By Dolf Gielen, Kenneth B. Medlock III, and Morgan D. Bazilian
As firms and nations increasingly adopt “net zero” carbon ambitions, some sectors of the economy stand out as more difficult in meeting those goals, particularly industrial activities that require very high temperatures and/or generate process emissions associated with chemical transformations. While these sectors present challenges towards deep decarbonization, new opportunities are emerging rapidly. A future low-carbon energy system will likely be more material-intensive than the current one, and in virtually any vision of a net-zero carbon future there is a massive need for new infrastructure. Much of this will be underpinned by iron and steel, the production of which is highly energy-intensive. The dominant traditional iron and steel production methods rely primarily on fossil fuels as inputs, of which coal products account for 78%. Moreover, the industry emits around 10% of all global process and energy-related CO2emissions.
The iron and steel sector produces coils, bars, wire, cast iron and other products. The largest share of energy use in this industry is for crude steel making. There are currently two primary methods currently used to make steel – in a basic oxygen furnace (BOF) where pig iron from a blast furnace is converted to liquid steel by removal of carbon with oxygen, and in an electric arc furnace (EAF) where liquid steel is produced (or recycled) primarily from scrap with electric power. Steel production using direct-reduced iron (DRI) also utilizes an EAF. But DRI is produced through a solid-state chemical reduction of iron ore to iron, and it is gaining market share.
Globally, about 75% of steel is made in a BOF (or integrated mill) and 25% in an EAF (or mini mill), although the proportions are reversed in the US. The global proportions reflect the economies of scale and continuous technology improvements over time of BOF relative to EAF. Indeed, the cost differences in production methods were at the core of President Trump’s use of Section 232 of the Trade Expansion Act under concerns that the US was becoming overly dependent on foreign steel for critical industries and national defense requirements, thereby potentially impairing national security. Moreover, the availability of steel scrap is limited by the continuous expansion of steel in use and materials losses, which limits the global relevance of the recycling route.
There are several alternative methods to produce steel. Greater use of electricity produced from renewable sources, could dramatically reduce CO2 emissions from iron and steel production. Hydrogen from renewables (“green hydrogen”) could make a significant contribution to emissions reductions in the production of iron through the direct reduction of iron ore. Instead of exporting iron ore, countries such as Australia and Brazil could export DRI to be further processed into steel, perhaps in a renewable-powered EAF.
Lowering Emissions from Iron and Steel Productions
Reducing emissions from iron and steel production presents a challenge, but the industry is pursuing various low-emission production routes, including:
- DRI based on green hydrogen;
- Electrolysis using renewable power (similar to today’s Hall-Heroult electrolysis process for aluminium production, although such a process for iron and steel making has not been deployed beyond the lab scale);
- Application of CO2 capture and storage to iron making processes that rely on coal and coke. However CCS for traditional BOF steelmaking is lagging, with one small French demonstration plant scheduled for 2021.
- Biomass products substituting coal and coke (small-scale blast furnaces that use charcoal for iron production are deployed in Brazil on a significant scale, and biomass has been co-processed in coke ovens).
Additional efforts are aimed at energy efficiency, a circular steel economy, and the use of natural gas, electricity and hydrogen as substitutes for coal and coke in blast furnaces. However, these yield limited emissions reductions, and new low-carbon production routes are needed.
The DRI production process is commercially available, and natural gas and coal are used as the primary energy inputs for around 7% of the total global iron production (or about 100 Mt in 2018). The drop in natural gas prices in the US due to the boom in shale gas production has attracted new gas-based DRI capacity. In the UAE, one gas-based plant is in operation and the process CO2 is captured and used for enhanced oil recovery.
The Role Hydrogen Can Play
Hydrogen-based DRI has received increasing attention as an enabler for renewable energy use and CO2 emission mitigation with pilot projects in Germany and Sweden, among others. A DRI enabled EAF route that uses hydrogen from renewable power reduces CO2 emissions by 80-95%, compared to the blast furnace. However, significant investment is required to realize such scalable reductions in CO2 emissions across the steel industry. Based on forecasts for steel production and considering an increase of 15-29% in the DRI route for primary iron production, 350 Mt of new DRI capacity would be needed by 2050, a six-fold increase from today. This translates to roughly 200 GW of electrolyser capacity to produce 5 EJ of green hydrogen, if all DRI routes were to use hydrogen. In a country context, Germany would need 100 terawatt-hours (TWh) of renewable power (20% of today’s national electricity consumption) to fully decarbonise the steel sector alone with DRI from green hydrogen.
