Decarbonising the steel and iron ore industry by 2050, in line with the Paris Climate Agreement, will require $1.4 trillion of investment and revolution across every stage of the value chain, says analysts at Wood Mackenzie in new research.
The UK-based energy and intelligence provider points to the industrialised world’s reliance on steel, with 2.2 billion tonnes of production required to meet global steel demand by 2050 – a 15 percent increase from 2021, as both an urgent challenge and an enormous opportunity.
It estimates that iron and steel production emits a combined 3.4 billion tonnes of carbon annually – equal to seven percent of global emissions.
Malan Wu, research director at Wood Mackenzie, and lead author of the report, said decarbonising the steel industry is a staggeringly big task and to meet Wood Mackenzie’s 1.5 °C accelerated energy transition scenario by 2050, steel emissions must reduce by 90 percent from current levels.
“Business as usual is no longer sustainable,” Wu said.
Wood Mackenzie’s analysis shows that $800-900 billion will be essential to abate carbon from existing steelmaking infrastructure, such as setting up new hydrogen-based direct reduced iron (DRI) and electric arc furnaces.
Wu said mining companies will need to play an active role in cutting their operational emissions and invest in new high-grade mines and green pellet capacities to feed green steel. This will require five times the current supply of high-grade pellet feed, equivalent to 750 million tonnes, translating into an investment of $250-300 billion.
To achieve net zero by 2050, three-quarters of steel production will have to use low-carbon technologies and this requires the commercialisation and uptake of new technologies such as DRI and molten oxide electrolysis running on renewable energy.
Switching to clean energy will require around 2,000 gigawatts of dedicated renewable generation capacity, equivalent to two-thirds of current global renewable generation capacity, the analysts say.
A hydrogen ecosystem will also need to be developed for green steel, as decarbonisation will require around 50 million tonnes per annum of competitively priced green hydrogen, with commercial viability versus conventional steelmaking routes requiring green hydrogen supply at $2 per kg.
Carbon offset measures and a ‘green premium’ are inevitable
The report warns that these measures will still fall short of emissions targets, necessitating an incremental $200-250 billion investment in carbon offset measures, such as Carbon Capture, Utilisation, and Storage (CCUS),
In addition, the industry will need to capture and store 470 million tonnes of carbon to reach its emission target in 2050.
Furthermore, green premiums are also inevitable, given new technologies and low carbon feedstocks are likely to inflate steel production costs by 15-20 percent.
Wood Mackenzie estimates that steelmakers will pay approximately $100 per tonne by 2050 to align themselves to a 1.5 °C goal by 2050.
“While steelmakers will have to swallow the price hikes for raw materials, carbon abatement costs will ultimately be passed onto steel end-users, meaning it is the consumer who must pay for the green premiums,” Wu said.
Regional disparities will emerge
The report also said that the iron and steel industry will also require support from the global carbon policy. Most national carbon markets are nascent and concentrated in mature economies.
As more than 60 percent of steel production comes from China, Beijing would have to implement aggressive carbon pricing and taxation if steel’s high carbon footprint is to be addressed, Wood Makenzie said.