System mapping
Hover over the bubbles to view relationships (arrows) between 'Reinforced Outcomes', 'Stakeholders', and 'Challenges and Opportunities'. Hover over any given arrow to see more detailed information about the relationship it depicts. Detailed descriptions of each challenge and opportunity are provided below. To view relationships for a select set of challenges and opportunities, use the menu on the right side.
Interpreting the map
To learn more about the importance and possibilities of decarbonizing the iron and steel industry, click here.
To reach the 1.5°C pathway, we need to reduce the challenges (i.e., weaken the barriers) and the interactions that perpetuate emissions-intensive steel production. Additionally, we need to strengthen the factors that allow for a green steel market to grow. We can use the system map to understand these interactions and identify direct and indirect causes for emissions-intensive steel reinvestments, as well as enabling conditions for low-emissions production.
In the first step, we can focus on those challenges with a direct relationship to companies’ decision-making processes (i.e., those that directly reinforce emissions-intensive investments). These are the direct causes, and addressing them can help us strengthen the necessary enabling environment (e.g., competitiveness, energy/ technology/ infrastructure/ information availability, financial resources). They themselves are caused and/or reinforced by indirect causes (e.g., overcapacity, excessive government intervention, definitions and standards, etc.). Addressing these challenges can help to reduce root causes or promote decarbonization through additional policies.
You can identify policies and opportunities targeted at addressing each challenge when clicking on the Challenges and Opportunities in the list below, or on the respective GEM.wiki pages. Developing a comprehensive set of policies requires a contextual understanding of the steel fleet, economy, resources and infrastructure, as well as stakeholders and their needs. Ensuring effectiveness of policies also requires systemic thinking and strategies for the near-, medium-, and long term, on the local, national, and global levels, and involving all relevant stakeholders.
Example: The access to financial resources (for low-emissions steel companies) can be addressed directly through policies. It can also be promoted indirectly by improving steel companies’ “profit margins,” by reducing “overcapacity,” for example, which itself can be done through policies to decrease “government intervention” and improve “international cooperation.”
Challenges and Opportunities
For detailed information on each of the challenges and opportunities, visit the GEM Wiki page “Introduction to steel decarbonization” (see section “See challenges and opportunities toward steel decarbonization”).
Growing Steel Demand
To learn more about this challenge and potential policy opportunities, click here.Societies around the world continue to develop and generate economic growth, leading to the increasing construction of large cities, infrastructure, technologies, and consumer goods. The demand for steel is, therefore, projected to continue growing by approximately a third by 2050. If no low-emissions processes are adopted, we will see a similar trend for resulting greenhouse gas emissions. Even if we implement and scale new technologies quickly, we thus cannot stop emissions from growing without addressing the growing steel demand.
- Policy targets to reduce overall steel demand:
- Use financial instruments to increase steel prices, e.g., carbon pricing, taxes to account for externalities, etc.
- Promote or require the transition away from carbon-heavy materials in the construction of products and infrastructure (Mission Possible Partnership, 2022). This requires collaboration with steel consumers.
- Promote or require smart designs of products and infrastructure, e.g., through building codes, product design standards, construction practices, etc. (IEA, 2020; Net Zero Steel, 2021). This requires collaboration with steel consumers.
- Use standards and regulations to extend building and product lifetimes, e.g., increase durability and reusability (IEA, 2020).
- Reduce the demand for steel products, such as cars and infrastructure, e.g., shared, service-oriented, and electric mobility systems; shared buildings; etc. (IEA, 2020; Mission Possible Partnership, 2022). This requires collaboration with investors and companies.
- Use regulations and incentives to change consumer behaviors, e.g., impose lifecycle emission standards for products, pressure or incentivize steel consumers to decarbonize, etc.
- Policy targets to increase material efficiency:
- Reduce waste in steel production to improve yields, e.g., improved manufacturing techniques, use of digitalization to increase performance, implementation of efficiency-promoting technologies, etc. (IEA, 2020; Swalec & Shearer, 2021). This requires collaboration with steel companies.
- Incentivize manufacturers to reduce steel waste during product manufacturing, e.g., awareness and capacity-building, implementation of efficiency-promoting technologies (IEA, 2020). This requires collaboration with steel consumers.
- Use standards and regulations to reduce lifecycle emissions and improve product performance, e.g., mandatory efficiency and appliance standards (Bataille, 2019; Energy Transitions Commission, 2021).
- Create and implement efficiency labels and certifications to promote low-emissions product demand.
Green Energy and Resource Availability
To learn more about this challenge and potential policy opportunities, click here.To successfully transition to low-emissions steel production, companies need access to different low-emissions energy sources and raw materials. Depending on the production routes chosen, both the iron- and the steelmaking processes can require large amounts of renewable energy, green hydrogen, biomass, high-quality iron ore, and scrap for their low-emissions production. These resources also need to be relatively cheap to make the transition and production affordable. We currently see the demand for such resources increasing across industries, leading to supply shortages and higher prices.
- Policy targets to increase the availability and accessibility of green energy and raw materials:
- Increase the availability of low-emissions energy sources and decarbonize the power sector through investments into green energy systems, international trade and cooperation, public-private partnerships, etc. (EIA, 2022; Net Zero Steel, 2021).
- Ensure rapid commercialization and expansion of green hydrogen production through investments in and support of research and development (R&D), public and private green procurement, economic incentives, or guaranteed pricing, e.g., with contracts for difference (Net Zero Steel, 2021).
- Use economic policies such as subsidies to reduce the price of low-emissions energy and raw materials, and use financial instruments such as carbon caps or taxes to increase fossil fuel costs, thus making green energy more competitive (Mission Possible Partnership, 2022).
