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Global Investors Driving Business Transition
Produced by As part of
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GLOBAL SECTOR STRATEGIES:
INVESTOR INTERVENTIONS TO
ACCELERATE NET ZERO STEEL
4TH AUGUST 2021
Supported by
Climate Climate
INVESTOR INTERVENTIONS TO ACCELERATE THE TRANSITION TO NET ZERO IN STEEL Action
Global Investors Driving Business Transition
INVESTOR INTERVENTIONS TO ACCELERATE THE TRANSITION TO NET ZERO IN STEEL Action
Global Investors Driving Business Transition
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Global Investors Driving Business Transition
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ABOUT CLIMATE ACTION
ABOUT THIS 100+ AND THE GLOBAL
REPORT SECTOR STRATEGIES
The Global Sector Strategies: Investor interventions IIGCC would like to express its gratitude for Clare Richards, Church of England Pensions Board Climate Action 100+ is an investor-led engagement
to accelerate net zero steel report was developed the many colleagues at the supporting investor initiative that strives to ensure the world’s largest
Phil Cliff, M&G Investments
by Institutional Investors Group on Climate Change networks that deliver Climate Action 100+ who corporate greenhouse gas emitters take necessary
(IIGCC) as part of the Global Sector Strategies, provided insightful input, edits, and coordinated Danny Dekker, Kempen Capital Management action on climate change. More than 615 investors
a new workstream coordinated by the investor investor and corporate feedback during the with $55 trillion in assets collectively under
David Hickey, Lothian Pension Fund
networks that deliver Climate Action 100+. development of this report: Yong Por (AIGCC), management are engaging 167 focus companies to
Kate Simmonds (IGCC), Laura Hillis (IGCC), Dan Derek Ip, BMO Global Asset Management improve climate governance, curb emissions, align
The report aims to help investors accelerate the Seligman (Ceres), and Marshall Geck (PRI). their emissions performance with net zero, and
Francis Condon, UBS Asset Management
transition to net zero in the steel sector. Produced strengthen climate-related financial disclosures.
by the IIGCC and building on work by the Energy The report’s authors would also like to express Franziska Jahn-Madell, Ruffer Climate Action 100+ is delivered by five investor
Transitions Commission [1][2], IEA [3][4][5][6][7] their gratitude to Emelia Holdaway, Annabel Clark Fredric Nyström, Öhman Fonder networks working with the initiative’s investor
[8], Material Economics [9][10], McKinsey [11][12], and Lucia Graham-Wood from IIGCC. signatories (AIGCC, Ceres, IGCC, IIGCC and PRI).
Responsible Steel [13], Rocky Mountain Institute Carlota Garcia-Manas, Royal London Asset
Management In March 2021, Climate Action 100+ published
[14], TERI [15] and Transition Pathway Initiative
Authors the first company assessments from its Net Zero
[16] amongst others, it provides an overview of Heike Cosse, Aegon Asset Management
Dan Gardiner, Technical Advisor, Transition Company Benchmark [17] (‘Benchmark’), which
the status of decarbonisation in the steel sector,
Pathway Initiative (TPI) Helen Wildsmith, CCLA evaluates climate performance and corporate
what is needed to overcome the challenges
transition plans. Acknowledging that corporate
posed by the transition to net zero and inform Jose Lazuen, Sector Decarbonisation Specialist, Helena Larson, Skandia Asset Management
net zero strategies will vary significantly by sector,
investors’ engagements with steel companies. More IIGCC Ian Woods, AMP Capital Climate Action 100+ is developing a series of
specifically, it identifies:
Global Sector Strategies, to accelerate sectoral
Julien Bouyssou, BNP Paribas Asset Management
1. The level of decarbonisation needed in the steel Reviewers decarbonisation.
Lucian Peppelenbos, Robeco
sector, consistent with limiting the rise in global The feedback provided by these individuals does This marks a new workstream from the Climate
temperature to 1.5oC (referred to as “net zero” not represent an investment endorsement or Matthias Narr, Ethos Foundation Action 100+ initiative which aims to rapidly
in this report). recommendation and does not reflect any policies accelerate the industry transition by identifying
Nicholas Spooner, Federated Hermes EOS
or positions of their firms. key actions for companies, investors and
2. The principal measures that can be taken to
Rupert Krefting, M&G Investments
reduce emissions in the steel sector. Adam Matthews, Church of England Pensions Board industries overall. Aligned with the Benchmark,
Sonya Likhtman, Federated Hermes the Global Sector Strategies will guide investor
3. The specific challenges to delivering net zero in John Howchin, Council on Ethics of the Swedish engagement being carried out by Climate Action
the steel sector. National Pension Funds Sophie Forrest, Central Finance Board of
100+ signatories, mapping out what corporates
Methodist Church
4. The actions steelmakers and others should take Oliver Grayer, IIGCC in a number of carbon intensive industries need
to align to net zero. Sybil Dixon, UniSuper to do to build out effective transition plans and
Patrick Peura, Allianz Investment Management
decarbonised value chains.
5. How investors can accelerate progress. Thomas O’Malley, HSBC
Valborg Lie, LGPS Central
This report has been circulated to Climate Action Investor Acknowledgements
100+ investor signatories and steel companies The feedback provided by these individuals does
engaged under the Global Sector Strategies External Advisors and Organisations
not represent an investment endorsement or
workstream, to solicit feedback on its conclusions recommendation and does not reflect any policies We would also like to thank to the following for
which have been assessed and incorporated. It will or positions of their firms. their guidance and support in the project:
now be used as a tool by investor signatories that
With grateful thanks to the following for their Antonina Scheer, Transition Pathway Initiative (TPI)
are actively engaging with steel companies on the
Climate Action 100+ focus list, through sector-wide feedback and contributions: Kieran Coleman, Energy and Industry Lead with
dialogue that encourages collaborative action and COP26 High Level Champions for Global Climate
individual engagement. Alexia Palacios, Ruffer
Action
Andrew Gray, AustralianSuper
Dr Rory Sullivan, Chronos Sustainability
It is important to note that this report represents
Andy Jones, Federated Hermes EOS
investors’ current understanding on how the steel Rutger Gyllenram, Kobolde
sector should decarbonise. This understanding Anita Lindberg, Skandia Asset Management
will evolve over time and will be reflected in Bruce Duguid, Federated Hermes EOS
future iterations as dialogue with the companies
continues. Caitlin Joss, M&G Investments
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INVESTOR INTERVENTIONS TO ACCELERATE THE TRANSITION TO NET ZERO IN STEEL Action
Global Investors Driving Business Transition
INVESTOR INTERVENTIONS TO ACCELERATE THE TRANSITION TO NET ZERO IN STEEL Action
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ROLE OF THE INVESTOR ACRONYMS AND DEFINITIONS FOREWORD
NETWORKS
Each Global Sector Strategy is developed by the $: USD As of June 2021, nine steel companies representing new technology alone will not deliver net zero.
