Sharing our insights into the biggest sustainability challenges facing our built environment.
Our previous issues of the UNSUSTAINABLE series have explored cooling, windows, concrete & cement, and the paradox of cities. In this post, we explore the UNSUSTAINABLE ways we make steel today and the solutions to decarbonise steel in the future.
The Problem
Steel is among the most carbon-intensive components of our built environment. Emitting ~4 Gt CO2e/yr, the steel industry is responsible for ~7% of global GHG emissions and ~10% of global CO2 emissions. Each year, we produce ~2 billion tonnes of steel, with an average emissions intensity of 2.0 tonnes of CO2e / tonne of steel. And by 2050, global steel demand could rise by a further ~33–50% above today’s levels.
Why Innovation is Needed
Steel is a combination of iron and carbon. When we make steel from scratch, we get the iron from iron ore (which also contains oxygen) and the carbon from coal-based coke. To turn these components into steel, we need to remove the oxygen from the iron ore and add in a bit of carbon. In typical steel production, we achieve both of these steps in a single piece of equipment: the blast furnace. This is the most common steel production route, making up ~73% of production in 2019, but it is also the most emitting, with an average of 2.3 tonnes of CO2 per tonne of crude steel produced. It is also the most difficult-to-decarbonise production route. In the blast furnace, the coal provides a heat source but also plays a key chemical role as well as providing a physical structure for the whole process to take place. Removing coal from the blast furnace will require us to rethink how we make steel.
One approach is to recycle. Today, we make new steel from recycling scrap in the electric arc furnace, making up ~20% of production in 2019. The good news: the electric arc furnace can have almost zero CO2 emissions if zero carbon electricity is used. The bad news: There is not enough scrap for this route to fulfill market demand. Recycling rates of steel are already 80–90% globally, and even if this were to increase to 100%, BNEF forecasts that by 2040, secondary production from scrap will only be able to meet 42% of demand. Moreover, copper contamination of steel scrap may increasingly constrain our ability to utilize recycled steel in the future.
The other way we make steel today is the direct reduction furnace. A primary production path, the direct reduction furnace starts with iron ore, using natural gas (or gasified coal) as a source of reducing gas (hydrogen and carbon monoxide) to soak the oxygen out of the iron ore, which is then fed into an electric arc furnace. The good news: It should be straightforward to decarbonise this production path by using hydrogen instead of natural gas. The bad news: Today, making steel with clean electricity and hydrogen direct reduction is ~45% more expensive than the traditional blast furnace production route (levelised cost of steel basis, source: BNEF).
With steel recycling already at 80–90% and hydrogen direct reduction 45% more expensive than traditional blast furnace steel making, innovation is needed to help the industry decarbonise.
The Market Context
The steel industry generates >$870 billion in revenues each year, but it is also a fragmented market, where the largest player makes up just 6% of global production. It is also a market suffering from overcapacity, with global capacity of 2.5Gtpa vs. production of 1.9Gtpa (2020 figures). Lastly, we flag significant price volatility. Having reached all time highs earlier in 2022, European steel prices have collapsed in recent months, with one benchmark falling ~50% between April and October of this year. With low demand, low prices, and high energy costs, European steelmakers are now curtailing capacity.
Yet more positively, there is demand for green steel, as well as willingness to pay a green premium. Earlier this year, H2 Green Steel (which plans to make steel using green hydrogen) announced that it has signed customer contracts of more than 5–7 years for over 1.5 million tonnes per year. An H2 Green Steel representative has previously indicated that the company’s first customers have agreed to pay a 25% premium.
A Window of Opportunity
We already have excess steelmaking capacity today, and much of this capacity is “young,” with an average global age of ~15 years vs. a typical lifetime of 40 years, but blast furnaces typically need relining every 20 years at a cost of hundreds of millions of dollars. It is estimated that ~50%-70% of steelmaking capacity is due for such a major investment decision before 2030, creating a window of opportunity for decarbonised steelmaking to take hold.
The Future of Steel
So what’s the future of steelmaking? A number of solutions are emerging to make the blast furnace a thing of the past:
- Hydrogen-based direct reduction uses the direct reduction furnace we have today, but with low carbon hydrogen rather than natural gas. Hydrogen acts as both the reducing agent and the fuel. This is the production path being pursued by H2 Green Steel as well as a number of incumbent steelmakers. These steelmakers may use digital tools in the future to drive down costs for hydrogen. For example, H2GS reports that analytics and machine learning are enabling a 20%-25% improvement in the cost of hydrogen production, in turn lowering the cost of hydrogen steelmaking.
- Boston Metals has developed a process for molten oxide electrolysis, in which electricity-generated heat melts iron ore, which is then placed in a cell with a mix of molten oxides that serve as the electrolyte. These oxides are more stable than iron ore, which breaks down into pure oxygen and pure iron.
- Electra’s Oxygen-Decoupled Electrolysis involves dissolving iron ore in water laced with acid, in order to pass electricity through it.
- Hydrogen plasma production is being pursued by incumbent steelmaker Voestalpine as well as startup Ferrum Decarb.
- Limelight Steel has invented a laser furnace to convert iron ore into iron.
Beyond replacing the blast furnaces, we can also use steel more efficiently (for example by retrofitting buildings rather than building new), find alternative materials (for example low-carbon alternatives to steel rebar), better scrap sorting to reduce contamination-related constraints on steel recycling, carbon capture for blast furnaces, and more.
Our 2150 Take
Traditionally labeled as “hard-to-abate,” steel is a huge source of GHG emissions, making up ~7% of global GHG emissions and ~10% of global CO2 emissions. And around half of this steel is used in the built environment. Decarbonising the built environment requires that we decarbonise steel, and decarbonising steel requires innovation.
Here at 2150, we’re passionate about understanding and supporting the technologies that will help the world eliminate the steel industry’s CO2 footprint. If you want to learn with us or if you’re creating new ways to decarbonise steel, please reach out!
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2150 is a venture capital firm investing in technology companies that seek to sustainably reimagine and reshape the urban environment. 2150’s investment thesis focuses on major unsolved problems across what it calls the ‘Urban Stack’, which comprises every element of the built environment, from the way our cities are designed, constructed and powered, to the way people live, work and are cared for. Find out more at www.2150.vc