- Incentivize steel producers to switch the energy sources and raw materials used as input, e.g., through production standards, economic or legal penalties, licensing restrictions, or provision of financial resources to incentivize and promote such changes. Better data collection and labeling of plants’ emissions could be used to publicly compare the emissions of companies and create pressure through reputational risk.
- Implement standards or incentives to increase the share of EAF facilities instead of BF-BOF plants (EIA, 2022). This requires collaboration with steel producers.
- Analyze regional and national steel production in order to understand resource needs and transition pathways and ensure that the necessary energy and raw materials are available to steel producers.
Steel Recycling Capacity
To learn more about this challenge and potential policy opportunities, click here.A major opportunity to reduce emissions is through recycling (i.e. secondary steel production), when previously used steel (i.e. “scrap”) is reclaimed and remelted, instead of producing steel from raw materials (i.e. primary steel production) through the highly carbon-intensive ironmaking process. Steel recycling can reduce 1.5 metric tonnes of CO2 per metric tonne of scrap used in steel production, and also save other resources such as coal, limestone, and energy.
Scrap availability depends on a system of efficient recollection, separation and sorting of steel at the end of a product's lifetime. Scrap can either be re-melted and retrofitted to become a new product, or it can be reused directly depending on its quality. The steel industry has been limited by the lack of holistic and efficient scrap collection and sorting systems - including a lack of documentation and labeling of products - to create a circular economy, preventing closed loop recycling. Without such a system, high-quality steel scrap is frequently being remelted together with low-quality or even contaminated scrap, resulting in an end product characterized by low quality.
- Policy targets to increase steel recycling rates:
- Incentivize the direct reuse of steel products without remelting, such as recovering and reusing steel beams or pipelines for new purposes. This may require the implementation of quality controls through documentation and labeling of materials (IEA, 2020).
- Use standards and regulations to change product and building designs to require separability during deconstruction processes (Bataille, 2019). This requires collaboration with the construction and manufacturing companies using steel.
- Exhort steel companies and their customers to create scrap recollection and sorting contracts for the end-of-product lifetimes. Selling steel scrap back to producers may create an economic incentive for behavior change. Working with steel producers to make such contracts the default can function as a nudge toward improved recycling rates.
- Provide manufacturers, demolition companies, and other customers with incentives to increase steel recovery rates of their products. Recycling regulations can be used to enforce greater steel recovery.
- Support the creation of sorting and distribution networks that bring steel scrap back to steel producers for consistent recycling efforts (World Steel Association, 2021).
- Classify grades of scrap to increase demand for purer materials and incentivize improved sorting and high-quality steel recycling (Bataille, 2019).
Profit Margins
To learn more about this challenge and potential policy opportunities, click here.Producing green or low-emissions steel generally requires different resources, new technologies, and infrastructure, which requires significant investments. Steel producers generally operate with low profit margins, making the internal financing of such endeavors rather difficult. This is exacerbated by continued global steel overcapacity. To afford such investments, owners are often dependent on external financing, loans, and/or subsidies for new steel plants.
At the same time, many owners are still paying back their loans from current steel plants and will, therefore, find it hard to get additional financial resources. While low-emissions steel demand is growing, it is currently too low to provide market security for many steel plant operators. It creates a feedback loop, in which little demand for low-emissions steel leads to little production, keeping prices of low-emissions steel high, resulting in a reinforced low demand for the low-emissions product. Low profit margins mean that there is a higher dependency for external funding to invest in decarbonization, making it a challenge to their green transition.
- Policy targets to increase capital availability:
- Provide resources and government funding for relevant R&D projects, the construction of low-emissions steel plants (and energy) infrastructure, the refurbishment with low-emissions and energy-efficiency technologies, or to cover increasing costs from renewable energy purchases. This could include grants, loan guarantees, subsidies, public expenditures, tax credits and deductions, or agreements with financial institutions and investors, including through Public Private Partnerships (PPPs).
- Policy targets to increase access to funding:
- Enable access to capital through frameworks for sustainable finance (World Steel Association, 2021). This should include criteria or definitions of green and low-emissions steel (IEA, 2020).
- Create climate-aligned investment principles (Mission Possible Partnership, 2022). This should include recommendations for client engagement, information disclosure, and exclusion and inclusion criteria (IEA, 2020).
- Collaborate with banks and investors to create partnerships and align on investment criteria (IEA, 2020).
- Increase the availability of funding for low-emissions steel producers, through increased government spending and green projects, or collaborations with other financial stakeholders, e.g., green funds, PPPs, carbon credit funding, future contracts, etc.
- Accelerate projects towards final investment decision status (FID) to commit to reaching the necessary decarbonization milestones (Mission Possible Partnership, 2022).
- Use regulations or financial incentives to encourage investments in low-emissions steelmaking.
Market Security for Low-Emissions Steel
To learn more about this challenge and potential policy opportunities, click here.A lack of demand and market security for low-emissions steel results in low levels of production. With little supply and without the benefits of the economies of scale, low-emissions and green steel prices increase, making it more difficult to find buyers and remain profitable. Without customers that are interested in buying low-emissions steel, or that are willing to pay for the higher prices associated with it, a transition may result in declining profitability for steel producers. This makes a decision towards sustainable production less likely. The lack of market security could also make it impossible to fund a green steel venture in the first place: Because the cost of construction for new plants is very high, most steel companies are dependent on significant amounts of capital from investors. They, however, are unlikely to invest in low-emissions steel if it is unsure that such projects become profitable.
Policy targets to promote low-emissions steel competitiveness:
- Implement carbon or lifecycle emission regulations, and carbon taxes or trading schemes to increase the price of carbon-intensive steel (IEA, 2020).
- Cover the initial green premium of low-emissions steel to reduce prices for steel consumers and thus increase demand (Energy Transitions Commission, 2021).
- Create low-emissions steel above-market price guarantees, similar to feed-in tariffs.