investor network with the most in-depth strategic ~20% of the world’s steel production, including Measures such as enhanced material and energy
understanding of the sector (‘lead’), in consultation €: Euro the world’s five largest, have committed to net efficiency plus shifting the mix towards scrap
with the other investor networks that deliver zero greenhouse gas (GHG) emissions by 2050 production are cost-effective actions that can
BAU: Business as usual. This usually refers to a
Climate Action 100+ (‘supporting’). or earlier. These commitments have been made make a substantial contribution. Plans to make
scenario with no significant changes in technology,
despite the uncertain development of emerging these changes should begin today. Net zero
The lead investor network develops the strategy in economics, or policies, so that normal circumstances
low carbon technologies and the potentially high requires steelmakers to pursue multiple actions
consultation with external sector technical experts, can be expected to continue unchanged.
cost of deployment. As such, they demonstrate simultaneously and with urgency.
signatory investors and focus companies. The a willingness amongst industry leaders to tackle
BF-BOF: Blast furnace-blast oxygen furnace
supporting investor networks assist by contributing climate change. This progress is very much In the transition to net zero, the interests of
insights to the report and gathering feedback Bn: Billion (USD$) welcomed by investors. Nevertheless, achieving all stakeholders need to be accounted for.
from their investor network members and focus net zero GHG emissions by 2050, particularly Steel companies need to take urgent action to
companies. CAGR: Compounded annual growth rate decarbonise whilst creating shareholder value and
in the steel sector, remains a big challenge. The
remaining 80% of the industry has yet to state delivering a just transition for their workforce and
The reports provide sector-wide actions that CCS: Carbon capture and storage
a net zero ambition and, as this report clearly communities. Striking this delicate balance will not
investors can request from focus companies for be easy and will require the support of both long-
CCUS: Carbon capture utilisation and storage highlights, reaching net zero requires a concerted
each regional context. Each investor network will term investors and policy makers. This report also
effort from all stakeholders (steelmakers, policy-
play an important role in taking regionally specific CCS/CCUS: this term may be used to transmit that highlights that the support of energy companies
makers, energy companies, steel customers,
actions to their investors, to inform local focus there is possibility for either of the technologies to be and the steel value chain will also be needed.
suppliers and investors) coupled with significant
company engagement. used in a certain context. Decarbonisation of steel, arguably more than
improvements in technology and its scalability.
many other emission intensive sectors, requires
IIGCC led on the development of the Global Sector CO2: Carbon dioxide Most of the steel companies making these net not just steelmakers to change but also substantial
Strategy for the steel sector. The supporting
DR: Direct reduction zero commitments have yet to lay out in detail actions from a wide range of stakeholders.
investor networks – AIGCC, Ceres, IGCC and
how they expect to deliver on them. Given
PRI – have all reviewed and endorsed the As investors, we are ready to play our part to
DRI: Direct reduced iron many important technologies and processes
recommendations outlined in this report. accelerate this transition. We recognise it will take
(such as hydrogen based DRI and CCS/
EAF: Electric arc furnace CCUS) are still at an early stage and the pace time but work must start now. The first step is
of their development unclear, this is perhaps for steelmakers to set out their commitment to
EU: European Union contribute to delivering a net zero society and, in
understandable. Nevertheless, as this report clearly
shows, waiting for the technology to mature and as much detail as they can today, how they intend
GHG: Greenhouse gases
exclusively relying on technology to reach net to deliver. We recognise there may initially be gaps
Gt: Gigatons zero, is not a credible decarbonisation strategy. in these plans but stand ready to provide long-
Absolute emissions from the steel sector have term support and funding for credible net zero
H2: Hydrogen strategies. We also recognise that steelmakers
Disclaimer: IIGCC, its consultants, its member investors and to fall c.30% from current levels by 2030 to stay
other member organisations that deliver the Climate Action
within a sectoral budget consistent with net zero cannot deliver net zero by themselves; change
100+ initiative have taken all reasonable precautions to verify the Industry cluster: Groups of similar and related
by 2050 science-based pathways – delaying is required across the value chain and the policy
reliability of the material in this publication. However, IIGCC, its companies in a defined geographic area that
action significantly increases the risk that the framework in which they operate. We commit to
consultants, member investors, other organisations delivering share common markets, technologies, worker skill
the Climate Action 100+ initiative and other third-party content industry exceeds this budget. Furthermore there lending our voice to drive the required change
needs, and which are often linked by buyer-seller
providers do not provide a warranty of any kind, either expressed is no single silver bullet for decarbonising steel: amongst this broader eco-system.
relationships.
or implied, and they accept no responsibility or liability for any
consequence of use of the publication or material herein.
MoU: Memorandum of Understanding
Neither IIGCC nor the member organisations delivering Climate
Action 100+ facilitate, suggest, or require collective decision- Mt: Million tonnes Adam Matthews John Howchin Patrick Peura
making regarding an investment decision. This report and
the overall Climate Action 100+ initiative will not provide PPP/s: Public–private partnership/s Chief Responsible Investment Secretary-General, Council on Engagement Manager, Allianz
recommendations to investors to divest, vote in a particular way Officer (CRIO), Church of England Ethics, Swedish National Pension Investment Management
or make any other investment decision. RDD&D: Research, development, demonstration, and Pensions Board Funds
The information contained herein does not necessarily represent deployment
the views of all members of IIGCC, its member investors or
the member organisations delivering the Climate Action 100+ TWh: Terawatt-hours
initiative. The mention of specific companies or certain projects or
products does not imply that they are endorsed or recommended
by IIGCC, its consultants, its member investors and other member
organisations delivering Climate Action 100+.
