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Posted on 06 Feb 2025

Message from the Secretary General: Feasibility of Using Hydrogen for Steelmaking and the Impact of Green Steel Premiums on Steel Consuming Sectors

Introduction

The global steel industry is a critical sector in modern economies, supporting infrastructure, construction, and manufacturing. However, its environmental footprint is substantial, contributing over 7% of global greenhouse gas (GHG) emissions and 11% of global CO2 emissions.

As industries strive to align with climate goals, the need for decarbonizing steel production has become urgent. Hydrogen-based technologies, particularly the Hydrogen Direct Reduced Iron (H2 DRI) coupled with Electric Arc Furnace (EAF), offer a promising pathway to green steel production.

This article is based on an interesting paper by Hasanbeigi, Ali, et.al (Jul 2024)[1], examining the role of hydrogen in green steelmaking, the factors influencing its feasibility, and the implications for downstream sectors like automotive, construction, and shipbuilding.

A. Hydrogen in Steelmaking

The Role of Hydrogen in Green Steel Economics

Hydrogen is pivotal in the transition to green steelmaking as it replaces carbon-heavy reductants like coke and natural gas in the iron reduction process. When produced using renewable energy, hydrogen emits negligible CO2, enabling a 94%-97% reduction in emissions compared to traditional Blast Furnace-Basic Oxygen Furnace (BF-BOF) methods. H2-DRI-EAF technology is not only environmentally significant but also positions countries and industries to meet stringent climate targets.

Hydrogen's importance extends to its potential to decouple steel production from fossil fuels, thereby stabilizing energy costs over time. However, the adoption of H2-DRI-EAF technology is currently hindered by high hydrogen production costs, technological limitations, and infrastructure constraints.

Competitiveness Among Countries – Conventional Systems

Based on Figure 10 of the study, reproduced below, the following insights on conventional steelmaking systems are:

• The top 3 lowest cost (based on their Levelised Cost of Steel - LCOS) producers of steel using BF-BOF systems are Brazil followed by China and Australia (tied)
• For NG DRI-EAF systems, the top 3 lowest cost producers are US, tied with Australia followed by Brazil.
• For both conventional BF-BOF and NG DRI-EAF systems, both Brazil and Australia are the top 2 lowest cost producers
• The US is the only country where the cost of production of steel using the NG DRI-EAF system is lower than BF-BOF system
• The highest cost producers of steel using BF-BOF and NG DRI-EAF systems is the European Union (EU), followed by South Korea, then Japan.
• For using NG DRI-EAF systems, South Korea is the highest cost producer followed by the EU, then Japan.

Figure 10:     Levelized Cost of Steel ($/t crude steel) for BF-BOF, NG-DRI-EAF and green H2-DRI-EAF in countries studied

 

 

Competitiveness Among Countries – Using Hydrogen in Steel Making

Again, based on Figure 10 of the study, shown above, the following insights are found while observing the use of H2-DRI-EAF systems:

• The top 3 lowest cost producers using H2-DRI-EAF systems for steelmaking are Brazil followed by China and Australia (tied again)
• For all countries except South Korea, H2-DRI-EAF systems are more competitive than the conventional BF-BOF systems when cost of hydrogen falls to USD 1 per tonne. For South Korea, cost of hydrogen must reach about USD 0.4 per tonne of hydrogen.

Impact of Hydrogen Prices on Competitiveness

Hydrogen prices are the most significant determinant of the competitiveness of H2-DRI-EAF technology. The cost of green hydrogen, which is derived through electrolysis using renewable electricity, is currently higher than that of natural gas-derived hydrogen (grey hydrogen) or fossil fuels. The summary by country is as follows:

• Brazil: With abundant renewable energy resources, green hydrogen costs are among the lowest. At $1/kg H2, H2-DRI-EAF is already competitive with BF-BOF and NG DRI-EAF, making Brazil a leader in green steel production.
• China: H2-DRI-EAF becomes competitive at hydrogen prices below $2/kg, aided by government investments in green hydrogen production. A carbon price of $15/ton CO2 further accelerates competitiveness.
• EU: Despite higher electricity costs, the EU’s strong carbon pricing mechanism ($50-$75/ton CO2) makes green hydrogen viable at prices around $3/kg. Policy incentives like the Carbon Border Adjustment Mechanism (CBAM) will enhance adoption.
• United States: With substantial subsidies under the Inflation Reduction Act, green hydrogen costs are expected to decline significantly. At $1.4/kg H2, H2-DRI-EAF achieves cost parity with BF-BOF.
• Japan and South Korea: High electricity and hydrogen production costs pose challenges. Cost parity requires hydrogen prices below $2/kg and robust carbon pricing mechanisms.