Under certain conditions, renewable hydrogen-based iron production can become the least-cost supply option at a CO2 price of around US$67 per tonne, assuming the availability of low-cost renewable electricity. Of course, future projects will drive learning and innovation and tend to reduce this, which highlights the role that continued research and development can play. Indeed, hydrogen-based iron making is technically feasible, and various producers are working to develop this option further. A core step is direct reduction based on pure hydrogen rather than on natural gas. Projects in the pipeline include a facility to be deployed by Thyssenkrupp (electrolysis) and MIDREX (DRI plant) with Arcelor-Mittal in Hamburg to produce 100,000 tonnes per year of DRI using green hydrogen from electrolysis. The plant will initially operate on natural gas; hydrogen will be considered once low-cost offshore wind has ramped up. Four pilot-plants in Europe will come in operation over the coming years to produce green hydrogen-based steel. In the US, flash ironmaking is being explored.
Identifying Some Potential Benefits
The DRI approach to steel-making has some interesting potential to address – with continued technological gains – the carbon footprint of steel production while simultaneously generating economic advantages. If both can be achieved, it plays to addressing concerns related to national security and the environment. Indeed, these concerns expand to nations everywhere, not just the US.
Australia, for example, is the world’s largest exporter of iron ore, accounting for US$49.3 billion of exports, or 51.9% of the global total, in 2017. The country produced around 860 Mt of iron ore in 2017. By comparison, its production of iron and steel is negligible. Importantly, the value-added of iron ore is modest, with the average export value less than US$50 per tonne. Therefore, a significant opportunity exists to increase the value-added in Australia by developing a production chain that includes the final steel product.
At the same time China, the largest iron ore importer, has significant air pollution problems. The iron and steel industry in China contribute greatly to particulate matter emissions because of its heavy dependence on coal. Hence, moving the most-polluting step in the ironmaking process abroad could help reduce local air pollution in China.
This is where joint recognition of potential benefits across Australia and China could bring environmental and economic gains to both countries. In particular, Australia has significant low-cost renewable electricity potential given its wind and solar resources. If these renewable energy resources can be leveraged to produce hydrogen, it opens up a potential for Australia to export higher value-added iron via the DRI route with very low CO2 emissions. Indeed, a shift to DRI exports could reduce global CO2 emissions substantially and at the same time increase value added in Australia, while maintaining steel production in countries that are currently processing ore into iron and steel, such as China, South Korea and Japan.
At a global scale, iron and steel industry CO2 emissions could be reduced by nearly one-third, or around 0.7 gigatonnes (Gt) of CO2 per year. But, to achieve these emissions reductions, an estimated investment of US$0.9 trillion would be required. In addition, global DRI production would have to increase seven-fold from today’s level, and the hydrogen energy used would equal 1% of global primary energy supply. Such a shift could feasibly develop from 2025 onward at scale, if the right policies are adopted and economic opportunities are captured. The case of China and Australia referenced above, for instance, highlights a situation where comparative advantages and new technologies can combine to benefit both countries.
Importantly, joint benefits such as those highlighted in the China-Australia case need not be unique to those two countries. But whether or not this happens will depend on policy, politics, commercial prospects and globalization sentiment, each of which is interrelated. In the wake of COVID19, the future is in many ways more uncertain than ever, but opportunities abound for new approaches to addressing environmental concerns. Any proposed pathway that holds promise for combined economic and environmental benefit should at the very least give reason to explore the possibilities.
Note: The contents expressed herein are the authors’ views alone and do not reflect the views of their respective institutions.
Dolf Gielen is director of the IRENA Innovation and Technology Centre (IITC) and a non-resident fellow of the Payne Institute at Colorado School of Mines.
Ken Medlock is the James A. Baker III and Susan G. Baker Fellow in Energy and Resource Economics and Senior Director of the Center for Energy Studies at Rice University’s Baker Institute, and Co-Director of the Master of Energy Economics program in the Department of Economics at Rice University.
Morgan Bazilian is Professor of Public Policy, and Director of the Payne Institute at the Colorado School of Mines.