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INVESTOR INTERVENTIONS TO ACCELERATE THE TRANSITION TO NET ZERO IN STEEL Action
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CONTENTS
ABOUT THIS REPORT 1
ABOUT CLIMATE ACTION 100+ AND THE GLOBAL SECTOR STRATEGIES 2
ROLE OF THE INVESTOR NETWORKS 3
DISCLAIMER 3
ACRONYMS AND DEFINITIONS 3
FOREWORD 4
TABLE OF CONTENTS 5
EXECUTIVE SUMMARY 7
Actions for steel companies 10
Industry-wide actions 11
Actions for investors 11
STEEL INDUSTRY BACKGROUND 12
CLIMATE IMPACT OF THE STEEL INDUSTRY 16
Impact by production route 17
Corporate climate ambitions 19
Case Study 21
PATHS TO REACH NET ZERO IN THE STEEL SECTOR 23
Review of the individual impact of key measures 24
Combining key measures to deliver net zero: a matter of coordination 27
Case Study 28
Decarbonisation technologies 29
BARRIERS TO DELIVERING NET ZERO 31
WHAT IS NEEDED TO OVERCOME THESE BARRIERS? 37
CONCLUSIONS 40
RECOMMENDATIONS FOR ACTION 42
Actions for steel companies 43
Industry-wide actions 45
Actions for investors 45
APPENDIX 47
REFERENCES 51
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EXECUTIVE SUMMARY
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This report aims to help investors green hydrogen, and CCS/CCUS (Measures 4 and
accelerate the transition to net zero in 5 respectively) are likely to be needed but require
the steel sector. It provides an overview substantial investment.
of the status of decarbonisation in the Many of the most cost-effective decarbonisation
steel sector and outlines what is needed measures will require a concerted and co-
to overcome the challenges posed by the ordinated response. Delivery needs actions, not
transition to net zero by 2050. just from steelmakers, but from policy makers and
stakeholders across the steel value chain. Action in
These recommendations are based on a review of
one area will also impact the effectiveness of other
recent publications on this topic and an analysis
measures. All regions will need to take part and the
of the measures that can be taken to reduce
best approach will vary by company and market.
EXECUTIVE SUMMARY
emissions in the steel sector using a simplified
China accounts for at least 55% of global steel
emissions model. Five measures appear key:
emissions and should lead the shift to EAF. India is
1) Increasing the proportion of steel produced by expected to account for over 40% of incremental
the scrap-EAF process steel demand between 2018 and 2050 and should
2) Enhancing material efficiency of steel products avoid locking in emissions by building new BF-BOF
to limit steel demand growth capacity if net zero is to remain feasible.
3) Further incremental improvements in energy Existing studies suggest that the current set of
efficiency of existing steel production capacity responses to reduce emissions in steelmaking is
4) Invest in low emission DRI-EAF capacity unlikely to deliver emissions reduction consistent
(including hydrogen based) for primary with net zero. In particular, there exists little
steelmaking evidence of the concerted action needed from
consumers of steel and in the steel value chain
5) Apply CCS/CCUS technology to fossil-based
to reduce overall demand (Measure 2) or policy
steel production plants where feasible
programmes that sufficiently support the
decarbonisation of steel in the countries that
Increasing the proportion of steel made by the
dominate production. Substantial investments in
scrap-EAF process (Measure 1) from 23% to 60%
DRI and/or CCS/CCUS may raise production costs,
by 2050 could reduce annual emissions by 2.4
particularly in the near term. In an industry with
GtCO2e (51% below an assumed BAU scenario).
tight margins, funding this investment – especially
A relatively large mix change from primary steel
without incentives (either from steel consumers or
production to scrap-EAF already appears likely
policymakers) to value emissions-free steel – may
given the stock of steel approaching end of life
prove problematic. This report suggests that even
is rising. This should result in a significant fall in
with the combination of all these measures, there
overall carbon intensity of steel production over
will still be residual annual emissions in the steel
the coming decades without a substantial increase
sector of 1.2 GtCO2e in 2050, a 1.0 GtCO2e shortfall
in production costs. Enhancing material and energy
against the emissions budget consistent with net
efficiency (Measures 2 and 3 respectively) could
zero established by the IEA NZE 2050 scenario [8].
also deliver substantial reductions of emissions
across the steel value chain cost-effectively. To avoid this shortfall and accelerate progress
Investment in new DRI-EAF capacity, which will in the steel industry towards net zero this report
ultimately be able to utilise low-carbon fuels like advocates the following actions:
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EXECUTIVE SUMMARY
EXECUTIVE SUMMARY
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4. Support the development of international
ACTIONS FOR STEEL COMPANIES certification standards for “green steel”
1. Consistent with the Climate Action 100+ Net production and commit to adhere to those
Zero Company Benchmark Indicators 2-4, set standards. To support customer demand (and
short-, mid-, and long-term decarbonisation justify a premium for) “green” steel, there needs
targets in-line with the IEA NZE 2050 scenario. to be confidence in a robust certification scheme
The IEA NZE 2050 scenario data models Scope such as that being developed by Responsible
1 emissions in the Iron and Steel industry falling Steel [13] [14]. Steelmakers should support such
29% by 2030 and 91% by 2050 compared to efforts and adhere to certification schemes that
2019 levels. Further work is needed to define the propose carbon content standards consistent
exact emissions pathway implied by NZE 2050, with net zero.
however factoring in Scope 2 it is likely to imply
5. Consistent with Climate Action 100+
that total emissions from steel should fall even
Benchmark Indicator 6, commit to aligning
faster.
its capital expenditure plan with its broader
2. Develop and publish a comprehensive net zero strategy. Consistent with Actions 2
transition plan that is consistent with the and 3 steelmakers should set out their plans to
Climate Action 100+ Benchmark Indicator 5. invest in low-carbon steelmaking technologies
This report recognises that technologies like including scrap-EAF, DRI-EAF and CCS/CCUS.
CCS/CCUS and hydrogen based DRI are still Additionally steelmakers should commit not to
at their early stages and, due to the uncertain invest in any new capacity which is not capable
pace of development, it will be difficult for (either for technical or economic reasons) of
steelmakers to provide complete visibility today being aligned with their short, medium and long-
on how they intend to deliver on their targets. term science-based decarbonisation targets.