- Use public procurement policies, e.g., through guarantees to purchase low-emissions steel for government-funded construction projects. Alternatively, this could include the setting of benchmarks for emission intensities of construction materials (Energy Transitions Commission, 2021; IEA, 2020; Mission Possible Partnership, 2022).
- Create and widely implement certifications and labeling of low-emissions steel to increase access to funding for and promote consumer choices towards low-emissions steel.
- Require or incentivize large steel consumers to decarbonize their value chains.
- Provide access to funding for low-emissions steel projects and reduce or eliminate future investments in BF-BOF steelmaking. This should be done in collaboration with financial stakeholders to ensure consistency and effectiveness. Instruments could include concessional and subordinated loans, low-interest loan guarantees, reimbursable advances, equity investments, debt guarantees, subsidies, and tax incentives such as rebates, tax credits, or tax deductions (IEA, 2020; Mission Possible Partnership, n.d.).
- Collaborate with public and private investors to develop public-private partnerships and blended finance mechanisms to reduce investment risks (IEA, 2020).
- Create guaranteed markets, contracts for differences, priority market access, and minimum content shares to reduce investment risks (Bataille, 2019).
- Exhort the creation of bilateral offtake agreements between large steel consumers and producers to provide direct demand signals.
- Incentivize volume-specific public future purchase commitments for low-emissions steel. They can be pooled and may or may not be directed towards a specific producer.
- Incentivize or require large steel consumers to decarbonize (e.g., through their supply chains) to create indirect demand signals. Organizations and investors can also make decarbonization commitments to promote such demand signals.
Competitiveness of Low-Emissions Steel
To learn more about this challenge and potential policy opportunities, click here.It is estimated that the initial green premium associated with low-emissions ironmaking is between 15-40% of the original production cost. Because this additional cost exceeds many steel companies’ profit margins, such endeavor is only possible if they can sell the low-emissions steel at higher prices. Within such a competitive globalized market, this will put producers at risk, as they will be competing with cheaper carbon-intensive steel. The combination of market insecurity and low competitiveness creates a “first-movers disadvantage”. If manufacturers are unsure if they can sell the low-emission steel for a higher price, they will be unlikely to invest in low-emissions steel production, delaying the transition.
- Policy targets to reduce the cost of producing low-emissions steel:
- Ensure the availability of competitively-priced low-emissions energy through greater investments into green energy systems (IEA, 2020).
- Increase access to funding for low-emissions steel producers to cover costs associated with steel production, e.g., with loan guarantees, grants, and invest heavily in breakthrough technologies to reduce their costs and improve their efficiency.
- Provide economic incentives and advantages for low-emissions steel producers, e.g., subsidies, tax credits or deductions, etc.
- Invest and incentivize investments into breakthrough technologies, renewable energy and energy infrastructure. This can increase these resources’ availability and reduce their costs, hence lowering the cost for low-emissions steel production investments.
- Policy targets to make carbon-intensive steel less competitive:
- Implement and improve emissions trading systems (e.g., carbon taxes, tradable emissions standards, cap and trade systems, etc.) to make carbon-intensive steel more expensive. For them to be effective, they must 1) include the steel and coal industry within them, 2) incentivize emissions reductions through high enough emissions costs, and 3) be implemented internationally (Bataille, 2019; IEA, 2020).
- End free allowances for carbon-heavy steel producers, particularly in carbon emissions schemes. While these allowances are supposed to ensure competitiveness, they disincentivize the transition to low-emissions production routes (Gray & M’barek, 2022).
- Increase the price of coal, or reduce its availability through carbon trading schemes, border adjustment programs, and coal phaseouts (Cui et al., 2022). This can include the design of regulations that account for externalities caused by methane emissions during coal mining.
- Create quotas or certificate systems that require increasing shares of steel produced or purchased to be green (IEA, 2020).
- Policy targets to cover the initial green premium:
- Create Carbon Contracts for Difference (CCfDs) to fund the green premium of low-emissions steel production, e.g., through a tender (Energy Transitions Commission, 2021; IEA, 2020).
- Direct revenues from carbon emissions schemes to fund investments in low-emissions steelmaking and CCfDs.
Excessive Government Intervention
To learn more about this challenge and potential policy opportunities, click here.For many decades, governments around the world have intervened in the steel industry to ensure their country has large amounts of steel capacity. Such interventions include plant ownership, the provision of low-interest loans, grants, tax benefits, and excessive subsidies. Even though this effectively caused the growth of steel capacity, the growth was not market-based and can create unnatural advantages for inefficient technologies like higher emissions and energy intensive steelmaking capacity. Therefore, the global supply now significantly exceeds the global demand, a phenomenon called “overcapacity”. With a current global overcapacity of around 25% and growing, the average steel plant is operating at a level of production lower than needed to avoid economic losses. Additionally, government intervention makes economic incentives and regulations less effective.
- Policy targets to reduce government intervention and excess capacity:
- Analyze national steel capacity, steel demand, and government interventions in the steel market to identify overcapacity, inefficient plants, and nonconstructive government practices (Price et al., 2013).
- Create strategies to deal with existing excess capacity, e.g., mandate closures of underutilized and inefficient plants or prohibit reinvestments. This requires collaboration with financial stakeholders and steel producers.
- Eliminate public sector financial assistance to carbon-intensive steel production, including the construction and maintenance of existing BF-BOF plants, export credits, or free allowances in carbon schemes (Gray & M’barek, 2022; Price et al., 2013).
- Stop government interventions in raw material markets, as well as industrial planning and decision-making (Price et al., 2013).
- Reduce import tariffs and trade barriers, as well as barriers to exiting the steel industry (Price et al., 2013).
- Under conditions where overcapacity is deemed important, require a switch to EAF production, which can be switched off during times of underutilization, in contrast to BF-BOF plants. This will also reduce stranded assets (Mission Possible Partnership, 2022).
