Steel producers face a thorny investment dilemma: refurbish the coal-fired blast furnaces that have been the industry standard thus far or invest in new less emissions-intensive technology. Globally, 71 per cent of coal-fired blast furnaces need major refurbishment by 2030. The rest, by 2040.¹ Meanwhile, like all manufacturers, steel producers are facing regulatory and societal pressures to decarbonise their operations, and manufacture steel without the use of fossil fuels.

“This is a make-or-break decade for green steel,” says Dr. Alexander Fleischanderl, senior vice president and head of green steel at Primetals Technologies, a UK-based subsidiary of Mitsubishi Heavy Industries that provides engineering, plant building and lifecycle services for the metals industry. “Steel makers will have to decide whether it is better to extend the lifespan of a blast furnace — for what is likely to be the final time — or make the switch to full electrification and hydrogen.”

Switching to low-carbon steel production poses several challenges. It requires significant capital investment in new technology, including electrification, and has to be implemented across an extensive and complex supply chain.

Green steel is on the rise

But steel producers may find the decision taken away from them. Steel is the biggest greenhouse gas emitter of all the manufacturing sectors, accounting for some 7% of all man-made emissions, so it is vital that its producers prioritise decarbonisation.² Alongside the environmental imperative, failure to decarbonise will leave them facing regulatory penalties, reputational risk and an inability to compete as the market share of decarbonised – or ‘green’ steel grows.

“Demand for green steel is growing quickly,” says Fleischanderl, whose team is responsible for developing green steel production solutions across Primetals Technologies and is working closely with Mitsubishi Heavy Industries as they aim to reach net zero emissions by 2040. “By 2040, at least 25 per cent of global steel capacity is projected to be decarbonised. At a certain point, it will become difficult for producers to place steel on the market if it cannot be certified as green.”

Strike while the iron is hot

Blast furnaces are a fundamental step in the steel production process, because they convert iron ore to metallic iron. But they are coal-fired, which means they produce substantial greenhouse gas emissions, and they cost up to $200mn to refurbish.³

There is a risk that these furnaces become stranded assets if steel producers choose the refurbishment option: if the market for decarbonised steel grows in the way that Fleischanderl suggests, coal-fired blast furnaces could be obsolete before the end of their lifecycle. The cost of these stranded assets could reach up to $518bn across the industry.⁴

Electric arc furnaces (EAFs) are a promising alternative to fossil-based steelmaking, because they are carbon neutral when they run on a renewable energy source. German steel producer Salzgitter, for instance, is investing more than €700mn in the world’s largest green steel transformation programme.

Policy can support early movers with higher costs

The transition to decarbonised steel will come at a price. Installing decarbonisation technologies requires significant investment, as does the infrastructure for the renewable energy systems that will power them.

“The decarbonisation of the steel sector will require about $1.3tn of investment by 2050 in infrastructure alone,” says Fleischanderl. “If you include the cost of the renewable energy and hydrogen ecosystems required to generate this clean energy, that figure reaches $4tn.”

Policy support will help steel producers to stay competitive in the market while they pursue decarbonisation. Initiatives such as the UK’s Contracts for Difference and the EU’s Carbon Contracts for Differences compensate low-carbon energy generators for the higher prices of generating energy from non-fossil fuel sources, providing long-term security for both generators and investors.^{5, 6}

Early movers will also benefit from funding instruments such as the EU’s Innovation Fund, which will provide a total of €10bn of support for commercial projects using innovative low-carbon technologies up to 2030.⁷ The US’s Inflation Reduction Act, meanwhile, offers almost $6bn in grants and tax credits for industrial manufacturing alone.⁸

Innovation stems from partnerships

For Primetals Technologies, partnerships are vital to mitigating the risk of new technologies and establishing large-scale projects that will accelerate the decarbonisation of steel.

Primetals Technologies, in collaboration with Australian iron ore producer Fortescue Metals Group and Austrian steel-based technology company voestalpine, is leading the research on a green metal plant. This partnership will build an industrial-scale technology demonstration plant powered entirely by hydrogen — a model for the green steel industry.

The plant will use a new direct-reduction technology (HYFOR), another alternative to blast furnaces, which uses hydrogen to strip iron oxide of its oxygen particles to produce metallic iron.⁹ By using green hydrogen from an existing electrolyser that is already available on voestalpine’s premises, the plant will produce net zero iron.¹⁰

“Even if you have the technical capability, these kinds of projects are too complex and expensive to undertake on your own,” says Fleischanderl. “In order for projects like these to be successful, you need partners you can trust and with whom you can collaborate closely.”

Fleischanderl says that the criteria for partner selection are shifting, and he is keen to develop relationships at trade fairs such as the upcoming METEC in Düsseldorf, Germany. “Partnerships are no longer based purely on competition, with the cheapest technology provider winning the contract,” he says. “When it comes to new technologies, trust and sharing the risk are becoming much more important considerations.”

If producers do not prioritise partnerships to speed up the innovation and decarbonisation process, they risk being left behind, says Fleischanderl. “Don't miss the train,” he advises. “The first movers will be the winners in the end.”