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Background to the Study
This study primarily presents a comparative analysis of steelmaking pathways to cost-effectively decarbonise a steel mill, taking a life-cycle perspective on associated environmental impacts. The roll-out of clean steel technologies is envisioned to have a significant implication for support infrastructure. Therefore, a secondary objective of the study is to gain insights into the primary energy and infrastructure implications associated with large-scale deployment of different steel decarbonisation pathways. Clean steel production will likely be more expensive than steel produced today; this poses additional economic strains on steel producers and consumers. Consequently, a third objective is to estimate the price premium that clean steel could command in existing and future markets. Further, this study formulates recommendations for key stakeholders to support the sector and outlines recommendations for further work.
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Key Messages
- To achieve deep decarbonisation, disruptive measures and innovative steelmaking processes will be necessary. Although enhancements in energy efficiency or increased scrap utilisation in basic oxygen steelmaking can diminish emissions, these measures alone will not suffice to achieve the substantial emissions reductions required to align with climate objectives.
- The solution for steelmaking facilities to transition to cleaner steelmaking could vary substantially by geography even within Europe. It finds that sites in Northwestern Europe are likely to be better suited for adopting carbon capture and storage (CCS) technologies due to the developing of CO2 Transport and Storage (T&S) projects. Sites in Central or Southern Europe may find transitioning to hydrogen-based routes more attractive due to existing hydrogen pipelines.
- While all pathways show a reduction in fossil global warming potential (GWP)1 impact, it is evidenced that alongside dealing with residual direct emissions, decarbonisation of the supply of materials/energy and treatment of wastes will be required to drive down the total GWP of crude steel production.
- When considering the use of renewable electricity within the steel mill and at the pellet plant, as well as for the production of hydrogen, H-DRI with bioenergy could deliver significant reductions in fossil GWP of about 80% compared to basic oxygen steelmaking. NG-DRI with CCS also shows strong potential for high levels of reduction.
- Transitioning to hydrogen-DRI does not yield the same level of reductions when all the embedded emissions linked to upstream raw materials and waste treatment are accounted for. In fact, considering the fossil GWP, the H-DRI pathway exhibits a higher fossil GWP compared to NG-DRI. This discrepancy is primarily driven by a substantially greater electricity input (six times higher) in the shaft furnace, as opposed to NG-DRI routes, and a higher coal consumption (ten times higher) in the Electric Arc Furnace (EAF).
- Lifecycle fossil GWP impacts of crude steel can be significantly lower if using onsite renewable or an equivalent net zero source electricity, which could be secured through Power Purchase Agreements.
- Nevertheless, the findings also indicate that achieving completely emissions-free steel production is not feasible. Residual emissions within the steelmaking facility and across the supply chain must be addressed.
- The findings indicate that current carbon pricing mechanisms fail to offer sufficient incentives to favour pathways with lower greenhouse gas (GHG) emissions intensity.
- Today, basic oxygen steelmaking without emission reduction measures remains the most economically advantageous option in terms of levelised production costs, even when factoring in carbon pricing. However, maintaining the status quo does not come without financial implications. Addressing and reducing emissions are becoming integral aspects of corporate strategies and procurement processes. Failing to decarbonise will likely result in a diminishing market share and reduced revenue in the future.
- In the short term, all pathways experience a decrease in production costs as energy and commodity prices gradually settle from their current record highs. By 2050, the Blast Furnace-Basic Oxygen Furnace (BF-BOF) + Bioenergy with CCS (BECCS) and Natural Gas-DirectReduced Iron + Electric Arc Furnace + CCS (NG-DRI+EAF+CCS) routes demonstrate the lowest breakeven prices. At that point, only the BF-BOF+hydrogen (H2) pathway exhibits a higher breakeven price for steel compared to the base case BF-BOF (unabated) pathway.
- As time progresses, the disparity in production costs diminishes, and by 2050, unabated basic oxygen steelmaking becomes one of the costlier steel production pathways.
- For the range of cost inputs, all pathways could potentially achieve lower levelised production costs compared to the BF-BOF baseline cost, except the hydrogen-DRI (H-DRI) pathways.
- This study has identified that high energy costs in Europe may adversely affect the cost structure for steel producers transitioning towards H-DRI pathways. Steel producers could potentially lower production costs by importing hot briquetted iron (HBI) to charge it into an electric arc furnace. Extending the analysis to other regions, bringing in wider geopolitical factors which may influence the rollout of technologies across the globe, is required to identify regions where transitioning to H-DRI presents a competitive advantage.
- The study suggests that steel consumers with a shadow carbon price of €100/tCO2 would be willing to pay a maximum of 30% premium for clean steel compared to conventional steel. However, should the decarbonisation of other components in the value chains of final products also lead to increased costs, the overall rise in expenses could surpass initial estimates. This might result in end consumers exhibiting a reduced willingness to pay.
- Achieving decarbonisation within the steel sector is contingent upon substantial supporting infrastructure, which currently represents a pivotal bottleneck.
- If all steel mills were to adopt H-DRI-based pathways, they could potentially account for 30%of the anticipated increase in renewable generation capacity in the EU by 2030.
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