Nevertheless they should be able to say, in broad
6. Consistent with Climate Action 100+
terms, how they intend to deliver on their net
Benchmark Indicator 7, specify the policy posi-
zero ambitions. Companies should specify in
tions that the company will adopt to accelerate
their transition plans the main measures they
the delivery of its transition plan. This plan
intend to deploy and their expected contribution
should include:
to both medium- and long-term targets.
a. Its position on carbon pricing mechanisms
3. Produce reports setting out the opportunities
designed to incentivise investments in low-
and scale for the company to deploy a)
carbon production technologies in countries/
CCS/CCUS and b) Hydrogen based DRI to
regions where it operates.
decarbonise its steel production. These reports
should specify, in as much detail as is practically b. Its position on policy/regulations like the EU’s
possible, the role the company currently expects carbon border adjustment, that aim to avoid
these emerging technologies to play in its overall carbon leakage between jurisdictions.
decarbonisation plan. This should include: the
c. Carbon content requirements for steel in
locations (existing or new) where the technology
government and/or private procurement
is under consideration, what the company
contracts [14].
sees as the main barriers (i.e. policy, cost or
technology) to deployment and what actions it d. Other government financial and non-financial
is taking to address those barriers, how much incentives (e.g. R&D funding) required to
it is investing in each technology currently and support the transition to net zero in the steel
what it expects the overall cost to be, the impact industry [14]
this might have on steel production costs and,
7. Consistent with Climate Action 100+
finally, what milestones it is setting itself to judge
Benchmark Indicator 9, steel companies should
progress. These reports should be published by
commit to providing a Just Transition. To meet
the end of 2022.
this commitment, companies should set out, in
a board level report, how they intend to manage
the wider societal impact of transitioning
to net zero and who will be responsible for
implementing its just transition strategy.
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EXECUTIVE SUMMARY
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INDUSTRY-WIDE ACTIONS ACTIONS FOR INVESTORS
8. In coordination with major steel customers 10. Identify the largest global purchasers of steel
and other value chain participants, convene a and undertake a systematic engagement
cross-sector working group on how material process to obtain public commitments from
efficiency can be substantially increased them to buy “green” steel (as established in
across the value chain. This working group Action 4).
would aim to identify by working through,
11. Provide capital explicitly to finance the
application by application, where a combination
low carbon steelmaking capacity including
STEEL INDUSTRY
of improvements in manufacturing, end product
hydrogen based DRI-EAF, steelmaking from
design/use and recycling have the greatest
scrap (EAF) and CCS/CCUS deployment. This
potential for improving material efficiency and
will require working alongside other investors
how those improvements can be delivered. The
and stakeholders such as the Climate Bond
BACKGROUND
findings, recommendations, and opportunities –
Initiative [18] to establish robust standards
including any hurdles that need to be addressed
for steel sector “transition bonds” that define
by other stakeholders, including policy makers –
the types of steel projects (and technologies)
should be outlined in a public report.
would fall into the steel “transition” criteria, the
9. In coordination with major suppliers, produce appropriate reporting mechanisms and direct
a report evaluating the mid- and long-term covenants.
impacts of the transition to net zero in steel
12. Support policies consistent with accelerating
on a) raw materials and b) 100% green energy
the transition to net zero. Investors should
(hydrogen and electricity). These reports
support sensible and socially responsible policy
would enable suppliers to make long term plans
that incentivises the steel industry to rapidly
to scale back metallurgical coal production,
reduce emissions and align with net zero. These
for example, as well as anticipate growth in
policy asks can be identified through continued
demand for iron ore pellets required for DRI-
engagement with steel companies, the steel
based steel production, green hydrogen and
sector, and policymakers, and as they emerge
green electricity. Thus ensuring that the pace of
from the company transition plans as requested
the transition is not constrained by the lack of
by Action 6.
availability of resources and infrastructure.
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STEEL INDUSTRY BACKGROUND
STEEL INDUSTRY BACKGROUND
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Steel is a metal alloy formed from iron ore, also be added at the BOF stage. Assuming $170 Steel production has largely expanded in Figure 2b highlights how the mix of production
carbon, and other elements depending on the per tonne of metallurgical coal and $620 per tonne countries with rising domestic demand. Since methods varies substantially between regions.
final properties desired. Its strength and low cost of steel, the cost of metallurgical coal accounts for 2000, 85% of the incremental production Scrap fed EAFs account for 41% and 64% of
make its use widespread across the construction, ~22% of average steel price. has come from China which now accounts for production in Europe and the US respectively, but
transport and industrial sectors. Rising demand 53% of the global steel production total (see just 23% in India and 12% in China. While the use
The second method uses an Electric Arc Furnace
from China saw global growth rebound in the early Figure 2a). However, China’s stimulus plans of EAF production is slowly rising in all markets,
(EAF), fed by either scrap steel or by Direct
2000s with the 5-year CAGR peaking at 8.3% in after the 2008-9 global financial crisis have rapid overall growth in the steel sector in China
Reduced Iron (DRI), also known as “sponge iron”.
2007. Growth has been slowing over recent years, led to overcapacity, depressing prices and (where EAF is a small part of the mix) has led to
It is estimated that c.500 Mt of steel are recycled
averaging just 2% per year between 2014 and 2019. margins globally [10]; Chinese production is now its share of global production stagnating. DRI-EAF
every year and that 83% of steel produced is
Global production in 2019 was 1,869 million tonnes expected to decline steadily over the long term as a proportion of global production has remained
recycled at the end of its life [9]. Feeding this steel
(Mt) and fell by ~1% in 2020 due to COVID-19 according to government-backed think tank China largely constant at 6% and over half this capacity is
“scrap” into the EAF makes “secondary” steel,
related value chain disruption [19]. Metallurgical Industry Planning and Research located in India and Iran.