Carbon Pricing and Its Role

Carbon pricing is a critical enabler for H2-DRI-EAF technology. By imposing costs on emissions-intensive production methods like BF-BOF, carbon taxes create a financial incentive to adopt greener alternatives. For instance:

• In China, a carbon price of $30/ton CO2 makes H2-DRI-EAF competitive at hydrogen prices of $2.2/kg.
• In the EU, where carbon prices exceed $75/ton CO2, H2-DRI-EAF achieves parity with BF-BOF even at hydrogen costs of $4/kg. Based on current prices of €70/ton CO2 (~USD 71/ton CO2), the EU is the ideal location where H2 production is expected to be competitive with such carbon pricing in place.

Timeline for Competitiveness

Projections indicate that H2-DRI-EAF technology will become competitive in most markets by 2030, as green hydrogen costs decline to $1-$2/kg due to advancements in electrolyzer technology and economies of scale. Supportive policies and investments in renewable energy infrastructure will further accelerate this timeline.

B. Impact of Steel Price Premium on End Customers

The adoption of hydrogen for steelmaking introduces a green premium, affecting the cost of final products in key sectors.

Automotive Sector

In Japan, at $5/kg H2, the green premium for steel adds approximately $208 to the cost of a passenger car. This represents less than 1% of the average car price, a manageable increase for both manufacturers and consumers. As hydrogen costs decline to $1.3/kg, this premium is expected to disappear. In the U.S., similar impacts are observed, with minimal price increases for climate-conscious buyers.

Construction Sector

In China, at $5/kg H2, the green premium adds $563 to the cost of a 50m² residential unit. Given the high overall costs of construction, this represents a small percentage increase, which can be mitigated by government subsidies or carbon pricing. In Brazil, the impact is even lower due to competitive green hydrogen costs, making it a model for green construction.

Shipbuilding Sector

The shipbuilding industry faces a more significant impact due to the high proportion of steel in ship costs (~95%). For a 40,000 DWT ship, the green premium is approximately $3 million, representing a 10% cost increase at $5/kg H2. Adoption in this sector will depend on regulatory pressures and demand for low-carbon shipping solutions.

Conclusion

The feasibility of using hydrogen in steelmaking hinges on reducing hydrogen costs, implementing robust carbon pricing mechanisms, and fostering technological advancements. The following actions are recommended:

Governments and Policies

• Subsidies and Incentives: Governments should provide financial support or tax / capital allowances for green hydrogen production and H2-DRI-EAF projects.
• Carbon Pricing: Establish or enhance carbon taxes to incentivize low-carbon steel production. To do this, it would be necessary to develop a measurement, validation and reporting system (MRV system - for emissions reporting) and an environmental product declaration system (EPD – for emissions declaration to end customers).
• Public Procurement: Prioritize green steel in infrastructure projects to create demand. Given the that green steel is expected to increase costs of final products, public procurement would accelerate the adoption of green materials in the market.
• Infrastructure Development: Invest in hydrogen production, storage, and distribution networks.

 

Steel Producers

• Investments: Transition from BF-BOF to H2-DRI-EAF technology and secure partnerships for hydrogen supply as well as renewable energy supply. Carbon capture, utilisation and storage (CCUS) systems should also be develop in the meantime, while pushing down the cost of hydrogen through economies of scale in the production of hydrogen.
• Pilot Projects: Scale up industrial demonstrations to build technical expertise and reduce costs.

 

Steel Consuming Industries

• Sustainable Procurement: Integrate green steel into supply chains and promote its benefits.
• Collaboration: Partner with steel producers to share the green premium and drive innovation.

By aligning efforts across stakeholders, the transition to green steel can be accelerated, enabling a sustainable and low-carbon future for the global steel industry.

 

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Source:SEAISI