- Design and implement an international agreement to reduce or eliminate steel subsidies and tariffs, as well as other government interventions to prevent future market distortions (Price et al., 2013). This could be done in collaboration with the Global Forum on Steel Excess Capacity (GFSEC) (Swalec, 2022).
Overcapacity
To learn more about this challenge and potential policy opportunities, click here.The global steel supply now significantly exceeds the global demand, a phenomenon called “overcapacity”. Overcapacity causes economic losses of steel plants, international trade friction and economic inefficiency, as excess capacity causes the dumping of very cheap steel in other markets, making it more difficult for local plants to compete. The reduced profitability makes it more difficult for plant owners to afford new investments in low-emissions steel infrastructure and technologies, highlighting the importance of closing down unused and high-emission plants to reduce overcapacity and unnecessary emissions. While overcapacity may prove to be a challenge to steel decarbonization, it also provides an opportunity to support the transition as higher-emissions steel capacity can be closed immediately, without affecting overall supply and demand.
- Policy targets to reduce government intervention and excess capacity:
- Analyze national steel capacity, steel demand, and government interventions in the steel market to identify overcapacity, inefficient plants, and nonconstructive government practices (Price et al., 2013).
- Create strategies to deal with existing excess capacity, e.g., mandate closures of underutilized and inefficient plants or prohibit reinvestments. This requires collaboration with financial stakeholders and steel producers.
- Eliminate public sector financial assistance to carbon-intensive steel production, including the construction and maintenance of existing BF-BOF plants, export credits, or free allowances in carbon schemes (Gray & M’barek, 2022; Price et al., 2013).
- Stop government interventions in raw material markets, as well as industrial planning and decision-making (Price et al., 2013).
- Reduce import tariffs and trade barriers, as well as barriers to exiting the steel industry (Price et al., 2013).
- Under conditions where overcapacity is deemed important, require a switch to EAF production, which can be switched off during times of underutilization, in contrast to BF-BOF plants. This will also reduce stranded assets (Mission Possible Partnership, 2022).
- Design and implement an international agreement to reduce or eliminate steel subsidies and tariffs, as well as other government interventions to prevent future market distortions (Price et al., 2013). This could be done in collaboration with the Global Forum on Steel Excess Capacity (GFSEC) (Swalec, 2022).
Steel Plant Construction Cost
To learn more about this challenge and potential policy opportunities, click here.The decarbonization of the steel industry will require significant amounts of capital for new investments. The lack of capital available from low profit margins, in combination with the high costs, therefore, creates an obstacle to the transition. Some of these costs include the construction of low-emissions steel plants, the development and implementation of low-emissions technologies, the training of professionals, higher quality raw materials and renewable energy, and the construction of enabling infrastructure. The accumulation of costs, all of which are greater than the traditional carbon-heavy route without substantially increasing profits, makes it challenging to afford a transition without external upfront investment.
- Policy targets to increase capital availability:
- Provide resources and government funding for relevant R&D projects, the construction of low-emissions steel plants and (energy) infrastructure, the refurbishment with low-emissions and energy-efficiency technologies, or to cover increasing costs from renewable energy purchases. This could include grants, loan guarantees, subsidies, public expenditures, tax credits, and deductions, or agreements with financial institutions and investors, including through Public Private Partnerships (PPPs).
- Policy targets to increase access to funding:
- Enable access to finance through frameworks for sustainable finance (World Steel Association, 2021). This should include criteria or definitions of green and low-emissions steel, a topic that will be discussed more later on (IEA, 2020).
- Create climate-aligned investment principles (Mission Possible Partnership, 2022). This should include recommendations for client engagement, information disclosure, and exclusion and inclusion criteria (IEA, 2020).
- Collaborate with banks and investors to create partnerships and align on investment criteria (IEA, 2020).
- Increase the availability of funding for low-emissions steel producers, through increased government spending and green projects, or collaborations with other financial stakeholders, e.g., with green funds, PPPs, carbon credit funding, future contracts, etc.
- Accelerate projects towards final investment decision status (FID) to reach the necessary decarbonization milestones (Mission Possible Partnership, 2022).
- Use regulations or financial incentives to encourage investments in low-emissions steelmaking.
- Policy targets to promote the construction of enabling infrastructure:
- Analyze the existing and future needs for enabling infrastructure, such as production, storage, and distribution facilities for renewable energy, hydrogen, and other strategy-relevant resources. This requires collaboration with the energy and steel industry stakeholders.
- Coordinate and fund the development of carbon storage, sequestration, and transportation infrastructure, where needed, to allow CCUS usage and lower its cost (Energy Transitions Commission, 2021). This may require an initial identification of suitable sites and the set-up of a regulatory framework (IEA, 2020).
- Legislate and incentivize the expansion of renewable energy production, storage, and high-voltage electricity transmission to ensure high availability and accessibility for low-emissions steel producers (IEA, 2020; Mission Possible Partnership, 2022).
- Invest in and plan the expansion and research of green hydrogen production, storage, and distribution to ensure high availability and accessibility for low-emissions steel producers (Yadav et al., 2021).
- Implement localized waste heat-sharing infrastructure between industries, e.g., between steel and chemical plants (Bataille, 2019).
Lifetime and Reinvestment Cycles
To learn more about this challenge and potential policy opportunities, click here.A steel plant requires reinvestment after around 20-25 years to achieve its average lifetime of 40 years. To afford the initial construction or relining of steel plants, many owners are dependent on external financing or loans. Getting a return on the initial investments can then take 15 to 20 years. It is these long lifetimes that cause a very slow turnover of steel facilities, reinforced by steel overcapacity, which lessens new construction.
