Why the decarbonization process needs to be led by the steel industry

The steel industry is the largest carbon-emitting manufacturing sector on the planet and is therefore a global decarbonization priority;

As a cornerstone of the global economy, steel’s carbon footprint touches nearly every industry, from cars and construction to machinery, transport and energy;

If the 2 billion tonnes of crude steel produced globally each year were green steel, this would not only reduce emissions from the steel industry, but would also significantly reduce emissions from industries that rely on steel.

Steel production is the most emitting manufacturing industry on the planet, accounting for 7% of all man-made greenhouse gas emissions. This is because steel production relies heavily on high-carbon coal. However, the steel industry has the potential to be one of the best players in leading the global decarbonization effort.

Strong demand for steel following the COVID-19 pandemic and government policies supporting low-carbon production have created a ripe environment for steelmakers willing to commit the necessary resources to decarbonise. However, the steel industry is unlikely to achieve the transition to low-carbon steel alone. The key to commercially achieving green steel (steel produced without the use of fossil fuels) on a large scale lies in cross-industry collaboration.

According to our calculations, building the necessary capacity to bring green steel to the forefront will ultimately require capital expenditures (CAPEX) of €2 trillion to €3 trillion. Moreover, this investment, although already large, only covers the conversion of steel production capacity and does not support the construction of the necessary green energy to power production. The latter will still require trillions of dollars.

Looking for a steel partner

It is impossible for any single steel producer, or even the industry as a whole, to provide such a massive capital expenditure between now and 2050. However, the steel industry can pool its resources through partnerships, joint ventures and alliances with companies in other industries, and other industries will also benefit from the transformation of the steel industry.

These partners can be upstream suppliers from industries related to steel production, such as energy, mining, chemicals and private capital. At the same time, these partners may also come from the downstream of the steel industry, from the numerous industrial end-users with high demand for steel, such as automotive, transportation and construction companies.

Steel is a cornerstone of the global economy. Almost every industry requires steel to some degree. Steel’s critical role, combined with the increasingly urgent need to decarbonize, makes the creation of such an investment ecosystem not only possible but logical. And it’s one of the reasons why steel should be at the forefront of decarbonization.

Why start with the steel industry?

The world produces about 2 billion tonnes of crude steel each year. If all of this steel were green steel, rather than carbon-intensive steel, emissions from the steel industry would be drastically reduced, as would the carbon footprint of industries such as automotive, construction, transport, energy and manufacturing.

For example, steel accounts for more than 50% of the materials in a conventional car, and therefore accounts for the majority of the car's carbon footprint. Therefore, switching to green steel will automatically and significantly reduce emissions for automakers.

Another major reason why the steel industry is so well suited to decarbonization is that most of the technologies used in its transformation are already mature. Take the electric arc furnace, for example, which will eventually replace the blast furnace that the steel industry has relied on for more than a century. Electric arc furnaces will be used to produce green steel in the future, but today about 29% of conventional steel is already produced by electric arc furnaces.

The difference between current steel production and future green steel is that current electric arc furnaces still use traditional energy, such as a mix of natural gas and coal. In future green steel production, electric arc furnaces will only use renewable energy, including hydropower, nuclear power, wind power, solar power or a combination of them. All of these technologies already exist, which is a major advantage of the steel industry's transformation.