Decarbonizing the iron and steel industry requires $1.4 trillion of investment, of which $250 billion is for carbon credits, according to Wood Mackenzie’s latest report, Pedal to the Metal: Iron and steel’s $1.4 trillion shot at decarbonization.
The industrialized world relies heavily on steel, with 2.2 billion tonnes of production needed to meet global demand by 2050. Iron and steel production release a combined 3.4 billion tonnes of carbon each year, representing 7% of total global emissions.
Remarking on the report, lead author Malan Wu said that “Decarbonizing the steel industry is a big task. To meet Wood Mackenzie’s 1.5°C accelerated energy transition scenario by 2050, steel emissions must reduce by 90% from current levels. There is an urgent need to act now to decarbonize the iron and steel sectors. Business as usual is no longer sustainable.”
The 1.5°C pathway requires steel emissions to cut by at least 90% by 2050 from current levels, but the analysis assumes only a 33% decrease in steel emissions from current levels.
The report presents an urgent challenge and investment opportunities for the operators as the industry decarbonizes.
Wood Mackenzie’s analysis shows $800-900 billion will be essential to abate carbon from existing steelmaking infrastructure, such as setting up new hydrogen-based direct reduced iron (DRI) and electric arc furnaces.
Decarbonizing the sector also calls for shifting to clean energy use, meaning roughly 2,000 GW of renewable energy generation capacity (about two thirds of the current global capacity) is required.
A hydrogen ecosystem will also need to be developed for green steel, as about 50 million tonnes of green hydrogen must also be produced annually to reach the net zero objective.
In addition, the iron and steel industry needs to buy up to $250 billion in carbon offsets to compensate emissions that can’t yet be reduced.
In the case of iron and steel, Carbon Capture, Use, and Storage (CCUS) is a technical solution to reduce emissions.
The current supply of CCUS is limited and is still in its infancy. At present, CCUS pipeline worldwide is 14 times the amount currently being captured of 63 million tonnes per year (Mtpa). However, this measure is also demanded by other industries' efforts to reduce emissions.
For the industry to meet its 2050 emission target, 470 Mt of carbon must be captured and stored. And that calls for a $200–$250 billion investment in CCUS.
Iron and steel, as well as its value chain, will need to undergo a revolutionary transformation to achieve net zero. A cooperation among key industry players will also help urge green action.