Investment decisions are generally made toward the end of a plant’s lifetime or before the reinvestment cycle. At that point, it is the expected profitability of carbon-heavy versus low-emissions steel - as well as the existing technologies available or regulations in place - that determine if a plant owner continues with the current production route or switches. Around 71% of all existing BF-BOF plants will reach the end of their lifetime before 2030. We should thus aim to make it more profitable to switch to low-emissions steel routes that year at the latest.
- Policy targets to reduce emissions before the end of lifetimes:
- Incentivize or require early retirement of BF-BOF plants (IEA, 2020).
- Incentivize or require all steel plants to retrofit and refurbish with the best available technologies (IEA, 2020).
- Ensure new steel plants can easily be retrofitted and refurbished with expected future low-emissions and efficiency technologies (IEA, 2020).
- Incentivize fuel and material input changes, such as increasing the share of scrap, high-quality iron ore, and renewable energy used (IEA, 2020).
- Prohibit new investments in BF-BOF (Net Zero Steel, 2021).
Access to Financial Resources
To learn more about this challenge and potential policy opportunities, click here.Because of the high costs associated with switching the production route, the net-zero transition of the steel industry will likely require an investment of USD 235-335 billion by 2050. The only way to afford this will be with extensive help from governments, banks, and investors. To encourage such institutions to invest in the steel industry, there are several factors we need to address: We should increase the profitability of green steel, ensure access to finances is guaranteed despite potentially poor credit histories if the industry is asked to shut down BF-BOF plants before achieving profitability, and create market security to ensure returns on investment. Lastly, we should identify how to reduce investment risks from the focused upfront costs.
- Policy targets to increase access to funding:
- Enable access to finance through frameworks for sustainable finance (World Steel Association, 2021). This should include criteria or definitions of green and low-emissions steel (IEA, 2020).
- Create climate-aligned investment principles (Mission Possible Partnership, 2022). This should include recommendations for client engagement, information disclosure, and exclusion and inclusion criteria (IEA, 2020).
- Collaborate with banks and investors to create partnerships and align on investment criteria (IEA, 2020).
- Increase the availability of funding for low-emissions steel producers, through increased government spending and green projects, or collaborations with other financial stakeholders, e.g., with green funds, PPPs, carbon credit funding, future contracts, etc.
- Accelerate projects towards final investment decision status (FID) to reach the necessary decarbonization milestones (Mission Possible Partnership, 2022).
- Use regulations or financial incentives to encourage investments in low-emissions steelmaking.
Availability of Low-Emissions Technologies
To learn more about this challenge and potential policy opportunities, click here.Around 50% of all global steel plants will require refurbishment or new investments in infrastructure before 2030. This provides us with a critical juncture: a point in time in which the decisions made will determine the future pathway of steel production. The technologies available, their affordability, and their effectiveness will dictate if they will be implemented by the time of reinvestment, or if investors decide to stick with carbon-heavy technologies. At the moment, however, many technologies are still under development and not yet scalable. By 2050, the adoption of Best Available Technologies and breakthrough technologies could reduce around 90% of the industry’s direct emissions, if the expected maturity timelines for new technologies are met. Around 25% of emissions reductions are expected to be achieved from two technologies alone, hydrogen-based DRI (ironmaking) and carbon capture and storage, even though the feasibility and economic practicality of the latter is still in question. That makes green hydrogen and CCUS two essential technologies to develop as fast as possible. However, each steel plant will have its own decarbonization pathway, therefore it is important that we develop a larger repertoire of technologies that enable decarbonization across contexts.
- Policy targets to promote the construction of enabling infrastructure:
- Work with national steel plant owners to identify the most important technologies for the national steel decarbonization strategy, as well as the fleet’s reinvestment cycles.
- Analyze the existing and future needs for enabling infrastructure, such as production, storage, and distribution facilities for renewable energy, hydrogen, and other strategy-relevant resources. This requires collaboration with the energy and steel industry stakeholders.
- Coordinate and fund the development of carbon storage, sequestration, and transportation infrastructure where needed, to allow CCUS usage and lower to its cost (Energy Transitions Commission, 2021). This may require an initial identification of suitable sites and the set-up of a regulatory framework (IEA, 2020).
- Legislate and incentivize the expansion of renewable energy production, storage, and high-voltage electricity transmission to ensure high availability and accessibility for low-emissions steel producers (IEA, 2020; Mission Possible Partnership, 2022).
- Invest in and plan the expansion and research of green hydrogen production, storage, and distribution to ensure high availability and accessibility for low-emissions steel producers (Yadav et al., 2021).
- Implement localized waste heat-sharing infrastructure between industries, e.g., between steel and chemical plants (Bataille, 2019).
Availability of Low-Emissions Infrastructure
To learn more about this challenge and potential policy opportunities, click here.Several technologies, like CCUS, green hydrogen and electricity production, and Best Available Technologies technologies are deemed necessary for the transition, but are not alone sufficient to achieve it: They require certain infrastructure to exist to be used. CCUS is dependent on access to geological spaces in which the emissions can be stored. Therefore, a plant needs to have a suitable underground site within reach, as well as the necessary infrastructure to transport the emissions. Hydrogen, too, requires infrastructure, including hydrogen production-, storage-, and distribution facilities. All of them will need to be expanded greatly. Renewable energy production facilities, too, are not sufficient for a transition if we do not prepare for high-voltage electricity transmission and storage infrastructure. Lastly, it would be possible to increase energy efficiency across industries if we were to implement localized waste heat-sharing infrastructure. If the relevant infrastructure is not within geographical proximity, it may cause the relocation of steel plants, or incentivize the continuation of carbon-intensive practices.
- Policy targets to promote the construction of enabling infrastructure:
- Analyze the existing and future needs for enabling infrastructure, such as production-, storage-, and distribution facilities for renewable energy, hydrogen, and other strategy-relevant resources. This requires collaboration with the energy and steel industry stakeholders.