which currently accounts for 23% of total steel
Institute [21]. European steel production (9% of
Steel is currently produced by two main methods. produced. The Direct Reduction (DR) method Steelmaking is often seen as a highly strategic
the global total) has failed to recover post the
The Blast Furnace and Basic Oxygen Furnace reduces iron ore in a solid-state form using carbon industry by national governments, supporting
2008-9 global financial crisis and is down 15%
(BF-BOF) route (72% of total production) is monoxide and hydrogen, two reducing agents that domestic economic development as well as
since 2007. US production (5% of total) has been
typically used to make virgin (or ‘primary’) steel. are currently almost entirely derived from natural export driven economies (31% of steel is exported
steadily declining since 2000. Indian production
In this process a high grade (metallurgical) coal is gas or coal. The combination of the DRI-EAF from its country of origin [11]). In part because of
growth has averaged 8% annually since 2000 and
used as both an energy and heat source and as a methods account for 6% of total steel produced this, the industry remains highly fragmented, with
now accounts for 6% of the global total. India is
reduction agent to remove oxygen from the iron and it is dependent on DR-grade iron ore pellets the three largest global steelmakers (Arcelor Mittal,
expected to represent over 40% of incremental
ore. Small amounts of other elements are added (typically 67% iron ore or greater). The principal China Baowu and Nippon Steel) accounting for
demand between 2018 and 2050.
at the BOF stage to give the steel the desired sources of DR-grade pellets are located in South just 13% of total production and the top ten listed
properties. On average 1.3 tonnes of iron ore and America (Brazil, Chile), Canada, Sweden, Bahrain, steelmakers just 27%.
0.8 tonnes of coal are used to make a tonne of Oman and Iran [20].
steel, although a limited amount of scrap steel can
Figure 1: Steel production mix in 2019 by a) process, b) country, c) sales destination, Figure 2: a) Steel growth by country and b) production mix by country
d) end market, e) steelmaker
EU & US Row China India BF-BOF DRI-EAF Scrap-EAF
100% DRI-EAF, 6% Other Europe, 5% Elect. & appliances, 5% 3,000 100%
Others, 15% Japan, 4% Other transport, 5%
90% India, 6%
Scrap-EAF, 23% Metal products, 10% 2,500
80% EU, 9% Others, 8% 80%
Steel production (mt)
Steel production (mt)
Others, 43%
S. Korea, 4%
Production/sales mix
NAFTA, 8% Automotive, 12%
70% Russia, 4%
US, 5% 2,000
EU, 9%
60% Japan, 5% Mechanical equipment, 60%
India, 6% Other Asia, 10% 52%
1,500
50%
40%
40% BF-BOF, 72%
Total 11-50, 30%
1,000
30% China, 53% China, 51% Buildings &
infrastructure, 52% 20%
20% Top 4-10, 14% 500
10% Nippon Steel, 3%
China Baowu, 5% 0 0%
ArcelorMittal, 5%
0% 2000 2010 2020 2030 2040 2050 China Row EU India US
Production Production Sales By application By steelmaker
by process by country by country a) production by country* b) production by technology**
Source: World Steel Association [19]. Source: *Historical data from World Steel Association [22] with forecast for China and India based on [23] and [15] respectively.
**Based on World Steel Association data.
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STEEL INDUSTRY BACKGROUND
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Figure 3: Steel industry emissions by scope (% and GtCO2)
0.1 GtCO2
Scope 3 (Upstream-down-
stream supply chain)
3%
1 GtCO2
Scope 2 (Indirect
emissions)
CLIMATE IMPACT OF
THE STEEL INDUSTRY
27%
2.3 GtCO2
0.3 GtCO2 Scope 1 (Direct
Scope 1 (Direct energy emissions)
process emissions) 62%
8%
Source: Adapted from IEA Iron and Steel, Tracking report. June 2020. Total of 3.7 GtCO2 includes 0.1 GtCO2 of Scope 3
(supply chain)emissions
15 16
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Dividing these emission estimates by total steel A simple extrapolation of current emissions
IMPACT BY PRODUCTION ROUTE production suggests the average (Scope 1 and growth rates (1% per year) without any material
According to the IEA [3], steel production emitted 2) intensity of steel production is 1.9 MtCO2 per or energy efficiency improvements, or any shift
3.6 GtCO2 in 2019, 9% of total energy sector tonne. Different grades of steel, particularly those away from BF-BOF to EAF or use of CCS/CCUS,
emissions. Steel’s direct (Scope 1) emissions, like stainless steel that have a high proportion of suggests emissions from steel could rise to 4.8
largely released by the burning of coal, accounted other elements, can have much higher intensities GtCO2e by 2050 in a theoretical Business As Usual
for the largest share (62%) followed by indirect [13]. As Figure 4a highlights, intensity also varies (BAU) scenario. While this scenario is increasingly
(Scope 2) emissions (27%) from imported and on- substantially between production methods. Coal unlikely (some shift away from BF-BOF is almost
site electricity and heat generation. The BF-BOF fuelled BF-BOF production emits 2.3 t CO2 per certain given the rising volume of available scrap)
process is responsible for c.85% of these emissions tonne of steel while the global average of scrap- it represents a convenient baseline to judge the
with the majority released during the BF stage. EAF is closer to 0.7 tCO2 per tonne. EAF facilities impact of decarbonisation measures and the
A relatively small part (8%) are from process powered by low-carbon electricity can have expectations from other scenarios and therefore
emissions (Scope 1) in the preparation of coke and substantially lower intensities. will be cited in this report as a point of comparison.
the use of lime in the BF-BOF process. Factoring
We estimate that China’s steel production currently The IEA’s recent Net Zero by 2050 report [8]
in Scope 3 emissions generated from iron ore
accounts for 2.0 GtCO2e, 55% of global steelmaking models net Scope 1 emissions in the steel sector
extraction and transport (3%) the steel supply
emissions and slightly higher than its production of 2.5 GtCO2e in 2019 falling 29% by 2030 and by
chain released 3.7 GtCO2.
share due to its reliance on BF-BOF. Europe 91% by 2050 (see Figure 5). Technologies that
Emissions grew at 4% CAGR between 2000 and accounts for just 0.3 GtCO2e (7%). The difference are currently available including material and
2019, in line with steel production. Although energy in production mixes is also reflected in the energy efficiency and increasing the share of scrap
intensity improved during this period (energy range of emission intensities estimated for listed based production deliver 85% of the emissions
intensity declined by 14%), the overall emission steelmakers companies. Tenaris, a mainly EAF- reductions by 2030 ((2.5 GtCO2e – 1.8 GtCO2e)*85%
intensity of steel production (t CO2/t steel) remained focused steelmaker (using up to 70% of recycled = 0.6 GtCO₂e). Beyond 2030, the majority of
relatively unchanged due to the rapid growth in steel), has an emissions intensity of 0.8 tCO2e per emissions reductions come from technologies
coal-fuelled Chinese BF-BOF production [4]. tonne while JSW Steel, a mainly BF-BOF steelmaker, currently under development including CCS/
has an emission intensity of 2.6 tCO2e per tonne. CCUS and hydrogen based DRI. Scope 1 emissions
captured using CCS/CCUS rises from 0.1 GtCO2e
in 2030 to 0.7 GtCO2e (i.e. 27% of the 2019 total).
