Decarbonizing the steel and iron ore industry by 2050, in line with
the Paris Climate Agreement, will require $1.4 trillion of investment and
revolution across every stage of the value chain. This presents an urgent
challenge and enormous opportunity according to Wood Mackenzie’s latest
Horizons research report, Pedal to the metal: Iron and
steel’s $1.4 trillion shot at decarburization.
The analysis by Wood Mackenzie, a Verisk business (Nasdaq:VRSK),
points to the industrialized world’s reliance on steel, with 2.2 billion tonnes
of production required to meet global steel demand by 2050 – a 15% increase
from 2021. From iron ore mining to steel manufacturing, the industry is highly
carbon intensive. Iron and steel production emit a combined 3.4 billion tonnes
of carbon annually – equal to 7% of global emissions.
“Decarbonising the steel
industry is a staggeringly 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 decarbonise
the iron and steel sectors. Business as usual is no longer sustainable,” said
Malan Wu, research director at Wood Mackenzie, and lead author of the report.
Iron and steel investments to reach net zero by 2050
Wood Mackenzie’s analysis sets out the revolution required at every
stage of the industrial value chain, from mining to consumption, which presents
an investment opportunity for operators as the industry works towards net zero
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.
“Mining companies will need to play an active role in cutting their
operational emissions as well as invest in new high-grade mines and green
pellet capacities to feed green steel. In turn, this will require five times
the current supply of high-grade pellet feed, an equivalent to 750 million
tonnes, translating into an investment of $250-300 billion.
“To achieve net zero by 2050, three-quarters of steel production
will have to use low-carbon technologies, requiring the commercialisation and
uptake of new technologies such as DRI and molten oxide electrolysis running on
renewable energy. Switching to clean energy will also require around 2,000
gigawatts of dedicated renewable generation capacity, equivalent to two-thirds
of current global renewable generation capacity,” Wu said.
“A hydrogen ecosystem will also need to be developed for green
steel, as decarbonisation will require around 50 million tonnes per annum of
competitively priced green hydrogen, with commercial viability versus
conventional steelmaking routes requiring green hydrogen supply at $2/kg,” Wu
Carbon offset measures and a ‘green premium’ inevitable
The report warns that these measures will still fall short of
emissions targets, necessitating an incremental $200-250 billion investment in
carbon offset measures, such as Carbon Capture, Utilisation and Storage (CCUS),
as the industry will need to capture and store 470 million tonnes of carbon to
reach its emission target in 2050.
Green premiums are also inevitable, given new technologies and low
carbon feedstocks are likely to inflate steel production costs by 15-20%, in
which steelmakers will pay approx. $100 per tonne by 2050 to align themselves
to a 1.5 °C goal by 2050, according to Wood Mackenzie estimates.
Wu added: “While steelmakers will have to swallow the price hikes
for raw materials, carbon abatement costs will ultimately be passed onto steel
end-users, meaning it is the consumer who must pay for the green
Regional disparities will emerge
The iron and steel industry will also require support from global
carbon policy. To date, most national carbon markets are nascent and
concentrated in mature economies. As more than 60% of steel production comes
from China, Beijing must implement aggressive carbon pricing and taxation if
steel’s high carbon footprint is to be addressed.
“Regional disparity will emerge, as a global response looks
unlikely. Carbon mitigation tactics and strategies will vary widely, with
mature economies – such as the EU, the US, Japan and South Korea – spending 50%
more than emerging economies,” Wu said. “Mature economies will also decarbonise
much faster incurring a higher carbon abatement cost.”
“The transition to net zero calls for collaborative action globally
and a unified approach across the value chain to turn risks into
opportunities,” Wu concluded.