared with an increase of just 1 percentage point over the past decade.
Global production of crude steel continues to be dominated by conventional process routes in 2030 in the Net Zero Scenario, but important shifts signify the beginning of the fundamental transformation. Most notably, the share of the emissions-intensive BF-BOF route declines by between 10-15 percentage points through phase-outs of existing plants, while the share of the scrap EAF route (often referred to as “secondary production”) increases by over 5 percentage points through more scrap availability.
The scrap EAF route is considerably less energy-intensive than producing steel from iron ore (so-called “primary production”) in the BF-BOF or DRI-EAF routes, leading to significant emission reductions without innovation. The main constraint governing this route is the availability of scrap. The scrap collection rate is currently about 85%, with rates by end use varying from as low as 50% (for structural reinforcement steel) to as high as 97% (for industrial equipment).
Innovative technologies for primary steel production – not currently available on the market today – need to be developed at commercial scale and begin deployment before 2030. In the Net Zero Scenario, near zero-emission production – the H2-DRI route and CCUS-equipped routes – commences at scale in the 2020s, accounting for more than 5% of primary production by 2030. By 2030 CCUS-equipped routes for steel production capture nearly 50 Mt CO2 and electrolytic hydrogen demand for H2-DRI reaches around 4 Mt. To fill the gap between currently announced projects and the Net Zero Scenario milestones, between 20 and 50 additional projects of a size similar to current projects are needed globally in a tight timeframe of only eight years.
The speed of innovation needs to accelerate since currently announced CCUS and hydrogen projects are not on track to reach the milestones for 2030 in the Net Zero Scenario. Key projects currently under development that could contribute to closing this gap are as follows:
- The HYBRIT project in Sweden, which is developing hydrogen-based DRI production. A pilot line began operations in summer 2020, a trial delivery of the first fossil fuel-free steel took place in August 2021, and a pilot hydrogen storage cavern opened in June 2022. The project is aiming to demonstrate the technology at industrial-scale production as early as 2026. Major challenges for full operation are sufficient grid capacity and electricity supply to run the electrolysers, which could be exacerbated by the announcement of another green steel production facility in Sweden, H2 Green Steel. Outside Sweden, other companies are also advancing towards hydrogen DRI development, including a demonstration plant being designed in Hamburg, Germany. These developments represent an increase in the technology readiness level (TRL) to TRL 6.
- The “3D” Carbon Capture pilot in Dunkirk, France, began operations in March 2022, starting with the capture of 0.4 kt per year from BF-based production in the demonstration phase. The aim is to expand this to 1 Mt in 2025 and 10 Mt in 2035.
- Tata Steel's pilot plant in IJmuiden, Netherlands, successfully tested the HIsarna enhanced smelt-reduction technology in 2018-2019. While the technology could facilitate easier CCUS compared to a blast furnace, CCUS was not implemented in the pilot and in 2021, Tata Steel announced that it would instead pursue hydrogen direct reduced iron at the Ijmuiden plant. This suggests a pivot away from pursuing HIsarna in its European operations. Plans are still underway to develop a second large-scale pilot plant (0.5 Mt) employing the HIsarna technology in India, which could open in the 2025-2030 period. However, there are no announced plans to include CO2 storage in that demo plant, nor has a target date been officially announced by Tata for a CCUS-equipped installation. Please see the IEA’s Clean Technology Guide 2022 update for further details on these and other projects in the iron and steel sector.
With electricity, hydrogen and CCUS as three main pillars to achieve substantial emission reductions in the iron and steel sector, suitable infrastructure needs to be developed to support the deployment of these innovative technologies.
Renewable electricity generation needs to be expanded dramatically, integrated on the grid and contracted via, for example, power purchase agreements. Hydrogen needs to be either produced on site by electrolysers, or imported with a sufficient infrastructure of pipelines and other transport means for national or international trade. For plants equipped with carbon capture, either suitable storage infrastructure is needed or CO2 networks to transport the separated CO2 to other industrial end uses.
Many countries have introduced policies addressing industrial emissions as a whole. Relevant policies specifically for steel include the following:
- China – responsible for producing well over half of the world’s steel in 2020 – has announced it will be putting a price on steel emissions, possibly as soon as 2023. They further announced as part of the 14th Five-Year-Plan (2021-2025) that it will be prioritising the creation of a circular economy, seeking to increase the use of scrap steel to 320 million tonnes by 2025, an increase of around 30% relative to estimates for 2020. This follows India – the world's second largest steel producer in 2020 – releasing their own Steel Scrap Recycling Policy, aiming to promote a circular economy in the steel sector by facilitating steel recycling across the product life cycle.
- The European Union is in the process of developing a carbon border adjustment mechanism for steel, while the United States has announced that it is considering the same. These policies would apply tariffs on imported emissions-intensive goods from jurisdictions with weak or absent emissions policy in an effort to limit carbon leakage, and incentivise stronger emissions measures overseas.
- France and Japan recently released roadmaps for decarbonising the iron and steel sector, setting out specific targets and laying out concrete steps for their steel sectors, with the French plan calling for emission reductions of 31% by 2030
- Last year, Germany announced it was earmarking EUR 7 billion for green hydrogen, including EUR 55 million for hydrogen-based steel production.