Strikingly the IEA NZE 2050 scenario assumes just
Figure 4: a) Emission intensity by production method and b) by company Figure 5: Scope 1 emissions from the Iron 6% growth in steel production between 2019 and
and Steel sector in the IEA's NZE 2050 2030 (i.e. a 0.2% CAGR).
scenario
Further work is needed (by the TPI and others)
Scope 1 (emissions and reduction from 2019) to translate this data into a benchmark that
Estimated Scope 2 investors can use to directly assess steelmakers
commitments. Scope 2 emissions from the sector
3.0 3.0 4.0
(1.1 GtCO2e in 2019) are likely to need to fall even
Emission factor (tCO2e/t)
2.5 2.5 3.5 faster than Scope 1 emissions.
Emission factor (tCO2e/t)
3.0 1.1
2.0 2.0
Emissions (GtCO2e)
2.5
1.5 1.5 2.0
1.5
1.0 2.5
2.0
2.0
2.0
2.0
2.4
2.3
2.3
2.3
2.7
1.0
1.9
1.9
1.8
2.1
2.1
1.7
1.7
1.9 2.3
1.0 1.8
1.3
0.5
0.8
0.5
1.0
1.0
1.4
(29%)
0.7 0.5 0.9
(66%) 0.2
0.0 0.0 (91%)
0.0
BF-BOF DRI-EAF Scrap-EAF Global
JSW
Nisshin
China St.
Kobe
Tata
JFE Hold
Nippon
Evraz
V’ alpine
A. Mittal
Posco
N’ petsk
Severstal
thy’ Krupp
Bluescope
SSAB
Hyundai
Acerinox
Tenaris
2019A 2020A 2030E 2040E 2050E
average
a) average intensity by production process*
b) average intensity by company**
Notes: *2018 global scope 1 & 2 emission intensity factors used in this report based on a variety of sources (see [13]) with data screened to
ensure consistency of emission boundary ** Based on publicly reported scope 1 & 2 emissions in 2018 published by TPI [16]. Source: Adapted by IIGCC from IEA NZE 2050 scenario
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and Asian companies, reflecting national net zero
CORPORATE CLIMATE AMBITIONS pledges and existing regulation.
As of Q2 2021, nine companies representing ~20%
Although steel companies are increasingly setting
of the global steel production and including the
ambitious net zero commitments, many have
world’s five largest producers, had made net zero
yet to explain how they will deliver on these
emissions commitments. Eight of these companies
targets. Climate Action 100+ Net-Zero Company
plan to reach net zero by 2050 with SSAB planning
Benchmark [17] “Indicator 5” (Decarbonisation
to achieve it by 2045. Seven of the nine had
strategy) suggest companies include specific
set interim reduction targets and four of those
actions that they will take to achieve their GHG
(ArcelorMittal, Nippon, HBIS and ThyssenKrupp)
reduction targets and the measurable impact of
appear to be aligned with IEA’s most recent NZE
those actions within their transition plans (See
2050 scenario which specifies a 29% emissions
POSCO Case Study below).
reduction by 2030 compared to 2019 levels [8].
Most of these commitments are from European
Table 1: Net zero emissions commitments by steelmakers
Market share
Global Rank (Mt)1 Company Country NZ Target2 Interim target2 3
(% steel output)
1 ArcelorMittal Luxembourg 5.2% 2050 30% by 2030
2 Baowu Steel China 5.1% 2050 Peak emissions in 2023 &
30% reduction by 2035
3 Nippon Steel Japan 2.8% 2050 30% by 2030
4 HBIS China 2.5% 2050 Peak emissions in 2022,
10% reduction in 2025,
and 30% by 2030
5 Posco Korea 2.3% 2050 20% by 2030 and 50%
by 2040
13 U.S. Steel USA 1.4% 2050 -
35 ThyssenKrupp Germany 0.7% 2050 30% by 2030
49 SSAB Sweden 0.4% 2045 -
Under top 50 Outokumpu Finland 0.2% 2050 20% by 2023
1
he global ranking is approximate and may unintentionally exclude companies or include outdated steel production. This global ranking is
T
based on steel production (Mt). Production data is based on worldsteel.org
2
Emissions scopes included in these targets may vary (e.g. Scope 1, Scope 2, Scope 3).
3
Baselines used to compare the interim targets are unspecified in this table, but some companies do include them.
*The companies considered for this table have net zero commitments globally across all their operations. Partial commitments or
commitments from subsidiaries operating in a specific region are not considered.
Source: Company websites and Green Steel Tracker
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CASE STUDY: POSCO DECARBONISATION PLAN:
CARBON NEUTRAL BY 2050
Pathway to achieving the carbon neutral ambition (million tCO2)
78.8
1. Introduction: POSCO, the world’s fifth largest
steel producer, has laid out a structured pathway
towards full decarbonisation, as detailed in its Smartization
inaugural Climate Action Report published in
Partial H2
December 2020. Clear mid and long-term emission reduction
reduction commitments were made, including for Scrap
a CO₂ reduction of 20% by 2030, 50% by 2040 (Low-HMR)
and full neutrality* by 2050. In this report, POSCO CCUS
details a comprehensive technology pathway and
its expanded offering of low-carbon products. Net
Zero
2. Phases of the decarbonisation plan -
The broad outline of POSCO’s decarbonisation (Scope 1&2)
plan is:
Baseline Hydrogen- 2050
Phase 1 – Aims for a 10% CO2 reduction (2017~2019 Average) based
via digitisation, modernisation, and Steelmaking
rationalisation to increase energy
efficiency, ranging from reuse of off- Source: Posco
gas and off-heat as well as coke dry
quenching.
