Investor Insight Editorial: Green Steel - All that glitters is not green

Fiona Deutsch - ACCR Company Strategist and Lead Analyst, Diversified Miners and Steel Decarbonisation

The global decarbonisation of the steel value chain is underway, with rapid advances in technology, investment and policy showing the steel sector no longer deserves the reputation of being “hard-to-abate”. Research suggests a net-zero steel sector and a coal phase-out in steelmaking by the early 2040s is technically feasible^[1].

It’s critical countries and companies get onboard this transformation, not just from an emissions perspective, with steelmaking accounting for approximately 7-9% of global fossil fuel emissions, but to ensure competitiveness and jobs as demand for green steel increases.

Last week’s announcement from the Australian Federal Government that it’s allocating $200m to “future-proof” steel manufacturing and regional jobs appears to be the type of backing local steel makers needed to go green^[2]. And indeed, the $63.2 million to support LIBERTY Steel to purchase and install an electric arc furnace at the Whyalla Steelworks is a crucial contribution to enabling genuine green steel production in South Australia.

However, the more than $135 million going towards relining a coal-based blast furnace owned by BlueScope Steel in Port Kembla, NSW, is effectively a subsidy to stay flat footed.

Steel does not have a climate problem, it has a coal problem. It’s the steel industry’s extensive use of metallurgical coal to produce iron, the primary component of steel, that is the primary driver (90%) of fossil fuel emissions from steelmaking. This is why a range of steelmakers around the globe are looking to embrace new technologies that eliminate coal from the steelmaking process. Spending money now on a coal-dependent process risks locking-in a high-emissions and non-competitive approach for decades to come.

Genuine green steel processes include:

• at the iron production stage, using green hydrogen produced with renewable energy to convert iron ore into Direct Reduced Iron (DRI) or Hot Briquetted Iron (HBI), creating transportable “green iron”
• at the steel-making stage, using Electric Arc Furnaces (EAF) that run on 100% renewable energy to convert this green iron into green steel.

ACCR research, due to be released in the next month, shows a mixed pattern in the global uptake of genuine green steel processes. Significant investment and innovation towards decarbonisation is happening, but so are investments in non-credible processes. The market size opportunity for green steel is, however, forecast to increase, with estimates of a compound annual growth rate (CAGR) of over 122% from 2023 - 2030.^[3]

The sector is in a critical time window. With 70% of the world’s coal-dependent blast furnaces due for reinvestment by 2030,^[4] decisions made today about whether existing furnaces are relined, or coal-free alternatives pursued, will influence the ability of steelmaking companies to remain competitive and the rate of emissions reductions across the entire sector.

Internationally, new regulatory settings including the EU’s Carbon Border Adjustment Mechanism (CBAM) and the USA’s Inflation Reduction Act (IRA) are incentivising domestic producers to deliver competitively priced low-emissions steel.

Australia, with an abundance of renewable energy, iron ore deposits and steelmaking capability, is in an enviable position to harness the momentum of the global green steel transformation – making a meaningful contribution towards reducing emissions and securing the future of the steel industry. We can’t afford to waste a minute, or a dollar, heading in the wrong direction.

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