- Coordinate and fund the development of carbon storage, sequestration, and transportation infrastructure where needed, to allow CCUS usage and lower its cost (Energy Transitions Commission, 2021). This may require an initial identification of suitable sites and the set-up of a regulatory framework (IEA, 2020).
- Legislate and incentivize the expansion of renewable energy production, storage, and high-voltage electricity transmission, to ensure high availability and accessibility for low-emissions steel producers (IEA, 2020; Mission Possible Partnership, 2022).
- Invest in and plan the expansion and research of green hydrogen production, storage, and distribution, to ensure high availability and accessibility for low-emissions steel producers (Yadav et al., 2021).
- Implement localized waste heat-sharing infrastructure between industries, e.g., between steel and chemical plants (Bataille, 2019).
Trained Professionals
To learn more about this challenge and potential policy opportunities, click here.To run low-emissions steel plants and support the construction and functioning of enabling factors - such as enabling infrastructure - we need qualified staff. Low-emissions steel facilities use novel technologies and infrastructure, the use of which needs to be learned. Additionally, the absence of necessary infrastructure and resources could force some steel companies to relocate to more favorable locations. Without past exposure and opportunities to work within the steel industry, new locations may have a shortage of qualified employees, providing a challenge for facilities. Professionals, therefore, need the right training, which itself requires some long-term planning to educate, recruit, (re)train, and employ a sufficient number of people for the right positions.
- Policy targets to ensure sufficient trained professionals:
- Analyze national steel and energy infrastructure to understand current and future training needs and the number of professionals needed.
- Create strategies to support a just transition, including mitigation opportunities for social or employment impacts caused by relocations and technology changes (IEA, 2020).
- If needed, create or promote training opportunities, either in collaboration with steel companies, or through the support of universities and training institutes (Mission Possible Partnership, 2022).
Green Steel Definition
To learn more about this challenge and potential policy opportunities, click here.Not every country has yet set standards for low-emissions steel, or even defined what constitutes a “green” steel production. However, having internationally harmonized definitions and standards could help us greatly in the transition, as it would allow us to set investment principles, regulations, and decarbonization policies that promote a net-zero steel production pathway. Without a clear and enforced definition, the industry allows steel with slightly fewer carbon emissions - although still being far from net zero - to be labeled as green steel. This reduces the effectiveness of market incentives, as consumers and investors are dealing with imperfect information, struggling to identify which products have a low carbon footprint or to evaluate the price-performance ratio. With clear and internationally harmonized definitions and certifications, as well as better customer awareness, the transition could be effectively driven by policy interventions and market incentives.
- Policy targets to create a green steel definition:
- Clearly differentiate between different types of steel, based on their emissions, to create definitions of low-emissions and green steel (Mission Possible Partnership, 2022).
- Collaborate globally to align on a green steel definition, potentially through an international agreement or the harmonization of different definitions and certifications.
- Integrate green steel definitions in investment criteria, among both governments and financial stakeholders.
Technology Standards
To learn more about this challenge and potential policy opportunities, click here.In the renewable energy sector, agreed-upon technology standards were an important element to enable the implementation and development of the industry. Such standards included agreements regarding new technologies’ performance, reliability, and durability. A lack of standards, procedures, and guidelines created barriers to the scaling of technologies, making large-scale adoption more difficult. The steel industry can learn from other industries’ lessons and prevent similar challenges through early preparation and institutions that determine and enforce technology standards. This is particularly important now, as many steel producers started to determine their transition strategies, including the technologies they might use. Uncertainty about the acceptance and effectiveness of technologies may slow this process and hence the transition.
- Policy targets to create effective technology standards:
- Clearly define the sustainability category of steelmaking technologies, e.g., whether CCUS is considered a low-emissions technology (World Steel Association, 2021). This includes acknowledging that many different technologies will be used across plants and that all relevant pathways will be supported.
- Create standards for low-emissions steelmaking technologies, including the effectiveness, efficiency, and carbon-reduction levels required.
- Collaborate internationally to align standards and definitions of technologies and to level the global playing field.
Bureaucratic Barriers
To learn more about this challenge and potential policy opportunities, click here.The planning and construction of steel plants takes several years, but is frequently prolonged further by long waiting times to receive construction permits and other required licenses. As many low-emissions technologies are rather novel, the bureaucratic process and approval time may take even longer. For Carbon Capture and Storage, for example, it often requires sequestration and transportation licenses and is associated with continuous safety monitoring that may require new staff, resources, and consistent interaction with relevant government departments. While these processes and safety checks are important, we should work to reduce waiting times and excessive bureaucracy so that our emission reduction targets can be achieved.
- Policy targets to reduce bureaucratic barriers:
- Eliminate excessive red tape for low-emissions steelmaking technologies to simplify their commercialization process and adoption across steel companies.
- Reduce bureaucratic processes for the licensing and construction processes of low-emissions steel plants. Having clearly-defined technology and steel standards can simplify this process (IEA, 2020).
- Align bureaucratic procedures with the national steel decarbonization strategy to ensure that bureaucratic procedures do not hamper the transition of a steel plant at the end of its lifetime or during reinvestments.
- Engage in capacity-building within government, e.g., through the provision of information and training about new steelmaking technologies, requirements, implementation, and monitoring.
- If necessary, create nudges and reminders to support steel producers in filing low-emissions technology and infrastructure permit requests on time, especially if bureaucratic requirements change. Such changes may relate to either default options or the provision of new information.
Accountability to Steel Decarbonization
To learn more about this challenge and potential policy opportunities, click hereAlthough an increasing number of countries and steel producers announced their decarbonization targets, there are few measures to ensure that such pledges are being followed by action. This poses a challenge: Often the simple announcement of ambitious climate targets improves a steel company’s access to funding and public perception, leading to a higher number of announcements in the last few years. However, there are no accountability measures that ensure that such plans are actually implemented. That makes market incentives less effective, slowing the transition. The lack of commitment to implement existing technologies additionally makes it difficult to develop incentives and punishments that could push steel producers to meet their targets in a timely manner. For a successful transition, we need to not only ensure that more companies and countries commit to timely decarbonizations but also develop accountability measures that ensure the targets are met.
