The Steel Industry’s Struggle with Low-Carbon Transition: A Growing Challenge for the World's Biggest Steelmakers

The steel industry, responsible for about 7% of global carbon dioxide (CO2) emissions, is facing a significant challenge in its transition toward low-carbon production. Steel is integral to modern economies, playing a vital role in infrastructure, transportation, and manufacturing. Yet, the process of steelmaking—traditionally reliant on fossil fuels, particularly coal—remains one of the hardest sectors to decarbonize. Despite the growing urgency to tackle climate change, many of the world’s largest steelmakers are struggling to reduce their carbon footprint, even as alternatives to fossil fuel-based production become increasingly available.

Steel's Environmental Impact and the Need for Change

Steel production is one of the most energy-intensive industries globally. Traditional steelmaking relies heavily on coal-fired blast furnaces (BF), which release large quantities of CO2. For every ton of steel produced in a blast furnace, approximately two metric tons of CO2 are emitted. Given that steel is essential to industries like construction, automotive, and energy, it is difficult to imagine a future without it. However, the environmental costs associated with steelmaking are unsustainable in the long term.

To mitigate the industry’s environmental impact, there is a growing shift toward adopting cleaner technologies. Among the most promising alternatives are Electric Arc Furnaces (EAFs), which use electricity—potentially from renewable sources like wind or solar—rather than coal to melt scrap steel. Another innovative approach involves the use of green hydrogen to produce iron, a critical component of steel. These technologies hold the potential to drastically reduce emissions, but they come with their own set of challenges, including high costs and the need for substantial infrastructure development.

The Current State of the Steel Industry’s Transition

The shift to low-carbon steel production has been slow, with many of the world’s largest steelmakers lagging behind in adopting sustainable technologies. A recent survey by the climate group Action Speaks Louder (ASL) revealed that some of the biggest steelmakers are still overwhelmingly dependent on fossil fuels for their energy needs. Over the 2022-2023 period, certain companies relied on fossil fuels for 99% of their energy consumption, demonstrating the deep-rooted reliance on traditional methods of steel production.

Case Study: SSAB’s Progress in Low-Carbon Steelmaking

One of the few exceptions to this trend is Sweden's SSAB, which has made significant strides in adopting renewable energy for steel production. SSAB sourced 19% of its energy from renewable sources in 2022, marking a positive move toward sustainability. The company has been working to develop a zero-emissions steel production process, which involves replacing coal with hydrogen in its direct reduction process. In 2021, SSAB produced its first batch of fossil-free steel in collaboration with the Swedish energy company Vattenfall and the mining company LKAB. This initiative is seen as a major step toward decarbonizing the steel sector, and SSAB aims to achieve carbon-neutral steel production by 2045.

SSAB's success highlights that transitioning to low-carbon steel production is not only possible but also increasingly necessary as the world moves toward stricter emissions regulations. The company’s progress has garnered attention, with many in the industry looking to replicate its success.

Case Study: Hyundai Steel, Dongkuk Steel, and Posco’s Challenges

In stark contrast, some of the largest steelmakers in South Korea, such as Hyundai Steel, Dongkuk Steel, and Posco, have made little to no progress in reducing their reliance on fossil fuels. Despite the fact that these companies utilize Electric Arc Furnaces (EAFs)—which can theoretically be powered by renewable energy—many still rely on coal and other fossil fuels for a substantial portion of their energy needs. For example, Hyundai Steel, Dongkuk Steel, and Posco reported zero or near-zero renewable energy use in their operations, according to the ASL survey.

This reliance on fossil fuels is not due to a lack of technological feasibility; rather, it is driven by financial and infrastructure challenges. Steelmakers like Hyundai Steel and Posco have significant investments in coal infrastructure, including blast furnaces, import terminals, and pipelines. Transitioning to renewable energy sources would require massive capital expenditures, including the development of new energy supply chains and investments in carbon capture technologies. Additionally, the higher costs associated with renewable energy and green hydrogen further deter these companies from shifting away from traditional methods of production.