Phase 2 – Aims for a ~35% CO2 reduction
via: a) increased scrap use by developing POSCO is also the only major steel company to
technology to maximise scrap use and have committed to establishing world-scale green
lower hot metal ratios (HMR) up to 70% in hydrogen capacity targeting annual sales of 30
the BOF; b) CCUS involving the reuse of Tr KRW (~$ 26.5Bn). In addition to producing
captured carbon in the steel production hydrogen, POSCO intends to create a value chain
process and raw materials for chemical consisting of production, transport, storage and
products and partial hydrogen reduction; application. POSCO International will participate in
and c) injection of hydrogen rich coke domestic and overseas hydrogen projects, POSCO
oven gas and FINEX off-gas into the BF. Energy will build hydrogen terminals and POSCO
E&C will develop hydrogen urban development
projects.
Phase 3 – Aims for a completely carbon-
free hydrogen DRI technology on an
industrial scale in 10-20 years. Key
technological elements are already in
demonstration phase in the FINEX process,
and the ratio of hydrogen will be gradually
increased in two currently operational
furnaces with 3.5Mt per annum of capacity.
* Neutrality – sometimes this term is not used consistently to
The long-term goal is to produce DRI mean net zero. In this context, Posco seems to target net zero
through HYREX with green hydrogen and emissions. Posco does not disclose in its Climate Action Report
operate EAF with renewable energy. the share of “green revenues” over its total revenues and its future
green revenue targets as recommended by Climate Action 100+
Sub indicator 5.2.
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This section reviews the measures steel companies steel production using recycled scrap at 46%. In
and the broader value chain can adopt to reach addition, it is expected that electricity generation
net zero. It seeks to identify the key measures and will continue to decarbonise. Therefore, assuming
quantify their impact using a simplified emissions an 85% reduction in the emission intensity of the
model (see Figure 6). grid to 0.4 tCO₂e/MWh (0.1 tCO₂e/GJ), this would
further reduce emissions by 0.9 GtCO2e or 19%
The three basic production routes (BF-BOF, DRI-
relative to our BAU.
EAF and scrap-EAF) are modelled separately
PATHS TO REACH
with emissions considered a function of: 1) the Measure 2: Enhancing material efficiency to
level of steel demand (production), 2) the energy limit steel demand growth
efficiency of production, 3) the carbon intensity Analysis by Material Economics [2,3] highlights
of the energy consumed and 4) any captured and opportunities for greater “material efficiency” in
NET ZERO IN THE
stored emissions (CCS/CCUS). Measures to reduce the use of steel in building and manufacturing to
emissions from steelmaking must act on at least limit steel demand without impacting the quality
one of these components. or output of steelmakers’ customers. Raising
manufacturing yields, enhancing grades, increasing
STEEL SECTOR
maintenance to improve product longevity, and
REVIEW OF THE INDIVIDUAL IMPACT tightening construction specifications to reduce
OF KEY MEASURES overbuild could, in aggregate, cut annual steel
demand in Europe by 54 Mt (or 28%) by 2050.
Measure 1: Increasing the proportion of steel TERI [15] estimates similar measures could cut
produced by the scrap-EAF process Indian steel demand by 25%. The IEA NZE 2050
The proportion of steel made from recycled scrap estimates that material efficiency strategies could
using an EAF has a big impact on emissions. halve global steel use in buildings by 2050 relative
Aside from being more energy efficient (it requires to today through a combination of measures at the
just 8 GJ per tonne of steel produced vs 22 GJ per design, construction, use and end-of-life phases
tonne for BF-BOF [4]), the emission intensity of but gave no estimate of the potential in other
the energy used (electricity vs metallurgical coal) sectors (i.e. buildings and construction account
is also much lower. Consequently, the emission for 50% of total steel demand). Overall, averaging
intensity of scrap-EAF today is just 0.7 tCO₂e per different steel demand reduction estimates from
tonne of steel produced, vs 1.9 tCO₂e per tonne for different regions (not including the IEA NZE 2050
the global average. While scrap-EAF production estimate) we assume a 22% reduction to global
accounts for 23% of the global total currently, steel production from our 2050 BAU forecast,
it is likely to substantially grow as a fraction of reducing emissions by 1.1 GtCO2e or 23% relative
total production over the next 30 years as the to our BAU.
availability of scrap in China rises [23]. However,
it could be challenging to increase recycled steel Measure 3: Further incremental
proportion in western markets where this process improvements in energy efficiency of existing
is well established, and recycling rates are already steel production capacity
high. To solve this, engagement with policymakers, Energy consumption per tonne of steel produced
customers and scrap processors would be fell by an average of 0.9% per year between
necessary to improve scrap collection schemes and 2000 and 2018 and there should be opportunity
adjust trade policies on steel scrap to ensure an to enhance energy efficiency further. Energy is a
open market [24]. significant cost for steelmakers, so they are already
Assuming a hypothetical scenario in which scrap- incentivised to reduce its consumption. While steel
based EAF rises to 60% of global steel production plants in Europe, US and Japan are believed to be
by 2050, would reduce annual emissions from close to maximum efficiency, in other areas there
steel production by 1.5 GtCO2e, or 32% vs our is still room for improvement. For example, Indian
BAU scenario. While not an exact comparison, facilities currently use 40% more energy than the
the IEA NZE 2050 scenario estimates the share of global average [15].
