2. Green steel - energy transition in practice
What is green steel and what is its significance for clean energy transition?
Green steel represents an industrial revolution. For the past 200 years, steel has been manufactured the same way: smelting iron ore in blast furnaces fired by coke or coal. Advances in technology mean that the iron ore can now be produced in furnaces fuelled by electricity or hydrogen.
“Today the steel industry is still using technology which dates back to the 19th century, meaning producing steel out of iron ore and coal in blast furnaces. And tomorrow, we focus on a complete change of technology, aiming to produce steel out of electric furnaces and using recycled steel fueled by gas in a first step and hydrogen in the future.”
Robert Leportier, ArcelorMittal
Transitioning from traditional methods of producing steel to new, cleaner technologies, could have a dramatic impact on net zero targets, not least because steel is one of the most commonly used metals in the world today, found in everything from cars and shipping to washing machines and household items. Robert Leportier is the Head of Trade Credit Insurance at one of the world’s largest steel producers, ArcelorMittal. As part of the Clean Energy Transition event panel, he was able to give a unique insight into the enormous transformation green steel represents for the steel industry as well as his perspective as a credit manager.
Green steel - energy transition in practice
Revolutionising the way steel is manufactured to remove an enormous volume of greenhouse gases from the atmosphere.
Steel manufacturing currently produces more CO2 than any other heavy industry. This is because traditional methods of steel manufacturing are carbon intensive, requiring raw materials such iron ore, scrap steel and coal (or coke) to be heated to incredibly high temperatures in a blast furnace. According to the World Economic Forum, this amounts to around 8% of current global carbon emissions.
Although improvements to efficiency have evolved, this method of manufacturing steel has essentially not changed for the past 200 years. However, as Robert Leportier noted: “Today the steel industry is still using technology which dates back to the 19th century. Tomorrow, we focus on a complete change of technology.”
Steel manufactured using clean energy is called green steel, usually produced in electric furnaces without the need to burn coal. Transitioning to manufacturing steel using electric arc furnaces using clean energy (such a green hydrogen) will have an enormous impact on the volume of greenhouse gases released into the atmosphere. In addition, advances in technology also allow steel producers to use more scrap steel and employ greater use of carbon capture utilisation and storage techniques.
“If the world is to achieve net-zero by 2050, it will require all parts of the world to contribute. As the world’s leading steel company, we believe we have a responsibility to lead the efforts to decarbonise the steelmaking process.”
Aditya Mittal, ArcelorMittal
“Availability and pricing of electricity will be a key driver in the future for the steel industry.”
Robert Leportier, ArcelorMittal
Investing in green steel needs structural change
Transitioning to green steel is an enormous undertaking, presenting massive financial, economic and political implications for the sector. For example, in February 2022, ArcelorMittal announced EUR 1.7 billion plans to transform their two primary steelmaking sites in France. The plans, which are viable through support by the French government, mean three blast furnaces will be phased out by 2030, resulting in a reduction of 40% of the company’s C02 emissions in France.
In addition to the capital expenditure required to build new plants or transition existing steelmaking sites to electric furnaces, is the cost of the electricity. Electric arc furnaces require enormous amounts of electricity. If this is difficult to source (perhaps due to transmission problems or grid limitations), it could hamper the industry’s ability to transition to clean energy production techniques. As Robert Leportier noted during the panel discussion: “Availability and pricing of electricity will be a key driver in the future for the steel industry.”
Nearly all of Europe’s flat steel producers have now announced plans to phase out their coke-coal blast furnaces. Many of the manufacturers plan to use natural gas as the main fuel source as a stepping stone prior to employing green hydrogen. However, the war in Ukraine and European sanctions on Russia have disrupted natural gas resources in recent months. This is likely to have a knock-on impact on plans to decarbonise the steel industry, possibly resulting in a slower transition.
Steel industry opportunities and challenges
Clean energy transition presents a range of opportunities as well as challenges for the steel industry. Among the opportunities is the appetite for green steel, particularly within the automotive sector. According to the EU’s Joint Research Centre (JRC) there is evidence of an emerging market that is willing to pay a green steel premium, as automotive companies are announcing they will use low-CO2 steel in their vehicle manufacturing.
Challenges include the investment costs required to decarbonise steel production, leading to potentially elevated prices for green steel and the risk of being priced out of markets by dirty steel. Certainly within the global steel market, it seems that EU steelmakers are leading the way in terms of energy transition. The EU’s JRC noted that all of the biggest steelmakers in the EU have announced decarbonisation targets, along with the five biggest steelmakers in the world.
However, as Robert Leportier explained during the panel discussion, the threat of unfair competition in a market with the potential to be flooded by dirty steel is not such a worry. He was confident this issue could be addressed by EU lawmakers and pointed out that the transition to green steel is not confined to Europe. He said: “Even in remote places like Kazakhstan, they are concerned about decarbonisation. So it's not only Europe which is focused on this point, but all the world.”