Decarbonizing the steel value chain: Forging new paths together

Towards a low-carbon world: Steel’s route

Steel is a vital resource today, used in all key industries and the development of the global economy. It has one of the highest emissions footprints, accounting for around 10% of global carbon dioxide (CO2) emissions. As a result of the long lifespan of steel production assets, high asset replacement costs, and high decarbonization energy requirements, steel is considered to be one of the six "hard-to-abate" sectors.

The 2015 Paris Agreement on climate change set out targets for major transitions in the key areas of energy and food production, consumption, and materials sourcing. Many companies across the steel value chain are reducing their scope 1 and 2 emissions by implementing energy-efficient technologies, electrifying processes, and using zero-carbon alternatives. For sectoral decarbonization to be achieved, the greatest impact is made when companies commit to reducing their Scope 3 emissions, which are indirect emissions associated with their value chain. This applies both to upstream (procurement of materials, assets, services, etc.) and downstream (including transport, waste disposal and processing). To tackle Scope 3 emissions, companies across the steel value chain are mutually dependent on one another to set firm emission reduction targets.

A critical factor for success: Decarbonizing steel production

In the steel value chain1 , iron and steel manufacturing via a blast furnace and basic oxygen furnace represents around 95% of the total greenhouse gas emissions and the remaining proportion of emissions originates from mining (4%) and logistics (1%). Global steel production is relatively concentrated, presenting a unique opportunity for the largest steel producers to make a far-reaching impact by decarbonizing their operations. As one construction company stated: “85% of our company’s total emissions are Scope 3 emissions, of which the bulk originates from steel production.” Therefore, if steel producers take action to decarbonize, it will contribute to climate targets of companies across the value chain.

There are four major pathways to reducing primary steel production's carbon footprint, and if implemented successfully, each of them could reduce emissions by at least 60%. Decarbonizing the sector involves overcoming several challenges—the most significant being the lack of affordable green energy supply, underdeveloped environmental policies, and the need for technological innovation to process varying iron ore quality. This paper suggests clear strategies and solutions for overcoming these barriers with far-reaching potential in progressing the energy transition and stimulating the green economy. With collaboration across the industry, innovation, and ambition, these strategies will significantly reduce steel’s net emissions.

1 Excluding some steel finishing and end-market applications.

A call to action

To enact change, one thing is certain: no one company can decarbonize alone. To successfully decarbonize, core stakeholders in the mining and steel production value chain must work together with end markets such as the automotive and construction industries. A coalition with partners across the value chain in addition to support from financial institutions as well as governments will be required to trigger collective action, spark global and local conversation, drive increased public and private investment, and deliver tangible results.

Key findings

Through interviews with more than 100 senior executives representing 57 organizations involved in the key parts of the steel industry, we have identified the key barriers to decarbonizing steel and practical solutions to accelerate the sector’s transition to net-zero. Highlights from the research include:

• The steel industry is considered hard-to-abate, currently generating around 10% of global emissions while demand is expected to increase further with 10-35% by 2050 as compared to 2019. Iron and steel manufacturing is responsible for 95% of the emissions of the whole industry, from ore mining to steel making.
• The steel market is relatively concentrated, which offers opportunities for decarbonization. If the 20 largest steel companies decarbonize their plants, the potential total emissions of the steel industry could be reduced by up to 37%.
• To derisk decarbonization investments, steel companies would need guarantees, in the form of low-carbon iron ore feedstock and customer orders for low-carbon steel.
• This report highlights six key barriers to decarbonization:
  • Lack of abundant and affordable green electricity and green hydrogen
  • Absence of policy and regulatory incentives to promote global low-carbon steel standards and a fair competitive field
  • Limited availability of high-grade iron ore suitable for the direct reduced iron-electric arc furnace (DRI-EAF) decarbonization route
  • Shortage of a skilled workforce to support the decarbonization transition across the value chain
  • Limited capital available to invest in decarbonization solutions
  • Uncertainty of sufficient and long-term demand for low-carbon steel with green premiums
• To overcome the barriers, feedstock and production processes will have to change, driving transformations in the steel value chain. This could lead to a geographical separation of iron and steel making, with iron making moving to locations with low-cost green hydrogen availability.
• Successful commercial coalitions are needed to help derisk investments by miners (to generate the right iron-ore grade), steel producers (to progress low-carbon steel production), end markets, (to guarantee the purchase of low-carbon steel), energy providers (to ensure a growing supply of green electricity and hydrogen) and encourage policymakers to include low-carbon requirements in government tender processes.

Connected for a new energy future

Energy is the pulse of our day-to-day life and how we create and use it is evolving rapidly. At Deloitte, we understand the opportunities the Future of Energy brings and the importance of connecting ecosystem players, innovators, regulators, and thought leaders to create a new energy world that is sustainable and abundant. In collaboration with Shell and working closely with many leaders of the steel industry, Deloitte explores the promise of decarbonizing the industry. We truly believe that as ecosystem players connect and adopt the right mind-set, the positive impact we make can be accelerated.

This report was produced in collaboration with Shell