Posted on 19 Mar 2025
Introduction
The steel industry has long been a cornerstone of global construction and industrial activities, but its carbon-intensive nature presents significant challenges in the context of climate change. Efforts to decarbonise the sector have centred on transitioning from traditional blast furnace and basic oxygen furnace (BF-BOF) systems to more sustainable direct reduced iron and electric arc furnace (DRI-EAF) systems. This transformation is critical, as BF-BOF systems rely heavily on coal, a major source of carbon emissions, while DRI-EAF systems can be powered by natural gas and eventually green hydrogen.
Early initiatives in this area showed considerable promise, with companies like Stegra (previously H2 Green Steel) and others pioneering hydrogen-based DRI-EAF production at facilities in Europe, Australia and other parts of the world. However, despite initial optimism, these efforts have recently stalled, raising concerns about the industry's ability to meet its decarbonisation targets.
The initial transformation efforts involved a phased approach. Natural gas was seen as a transitional fuel to facilitate the adoption of DRI-EAF systems, with the ultimate goal of replacing it with green hydrogen once the technology and infrastructure matured. This strategy was not without its challenges, but it offered a realistic pathway to reducing emissions while maintaining operational continuity. Companies such as ArcelorMittal and Thyssenkrupp announced ambitious plans to integrate green steel technologies into their production processes, supported by substantial investments and government subsidies. Yet, despite these promising beginnings, the industry has encountered significant obstacles that have slowed the pace of change.
Reasons for Delays
One of the primary reasons for the delay in the steel industry’s decarbonisation efforts is the issue of profitability. Green hydrogen, which is central to the long-term viability of DRI-EAF systems, remains prohibitively expensive. ArcelorMittal, for instance, has highlighted that the high cost of hydrogen is a major barrier, even in regions where significant subsidies have been made available. The economic uncertainty faced by the global steel market has further compounded these challenges. Tight margins and fluctuating demand have made it difficult for companies to justify the large-scale investments required for decarbonisation.
Another significant factor is the competitive pressure from cheap steel imports, especially from China whereby their exports to Europe had hit an 8 year high in September 2024. European steelmakers have appealed to trade officials to tackle a surge in Chinese steel exports that has driven European prices below the cost of production.
Many countries with less stringent environmental regulations continue to produce low-cost, high-emission steel, undermining the competitiveness of greener alternatives. According to ArcelorMittal, this situation is exacerbated by the lack of robust carbon border adjustment mechanisms, which would help level the playing field by imposing tariffs on imported steel based on its carbon footprint. In the absence of such measures, producers in regions with strict environmental policies, such as the European Union, are at a distinct disadvantage.
Policy and market gaps have also played a critical role in stalling the transition. Inconsistent and insufficient government support has created uncertainty for industry players. ArcelorMittal and Thyssenkrupp have both pointed to gaps in EU policy, including delays in implementing carbon pricing mechanisms and inadequate incentives for green steel adoption.
In Australia, Liberty Steel’s Whyalla project has faced similar challenges, with funding shortfalls and a lack of clear regulatory frameworks hindering progress. These policy shortcomings have left many companies unable to fully commit to their decarbonisation goals.
Technological and supply chain barriers further complicate the situation. The transition to green hydrogen-based production requires substantial advancements in hydrogen generation, storage, and distribution infrastructure, much of which is still in its infancy. Moreover, the steel industry’s reliance on traditional inputs and processes creates inertia that is difficult to overcome. Retrofitting existing facilities to accommodate new technologies involves significant costs and logistical complexities.
Overcoming the Challenges
Despite these challenges, there are clear steps that can be taken to revitalise the decarbonisation efforts in the steel industry. Strengthening policy frameworks is essential. Governments must look at ways to prevent the impact of cheap imports from countries and regions is overcapacity and enhance carbon border adjustment mechanisms to prevent market distortions caused by cheap, high-emission imports.
Additionally, policies should provide long-term clarity and stability, offering guarantees for subsidies and investments in green steel technologies or at least providing capital and tax allowances for investments. Without such assurances, companies are unlikely to commit to the large-scale changes needed to achieve meaningful emissions reductions.
Another critical area is the scaling up of green hydrogen production. Accelerating investments in hydrogen infrastructure is crucial to reducing costs and improving accessibility. Public-private partnerships can play a key role in de-risking early investments in hydrogen projects, ensuring a reliable supply for industrial use.
At the same time, promoting demand for green steel is necessary to create a stable market. Mandating the use of low-carbon steel in public infrastructure projects can help achieve this, as can collaborations with downstream industries like automotive and construction.
Technology Innovation
Technological innovation will also be a driving force in the industry’s decarbonisation journey. Hybrid technologies that combine natural gas with incremental hydrogen use offer a practical solution during the transitional phase.
Moreover, research into alternative methods, such as electrolysis-based steel production, should be intensified to diversify decarbonisation pathways. Companies should also focus on breakthrough technologies such as hydrogen-based DRI systems, molten oxide electrolysis (MOE), and carbon capture, utilisation, and storage (CCUS). These innovations have the potential to significantly reduce emissions while maintaining production efficiency.
Hydrogen-based DRI systems have shown considerable promise, with companies like SSAB and H2 Green Steel in Sweden making significant progress in their implementation. MOE, a groundbreaking technology that directly reduces iron ore using electricity instead of carbon, offers another promising avenue. Startups like Boston Metal are leading the way in this field. Additionally, integrating CCUS into BF-BOF operations can serve as a transitional technology, capturing emissions while DRI-EAF systems scale up. Hybrid blast furnaces that mix biomass or hydrogen with coal can also provide an interim solution by reducing emissions without requiring a complete overhaul of existing infrastructure.
Conclusion
In conclusion, the steel industry’s decarbonisation journey has encountered significant delays due to economic, policy, and technological challenges. However, with targeted interventions—including stronger policies, increased hydrogen investments, and accelerated technological innovation—the industry can regain momentum. Breakthrough technologies such as hydrogen-based DRI, MOE, and CCUS offer viable paths to low-carbon steel production. The collective efforts of governments, industry stakeholders, and researchers will be crucial in ensuring the transition to a sustainable and competitive steel industry. By addressing these challenges head-on, the steel industry can play a pivotal role in achieving global climate goals.
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Source:SEAISI
