Steel pipes

Policy incentives needed to boost zero-carbon steel, report finds

Image credit: Christophe Dion | Unsplash

Zero-carbon steel produced at a competitive price is within reach in Europe and North America, but only with the right policy incentives, the Energy Transitions Commission (ETC) has said.

The steel sector can be transitioned to a Paris Agreement-aligned emissions pathway by 2030, it found in a report, but the global pipeline of near-zero-emissions steel projects must triple within the next three years to do so.

Such a feat would enable 190 million tonnes per annum of 'green' production by 2030 and keep industry emission reduction targets within sight.

Steel already accounts for 7 per cent of annual global greenhouse gas emissions and demand is set to rise as the material is fundamental to building the energy transition, from wind turbines to electric vehicles, and to infrastructure growth in developing economies.

"Breakthrough" iron- and steel-making technologies, centred around using low-carbon hydrogen to produce direct reduced iron, have been developed and offer a viable solution for decarbonising primary steel.

But the report found that “practical policy and industry action” would be needed in the UK, Spain, France and the US to secure a viable investment case and to grow the pipeline of projects while accelerating existing proposals.

To meet the deadlines laid out of the Paris Agreement, many low-carbon steel projects will need to be green lighted by 2026 given the lead times involved, the report said.

All four countries can offer a “viable investment case”, particularly in light of recent policy developments, if action is taken urgently to close the “last-mile” gap, it added.

One crucial factor would be to reduce the price of low-carbon electricity for steel producers in order to make green hydrogen and directly power some of the low-carbon processes.

Major policy developments will also be needed in the US through low-carbon hydrogen production tax credits under the Inflation Reduction Act. While the EU is urged to phase-in its carbon border adjustment mechanism (CBAM) for steel.

Other actions such as government support for capital expenditures and forward purchase agreements at an initial premium offer “practical ways” to close the financial gap for projects in all four countries in the near-term, the report said.

Adair Turner, ETC chair, said: “Investing in commercial-scale green primary steel is already possible this decade.

“Support for low-carbon hydrogen in the US and the CBAM in the EU offer solid foundations for getting breakthrough projects off the ground in those markets. Given the lead time of steel projects, urgent action is needed to further strengthen the investment case for breakthrough technologies and secure near-zero-emissions primary steelmaking capacity before the decade is out.”

The globalised nature of steel markets means that policy support at the national level can have implications on international trade.

Co-operation between governments and companies “is essential” for ensuring these efforts do not cause cross-border friction and instead create the right conditions for investment at the international level, the report concluded.

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