The Economic Pressures of Transitioning to Low-Carbon Steel

The economic pressures facing steelmakers are considerable. Steel is a commodity, and the prices of raw materials—such as iron ore and coal—are highly volatile. Additionally, the cost of shifting to low-carbon technologies is substantial. For instance, green hydrogen production is still far more expensive than using traditional blast furnaces fueled by coal. According to estimates, the cost of producing green hydrogen could be more than twice the price of coal-based production. As a result, many steelmakers are reluctant to invest in these technologies without strong incentives, such as government subsidies, tax breaks, or higher prices for low-carbon steel.

The slow pace of decarbonization in the steel industry also has broader economic implications. According to ASL's Laura Kelly, the perception that steel is a “hard-to-abate” sector is often used as an excuse for inaction. While it is true that steelmaking is energy-intensive and difficult to decarbonize, this framing often overlooks the fact that technological solutions are already available and that continued reliance on fossil fuels could prove economically detrimental in the long run. As carbon pricing initiatives and emissions regulations become more stringent worldwide, companies that fail to transition to low-carbon technologies will face rising costs and could be penalized for their high emissions.

The Role of Carbon Pricing and Regulatory Pressures

One of the key drivers for change in the steel industry will be the implementation of carbon pricing mechanisms. As governments around the world seek to meet their climate goals, the introduction of carbon taxes and cap-and-trade systems is becoming more widespread. These measures are designed to incentivize companies to reduce their emissions by attaching a financial cost to carbon emissions.

For instance, the European Union’s Emissions Trading System (ETS) has been a key factor in driving companies to reduce their carbon emissions. Steelmakers in Europe, such as SSAB, have been able to reduce their carbon footprint in part because of the EU’s carbon pricing system. The ETS charges companies for the carbon they emit, creating a financial incentive to invest in cleaner technologies. Other regions, including parts of the United States and Canada, are also exploring carbon pricing systems as a way to drive emissions reductions in heavy industries like steel.

However, for carbon pricing to be effective in driving the transition to low-carbon steel, it must be global. If only some countries or regions adopt carbon pricing, steelmakers may shift production to areas with less stringent environmental regulations, undermining the effectiveness of these measures. Therefore, international cooperation and alignment on carbon pricing and emissions standards will be crucial in encouraging the steel industry to adopt cleaner production methods.

Opportunities for Low-Carbon Steel

Despite the challenges, there are numerous opportunities for the steel industry to transition toward low-carbon production. As mentioned earlier, electric arc furnaces (EAFs) present a viable alternative to blast furnaces, as they can be powered by renewable electricity. However, for EAFs to become more widespread, the availability of cheap, renewable energy must increase, and the price of green hydrogen must come down.

One potential solution lies in the growing field of green hydrogen production. Several steelmakers, including Germany’s ThyssenKrupp and Sweden’s SSAB, have already begun pilot projects to produce steel using hydrogen instead of coal. These efforts are still in the early stages, but they demonstrate the potential for hydrogen to become a key part of the steelmaking process. If green hydrogen production can be scaled up and its costs reduced, it could become a game-changer for the steel industry, significantly lowering emissions from steel production.

Another promising area is the development of carbon capture and storage (CCS) technologies. CCS involves capturing CO2 emissions from industrial processes and storing them underground or using them in other applications. Some steelmakers are investing in CCS as a way to mitigate their emissions while continuing to use fossil fuels in the production process. While CCS is still an emerging technology, it holds promise as part of a broader strategy to reduce the steel industry’s carbon footprint.

The steel industry’s transition to low-carbon production is a complex and challenging journey. While some companies, like SSAB, are making significant strides in adopting cleaner technologies, many of the world’s biggest steelmakers remain heavily reliant on fossil fuels. The slow pace of change is driven by financial, technological, and infrastructure challenges, but the growing pressure from carbon pricing, emissions regulations, and shifting market demands is likely to accelerate the transition.

To achieve a sustainable future for the steel industry, it is essential for companies to embrace new technologies like electric arc furnaces, green hydrogen, and carbon capture. At the same time, governments must provide incentives and support to help steelmakers navigate the challenges of this transition. Only through a combination of technological innovation, regulatory pressure, and financial incentives will the steel industry be able to reduce its carbon footprint and contribute to the global fight against climate change.

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