At this point, there are few examples available for policy targets addressing the accountability of countries and companies:
- Policy targets to improve international cooperation and accountability:
- Create and ratify a binding international agreement between major steelmaking countries and companies to ensure multilateral commitment and accountability to rapid steel decarbonization (A. Ritter, personal communication, July 28, 2022). This could take the form of a climate club, for example, and should include a definition of green steel, a certification and tracking framework, and the commitment not to build BF-BOF plants without CCUS past 2025 (IEA, 2020; Mission Possible Partnership, 2022; Net Zero Steel, 2021).
- Identify how wealthy countries can support and incentivize other countries in creating and achieving steel decarbonization pathways, e.g., through financial investments into infrastructure, energy production systems, trade of relevant resources, information and training, etc. This support should be enforced through bilateral and multilateral agreements.
- Increase the security of steel trade to shift political preferences towards trade rather than national capacity expansion. A commitment to not use tariffs and border taxes on green steel during the energy transition may support such a goal (Gray & M’barek, 2022; IEA, 2020).
- Consider creating consumption-based regulations for materials going into end-use products (e.g., cars). These regulations could include carbon taxes, gradually declining caps on end-product emissions, or mandates for low-emissions usage shares (IEA, 2020, p. 202).
- Establish international forums to exchange information about technologies, best practices, climate finance, and strategies to increase awareness and trade (IEA, 2020; Mission Possible Partnership, 2022).
International Cooperation
To learn more about this challenge and potential policy opportunities, click here.The largest steel producers are currently China and India. Although both countries announced plans to become carbon neutral by 2060 and 2070 respectively, they also continue to invest in new BF-BOF plants. Due to the large share of steel capacity, and consequently emissions, we cannot succeed in our global steel decarbonization efforts if there is no successful transition within China’s and India’s industries. Some countries' steel transition, therefore, should be a priority on the international political agenda.
Many countries require extensive support, for example through increased access to funding, green materials, and technologies, or even with specific infrastructure developments, to kickstart their steel decarbonization. For that it will take more international cooperation targeting both the steel industry directly and enabling industries such as the renewable energy sector.
Currently, we have no international agreements that determine how to transform the steel industry on a global scale. However, due to the international nature of the industry, it is difficult for one country to transition without the risk of “carbon leakage”. This risk can be avoided when changes are made internationally, also referred to as “leveling the global playing field”.
- Policy targets to level the global playing field:
- Collaborate to create international cross-sectoral carbon accounting and regulation schemes or carbon border adjustments (IEA, 2020; Mission Possible Partnership, 2022).
- Increase access to funding for steel decarbonization from international organizations, such as the World Bank, International Monetary Fund, etc. This can include concessional finance by multilateral banks, development finance institutions (DFIs), private finance, equity, debt, grants, or other financial instruments.
- Create trade agreements for hydrogen, renewable energy, and other resources relevant to the regional steel decarbonization pathways.
- Identify policies that create markets for low-emissions steel and ensure competitiveness in compliance with World Trade Organizations requirements (IEA, 2020).
- Policy targets to improve international cooperation and accountability:
- Create and ratify a binding international agreement between major steelmaking countries and companies to ensure multilateral commitment and accountability to rapid steel decarbonization (A. Ritter, personal communication, July 28, 2022). This could take the form of a climate club, for example, and should include a definition of green steel, a certification and tracking framework, and the commitment not to build BF-BOF plants without CCUS past 2025 (IEA, 2020; Mission Possible Partnership, 2022; Net Zero Steel, 2021).
- Identify how wealthy countries can support and incentivize other countries in creating and achieving steel decarbonization pathways, e.g., through financial investments into infrastructure, energy production systems, trade of relevant resources, information and training, etc. This support should be enforced through bilateral and multilateral agreements.
- Increase the security of steel trade to shift political preferences towards trade rather than national capacity expansion. A commitment to not use tariffs and border taxes on green steel during the energy transition may support such a goal (Gray & M’barek, 2022; IEA, 2020).
- Consider creating consumption-based regulations for materials going into end-use products (e.g., cars). These regulations could include carbon taxes, gradually declining caps on end-product emissions, or mandates for low-emissions usage shares (IEA, 2020, p. 202).
- Establish international forums to exchange information about technologies, best practices, climate finance, and strategies to increase awareness and trade (IEA, 2020; Mission Possible Partnership).
Awareness and Information Availability
To learn more about this challenge and potential policy opportunities, click here.Transitioning to low-emissions and green steel requires certain transparency and availability of information, especially for market incentives to work effectively.
Steel Producers will need to make decisions about future production pathways and investments, which requires knowledge of the long-term strategies by governments, consistency in policy actions, and awareness of future technology and infrastructure availability.
Consumers and Supply Chains need to decarbonize their own supply chains, which requires awareness of the emissions inherent to the steel products they buy. There is still a lack of information about the availability of different types of low-emissions steel, perpetuated by the absence of globally harmonized green steel definitions, standards, and certification. Individuals, too, struggle to make low-emission steel a consideration in their purchasing decisions.
Governments need to have an understanding of their own industry’s functioning to address the existing challenges and opportunities. When proposing the construction of a new plant, companies are often not required to report the production pathway they choose, but only how much steel they will produce once operating. That makes it difficult for governments to limit the construction of carbon-intensive steel plants or to create regulatory policies. Making a detailed decarbonization roadmap and increasing information availability should be a priority for each country.
Financial Institutions need information about steel production types and the respective emissions created to make investment decisions. At the moment we see a general underreporting, and those wanting to increase financial access for low-emission companies need to rely on accurate self-reporting of emissions or some kind of low-emissions certifications.