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To improve energy efficiency steel companies by 2050 and exclusively uses natural gas, would Measure 5: Adapt CCS/CCUS technology to detrimental for climate goals [28]. On the other
should adopt the best available techniques (BAT) reduce emissions by an annual 0.5 GtCO2e or 9% fossil-based steel production plants when hand Tata Steel is part of a consortium exploring
developed by organisations like the OCDE, IPCC, relative to our BAU. technically and economically feasible the feasibility of storing carbon in the North Sea
EU Commissions JRC and eventually the upcoming and that aims to capture 7.5 MtCO₂ by 2030 (not
Replacing natural gas with hydrogen (which emits While initial steps have been taken to implement
revised EU’s Industrial Emissions Directive (IED). all from steel or from Tata). The most recent IEA
no GHG emissions when burnt) further reduces CCS/CCUS in steelmaking, most projects remain
Regarding specific energy efficiency measures, NZE 2050 scenario assumes the capture of 0.7
the emission intensity of the DRI-EAF process. in early adoption or demonstration phase. The
steel companies could recover the excess heat GtCO₂ annually from steelmaking processes by
Upgrading a DRI facility that utilises natural gas first steel CCUS facility was opened in 2016 and it
and gases produced during BF operations and 2050 and c.53% of global primary steel production
to instead use hydrogen requires little additional was attached to a natural gas-fuelled DRI facility in
use them to generate electricity for on-site use or equipped with CCS/CCUS. In our model, we
capital. Critically, if renewable electricity is used to the UAE. It has the capacity to capture 0.8 MtCO₂
sell it back to the grid [1]. McKinsey [11] estimates assume a very similar contribution of CCS/CCUS
produce both the hydrogen (“green hydrogen”) annually which can then be used for enhanced
average global energy efficiency in steel production with an annual emissions reduction of 0.7 GtCO2
and the electricity supplied to the EAF, the oil recovery [27]. Given the captured CO₂ in
has scope to improve a further 15-20% on average. or 14% relative to our BAU.
emission intensity can be reduced by 95% to just 0.1 effectively spurs oil production, the application
Assuming energy intensity of both of the BF-BOF
tCO₂e per tonne of steel produced, when compared of CCUS in this example is considered to be
and EAF processes continue to improve at a rate
to the current integrated route (BF-BOF) [6].
similar to the last decade, annual emissions would
Production costs also fall as electricity becomes
be reduced by 1.2 GtCO2e or 24% by 2050 relative
cheaper. Material Economics [10] estimates that
to our BAU.
producing steel in Europe through the DRI-EAF
Other approaches to reducing the emission method with hydrogen would be cheaper than
intensity of BF-BOF are also being developed. A BF-BOF when there is a carbon price of c.$60 per
novel approach called the HIsarna smelting process tonne and electricity costs below $47 per MWh.
Figure 6: Individual impact of measures to reduce steelmaking emissions in a
was developed as part of the ULCOS research Without a carbon price, electricity would have to
BAU scenario in 2050
programme funded by the European Commission be below $15 per MWh to be cheaper than BF-BOF.
and it is currently being piloted by Tata Steel Annual Emissions Demand growth Mainly external action
Applying the previous emission intensity estimates
[5]. It injects iron ore and coal as powders into
to our model, and assuming that three quarters of Co-ordinated action Mainly steelmaker action
the “reactor”, avoiding the need to produce iron
DRI-EAF production is fuelled by green hydrogen
ore agglomerates (pellets and sinter), improving 5.0
by 2050 (implying annual demand for 45 Mt of 0.5 0.2 0.7
energy efficiency by 20%. In 2018 Tata Steel 0.5
hydrogen), the shift to DRI-EAF could reduce
announced that by also using biomass and scrap 1.4
1.1
1.2
annual emissions by 1.2 MtCO2e or 23% relative to 4.0 1.5 1.5 0.7
as inputs, this process could deliver CO₂e emission
our BAU.
reductions of more than 35%. Assuming that 15% of
Emissions (CO2e)
global BF-BOF production adopted this or similar Overall, an approach that combines scrap steel 3.0
0.9
emission reducing technology by 2050, while recycling and hydrogen-based DRI is currently
4.8
achieving a conservative 30% reduction in emission considered the most viable option and the long-
2.0
intensity, this would result in an annual 0.2 term solution to achieving carbon-neutral steel 3.5
GtCO2e reduction relative to our BAU in overall production [12]. However, the development of DRI-
steelmaking emissions. EAF with hydrogen is still in the early stages. For 1.0
example, HYBRIT (see HYBRIT Case study), a green
Measure 4: Investing in (low emission) DRI- steel joint venture between the Swedish steelmaker
0.0
EAF capacity for primary steelmaking SSAB, Swedish state-owned utility Vattenfall, and
Shifting from BF-BOF to DRI-EAF production
Unfettered
demand growth
2050 BAU
1) Material efficiency
2) Energy efficiency
3) Rise in scrap-
EAF to 60%
to 60% and green grid
5) Rise in DRI-
EAF to 25%
6) Rise in DRI-
EAF to 25% and H2
7) Other tech including
smelt reduction
8) CCS
2018
miner LKAB, is targeting commercially viable
4) Rise in scrap-EAF
would also cut emissions. The DRI method is fossil-free steel production from 2026 [25]. Other
currently more energy intensive, but it allows for companies are choosing to use hydrogen directly
the substituting of metallurgical coal for natural in blast furnaces rather than through the DRI route.
gas, which reduces the overall emissions intensity As an example, Thyssenkrupp announced in June
of the process by c.30-40% [10]. The IEA forecasts 2020 that it is targeting c. 0.05 Mt of zero emission
DRI-EAF production rising from 100 Mt in 2018 steel production per year (~0.5% of its annual steel
(5% of the total) to c.400 Mt (20% of the total) by production) by using green hydrogen to replace
2050 [5]. Pushing this target further, by assuming the pulverised coal component of the raw material Notes and sources of the simplified model used in this report: scrap input beyond 60% would require a concerted push”, 4)
production from DRI-EAF reaches 631 Mt (25%) mix in the blast furnace by 2022 [26]. BAU assumes no change in current growth rates, production mix, assumes grid average of 36 gCO₂e/KWh by 2050, 5) assumes
energy efficiency, carbon intensity or CCS. Analysis attempts to DRI rises to 25% of production and 1.3 tCO₂e/t emission factor, 6)
assess the impact of each measure (high, low and average case) assumes DRI rises to 25% of production and 0.4 tCO₂e/t emission
against this BAU based on information drawn from the following factor assuming a 75% penetration of green hydrogen, 7) assumes
sources: 1) material efficiency from average of sources [2, 3, 7, and smelt reduction achieves a 15% penetration and a 30% reduction
12], 2) energy efficiency assumes continuation of historic trends to BF-BOF intensity and 8) compares to CCS emissions in the
(0.9% improvement annually), 3) based on source [10] “increasing IEA’s Two degrees scenario [5] of 0.5 GtCO₂e.
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