Green steel could help the U.S reach zero-carbon industry

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The following commentary was written by Nik Sawe. Sawe is a policy analyst at Energy Innovation: Policy & Technology. See our commentary guidelines for more information.

Billionaire Bill Gates has famously invested in everything from shipping to Coca-Cola. So why is he now investing in low-carbon steel?

It’s less flashy than overnight packages and soft drinks, but steel is fundamental to our world from buildings to bridges and so many other parts of our infrastructure. It’s also one of the most pressing issues in the climate crisis. Right now, the way steel is made generates roughly 8% of the world’s carbon dioxide emissions, and that climate impact is due to get worse.

In fact, not only is steel demand projected to increase in 2023 and 2024, but industry writ large is on track to be the largest single source of United States greenhouse gas emissions by 2030. That means the only way to meet our zero emissions targets is by learning transform industry and to make steel in a sustainable way. Enter green steel.

Some companies are already starting to prioritize the practice: Last fall, RMI gathered a group of corporations including Microsoft and formed the Sustainable Steel Buyers Platform, which together started a procurement process to source 2 million tons of near-zero emissions steel.

The issues lie in steel’s creation. Traditionally, steel is made by heating fossil fuels in a blast furnace to create pig iron from ore, which is then further purified in the creation of actual steel, either in a basic oxygen furnace (most commonly), an electric arc furnace (EAF), or an induction furnace. Both EAFs and induction furnaces run on electricity and can be powered by renewable energy. Blast furnaces are responsible for about half of all emissions in the iron and steel industry. Basic oxygen furnaces create considerable CO2 as well, as pure oxygen reacts with impurities in the iron.

EAFs are often used to make steel from scrap metal, and while recycled steel is attractive for being less energy- and emissions-intensive, there is an upper bound on how much demand it can meet. While scrap steel currently accounts for about 30% of the metallic iron used in steelmaking, about 85% of scrap is already being recycled, limiting room for growth. So, the path to making steel sustainably lies not solely in recycling, but through finding alternatives to blast and basic oxygen furnaces.

Globally, 7 percent of iron is produced without a blast furnace, instead using a DRI (direct reduced iron) furnace. These furnaces typically burn coal or natural gas to separate metallic iron from ore, and so are often used in regions where natural gas is plentiful and cost-effective, like India and Iran.       

The DRI process offers a great opportunity to cut emissions with green steelmaking, as natural gas or coal can be completely substituted with green hydrogen. When combined with zero-carbon heating and electric arc furnaces running off electricity from renewable sources, hydrogen-based DRI (or H2-DRI) creates a pathway to produce zero-carbon steel. While some hydrogen can be used in traditional blast furnaces, these only allow about 5-10 % substitution, for an emissions reduction of at most around 20%. German steelmaker Salzgitter forecasts that after revamping a plant to run entirely off of green hydrogen, annual CO2 emissions would drop by 95%.

Green steel isn’t theoretical — the two first commercial H2-DRI projects, HYBRIT and H2 Green Steel, are already being built and piloted in Sweden. The technology forms the basis for many of the nearly 50 low-carbon steel projects planned to be completed across the European Union by 2030, according to the Leadership Group for Industry Transition.

The EU has endeavored to create an environment where H2-DRI can compete with more traditional methods. It released a Green Deal Industrial Plan in February of 2023, and instituted a Carbon Border Adjustment Mechanism (CBAM) in April that introduces tariffs for more carbon-intensive imports, aiming to level the playing field for greener steel production. But steel producers in the EU are running out of time, with Emissions Trading System allowances ending in 2035, which will make them pay the full price of their carbon usage.

Two other promising alternatives can also obtain the pure iron necessary for green steel production using electrolysis, where an electric current breaks a compound down into its elements. Aqueous electrolysis, which also goes by the catchy name “electrowinning,” separates metallic iron particles in a water-based solution using electrodes. While still early, electrowinning has several advantages over the DRI approach – the iron sources don’t need to be as pure, and it can operate at temperatures as low as 60 °C. Electra, a Gates-funded startup based in a Boulder, Colorado, is building out the process, which can create upstream iron for large steelmakers like Nucor to feed into electric arc furnaces.

The second method, molten oxide electrolysis (MOE), liquefies iron ore in an electrochemical cell. However, the molten metal must be kept at high temperatures, needing consistent upstream sources of renewable energy to be viable and zero-carbon. Boston Metal, a startup based in Massachusetts, is pursuing the CO2-free technology, raising over $350 million from sources like Bill Gates’s Breakthrough Energy Ventures and major steel producer ArcelorMittal. The company calculates that MOE becomes competitive with more traditional methods as long as green electricity can be obtained at $30 per megawatt-hour and the plants can produce more than 1 million tons annually.  

The necessity of upstream renewable electricity in order to be truly carbon-free is shared by all these green steelmaking approaches. This is not a unique problem to iron or steelmaking: For countries to reach their net-zero targets, all sectors — industrial, transportation, buildings — will need copious amounts of renewable energy added to the grid.

Ultimately, how to sustainably produce steel is one challenge amongst many that must be tackled in parallel to solve the climate crisis. Only through investment in new technologies and supportive policies and infrastructure can we achieve a landscape that is conducive to zero-carbon industrial practices. The EU has instituted a carbon border adjustment mechanism that introduces tariffs for more carbon-intensive imports, leveling the playing field for more innovative steel production methods–the U.S. has explored related bills. U.S. government programs like the Buy Clean California Act and the Inflation Reduction Act can help drive incentives and demand, but both the public and private sectors must show a strong appetite for sustainable steel to fully transform the industry.

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