- Policy targets to promote clarity on the decarbonization pathway:
- Every country should create and publish a specific national steel decarbonization strategy, highlighting pathways on a sectoral, national, and regional level that create clarity for steel producers and other relevant stakeholders. It should include guidance on the technologies that will be accepted and when they are expected to mature (including any requirements for their implementation); infrastructure and resources that will be available and their cost; future regulations and costs of carbon-intensive steel; government low-emissions steel procurement plans; regional competitive advantages; interim targets and milestone events; investment, infrastructure, labor, and regulatory needs; and any other information that can help steel producers plan ahead and make transition choices (Bataille, 2019).
- While each country will need to make a location-specific analysis, it is possible to generally orient toward publicly-available steel decarbonization pathways. Some of the more recent pathways include the IEA’s Iron and Steel Technology Roadmap, the IDDRI’s Net Zero Steel Project, several reports by McKinsey & Company, OECD’s “Low and Zero emissions in the steel and cement industries” report, the “Net Zero steel initiative” by Mission Possible Partnership, and reports by the World Steel Association (Swalec, 2022).
- Enforce labeling, certification, and standards to enable the functioning of market incentives (IEA, 2020).
- Policy targets to enhance awareness and information exchange:
- Identify the stakeholders working on steel decarbonization and addressing its various challenges, to facilitate collaboration, information exchange, and best-practice sharing. Examples for ensuring their collaboration, for example through incubator programs, steel industry associations, and innovation research networks (IEA, 2020).
- Increase and improve verifiable data collection and reporting by steel producers, including data about the production pathways used, the capacity and yields of a plant, underutilization rates, the fuel and resources used during operation and subsequent emissions released, energy efficiency and carbon reduction technologies implemented, decarbonization strategies and performance evaluation, etc. (IEA, 2020; Swalec, 2022) Data collection and monitoring should also target the value chains involving steel (IEA, 2020).
- Improve public engagement and education, e.g., through campaigns about the significance of the steel transition, decarbonization choices made, and how each stakeholder can participate in the process. This could include training, smart designs, collaborations, etc. (Loken et al., 2021), as well as awareness campaigns for all actors along the steel supply chain, who need to know what options they have and costs they face for a green transition (Bataille, 2019).
- Facilitate the development of trading platforms for low-emissions and green steel, in collaboration with steel producers and consumers (Mission Possible Partnership, n.d.).
- Create and publish green finance opportunities, investment schemes, and taxonomies (IEA, 2020).
- Provide more information in languages other than English. While most senior decision makers can read English, they may not read it as frequently, and information in anyone’s native language is easier to take in.
Methodology
Architecture
Global Energy Monitor’s Interactive Steel Decarbonization Tool uses a two-level system for organizing information, consisting of a system map and wiki pages with further information. The system map visualizes 20 structural challenges and opportunities (i.e. barriers) to decarbonization and the reinforcing relationships between them. It includes information on each of the challenges and opportunities, policy proposals, and nature of the relationships. A Wiki page for each one is created within GEM.wiki, and contains more detailed, footnoted information, such as context about the challenges and opportunities, their role in the steel decarbonization, potential policies to address them, and relevant case studies and examples.
Research Process
The challenges and opportunities and their relationships were identified from various research studies on steel and industry decarbonization, by organizations such as the International Energy Agency (IEA), United Nations Environmental Program (UNEP), Mission Possible Partnership, Net Zero Steel, the World Steel Organization, Breakthrough Energy, the OECD, Energy Transitions Commission, International Energy Outlook, Global Efficiency Intelligence, McKinsey & Company, Climate Bonds Initiative, TransitionZero, Global Energy Monitor, national and regional government agencies, and more. Information was then vetted against additional sources, including interviews with industry experts. Case studies and examples in the Wiki pages were gathered using company announcements, press releases, and data from the Global Energy Monitor’s Global Steel Plant Tracker (GSPT) and Global Blast Furnace Tracker (GBFT), as well as the Green Steel Tracker.
Assumptions
This model includes all large challenges and opportunities identified through the research process. While all are included in the system map, they may not all be relevant or applicable in every context. There may also be additional factors and relationships to consider. The model serves as a starting point for understanding and developing steel decarbonization policies, and should be re-evaluated on a contextual basis.
The analysis is based on two assumptions, which were deduced through the research process and the interviews conducted. No steel company can or will decarbonize if:
- The production of green or low-emissions steel is (in the long-term) less profitable than the current method of production, except if they have to switch due to wider regulatory requirements.
- A transition is so expensive that it will put the company at risk of going bankrupt.
While these assumptions should be re-evaluated within local contexts, they are foundational to the model and highlight the importance of acknowledging financial, technological, and political constraints.
Wiki Pages
For each structural barrier, a Wiki page is created on Global Energy Monitor’s GEM.wiki. Wiki pages provide a repository for the background information on steel decarbonization, challenges and opportunities, potential policy actions, examples and case studies, and additional resources about the topic. Under standard Wiki convention, all information is linked to a published reference, such as a news article, company or government report, or study in the field. In order to ensure data integrity in the open-access Wiki environment, Global Energy Monitor researchers review all edits of project Wiki pages.
Mapping
The Steel Decarbonization Policy Tool was built using Flask in Python, along with Javascript and HTML. The initial network was built using pyvis in Python. The interface is managed by Flask, while interactive changes are carried out by vis.JS. All text boxes and dynamic re-positioning are handled via customized code in Python.
This tool is published under a Creative Commons Attribution 4.0 International License. The original model underlying this interactive tool, first published in September 2023, is based on the paper “Breaking the Barriers to Steel Decarbonization - A Policy Guide” by Nele Merholz (April 2023). The original web design, development and content visualization were done by Sohit Miglani.