France 2022 In force National
Belgium 2022 Announced National
United States 2021 In force National
Japan 2021 In force International
United Kingdom 2020 In force National
Canada 2020 In force National
Policy makers are increasingly coordinating their work to address the challenges that face the decarbonisation of the steel industry, including the threat posed by carbon leakage (loss of competitiveness from emissions policy due to cheaper emissions-intensive imports), and the need for more investment into developing and deploying clean technology. Notable recent developments include the following:
- The United States has announced three separate statements on steel and aluminium with the European Union, the United Kingdom and Japan. Not all the details of these agreements have been publicly disclosed, but the announcements make reference to taking action to reduce the carbon content of steel and aluminium, hinting at possible policy convergence in these sectors.
- COP26 saw the launch of the Breakthrough Agenda, whose 45 member countries, including six of the world's seven largest polluters, committed to collaborate internationally on the faster development and deployment of low-carbon technologies, making these solutions globally affordable and accessible. Two of the agenda’s four initiatives are on hydrogen and steel.
- The EU Clean Steel Partnership was launched in 2021 with the goal of collaboratively developing technologies to reduce the CO2 emissions stemming from EU steel production by 80-95% while maintaining the competitiveness and viability of EU steel.
- In 2021 Canada, Germany, and the United Arab Emirates, in an initiative led by India and the United Kingdom, announced at COP26 that they would be taking part in the Clean Energy Ministerial’s Industrial Deep Decarbonisation Initiative to encourage the public procurement of low-emission steel and concrete in order to create a market for these goods.
Many private-sector and non-governmental actors in the steel industry are beginning to take important steps towards transitioning to a zero-emission steel industry:
- Several steel organisations have released decarbonisation roadmaps, including: Eurofer, Japan Iron and Steel Federation and The Energy and Resources Institute in India.
- A number of companies, some of which are organised in the Net-Zero Steel Initiative, have declared a dedicated net zero emissions target for 2050 or earlier. More than half of the top ten producers – and in total companies accounting for more than 30% of global steel production – have a defined target.
- On the demand side, the First Movers Coalition and the SteelZero Initiative are working to create a market for net zero steel, bringing together steel consumers that commit to procuring a defined amount of their steel from low-carbon sources.
- The World Steel Association has also announced the Step Up programme, a four-step methodology to encourage energy efficiency on the road to the arrival of breakthrough technology.
- Among other standards such as the worldsteel Sustainability Charter and ISO 20915, ResponsibleSteel provides a reporting standard guideline to encourage better energy and emission reporting, transparency and comparability between sites.
Increased participation in such initiatives can help accelerate the transition to net zero, particularly by bringing together governments and companies or steel production and demand. Additionally, given the wide range of initiatives emerging, improved coordination and setting clear objectives would be helpful to maximise their effectiveness.
Recommendations for policy makers
As with industry overall, the decarbonisation of steel will require multiple measures, including:
- Adopting mandatory CO2 policies covering industry and expanding international co-operation – domestically this might include carbon prices or CO2 performance regulations, while carbon border adjustments or international sectoral agreements might be considered to limit carbon leakage.
- Managing existing assets and near-term investments in order to create a smooth energy transition, such as encouraging – and perhaps in some instances providing public support for – refurbishment to near zero-emission technology to avoid stranded assets.
- Increasing investment R&D and deployment for low-carbon technologies essential to decarbonising process emissions from industry, including through direct support and mechanisms to mobilise private sector finance.
The decarbonisation of steel requires the increased use of electricity, hydrogen and CCUS, all of which require not only funding, but also supporting infrastructure for transport and storage. To ensure that the deployment of near zero steel production technology is not delayed, policy makers must begin planning and developing infrastructure, including building social acceptance, fostering new interregional and international collaboration, reducing planning times and ensuring affordable access to this infrastructure.
Recommendations for policy makers and the private sector
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. Additionally, design policies should consider products’ future suitability for remanufacturing, refurbishment, material reuse and ultimately material recyclability, the latter including promotion of design to reduce contamination (particularly from copper) and enable easier separation. The result should be high-quality recycled material that can be used for a wider range of end uses.
Creating demand for near zero-emission products is especially true for steel as a globally traded product and as an industry that requires the wide deployment of innovative primary production technologies. Currently, regulatory hurdles and particularly financial challenges remain to develop and deploy these technologies at scale. Going beyond targeting the reduction of embodied emissions in general, near zero steel procurement policies, either from the public sector or private corporations, and other policies like carbon contracts for difference, can help send a strong signal to the production market and influence investment decisions by creating reliable demand signals.
Common definitions and standards for low- and near zero-emission steel can form the basis for differentiating markets for products, establishing green public procurement protocols and other elements of creating a market for near zero-emission steel, as well as facilitating free trade as the world moves to net zero. When it comes to supply, standards make it possible to evaluate whether a given innovative technology or interim emissions-reduction measure deserves financial support, and if so, to what extent, and for how long. Increasing international collaboration between major steel producers will be an important part of setting common standards, and further collaboration through sharing of data and best practices can drastically increase the spread of clean technology.
- Andrew Purvis, World Steel Association, Reviewer