Decarbonisation of the steel industry: findings report

Our decarbonisation of steel research has found that key policy options for the government to drive green steelmaking include lowering industrial electricity prices (the UK has the highest in Europe), removing discrepancies between the cost of carbon emissions for steelmakers based on the level of their emissions associated with electricity consumption, and implementing a carbon border adjustment mechanism.

We have found that:

  • In the steel sector, retrofit options have the most short-term mitigation potential.
  • Most likely options for complete decarbonisation are hydrogen direct reduction of iron and electric arc furnaces, which has lower carbon emissions and costs than carbon capture and storage-based options. This would already be a lower cost option than blast furnace relining if steel producers were exposed to the full cost of their carbon emissions.
  • Even longer-term options need short-term attention to develop and demonstrate them. Increased scrap use in steelmaking allows greater use of electric arc furnaces, but requires better quantification of its benefits and process options.
  • Unless government provides significant financial support to the UK steel industry and improves the policy environment around green steelmaking, UK steel manufacturers will struggle to decarbonise their operations while maintaining international competitiveness. There is a serious risk of UK steel production being moved overseas, considerably reducing the control that we have over decarbonisation and security of supply. If this occurs, the costs of reaching net-zero emissions from UK steel consumption could be needlessly high in terms of stranded assets and job losses.

Description of strands

We undertook three strands of research:

Before our project, there was little understanding of the likely interactions between the energy system and green steelmaking technologies, expectations of stakeholders within the UK steel industry, and policy options to drive green steelmaking in the UK. When the proposal was developed, it was recognised that these were all crucial areas to address in order to decarbonise the UK steel sector.

Assessment of current techno-economics options

We investigated the available technology options for decarbonising the UK steel industry, considering the technical barriers and conducting cost-benefit analysis. This work involved a combination of computational modelling of advanced steelmaking and heating processes, energy system analysis, and the determination of levelised costs of several technologies relevant to green steelmaking (i.e. steelmaking with lower carbon intensity than currently).

What we found:

Hydrogen direct reduction of iron (H2-DRI) is one of the only primary steelmaking technologies with near-zero emissions. In this approach, hydrogen is used as a reducing gas to convert iron ore (mainly hematite, Fe2O3) to “sponge iron” (Fe) in a shaft furnace, at temperatures of around 800-1000°C. The hydrogen reacts with the oxygen, resulting in an off-gas of steam (H2O). An electric arc furnace (EAF) is used to convert the sponge iron to steel by adding a small percentage of carbon and any alloying elements that are required for the particular steel grade. Scrap metal can also be added to the electric arc furnace to reduce the sponge iron requirement and hence reduce energy requirements.

The hydrogen used in H2-DRI can come from a range of sources. Of interest, in green steelmaking are “green hydrogen” and “blue hydrogen”. Green hydrogen is hydrogen that has been produced using water electrolysis powered by low carbon electricity, such as that from renewables or nuclear power, and the carbon intensity of green hydrogen can potentially be negative. Indeed, National Grid ESO project that the average electricity grid carbon intensity in the UK will be negative from around 2035, as a result of biomass power with carbon capture and storage (known as BECCS). It is also possible to produce hydrogen using a gas reforming process such as steam methane reforming or autothermal reforming. Gas reforming splits the hydrogen from natural gas (mainly methane, CH4), leaving carbon dioxide in the off-gas stream. If this carbon dioxide is captured and stored (e.g., in aquifers or disused oil and gas reservoirs), then the hydrogen is known as blue hydrogen. The carbon intensity of blue hydrogen is generally higher than that of green hydrogen as not all of the carbon dioxide is captured from the off-gas stream.

Early on, we recognised that there had previously been very little attention given to the energy system requirements of the H2-DRI + EAF approach when deployed at large scales. We developed a new long-term energy system planning tool covering both electricity and green hydrogen and applied it to the UK case to find the lowest cost combination of electricity generation, hydrogen conversion, and energy storage technologies in a range of future scenarios.

We have also developed a model of recuperated water-source heat pumps and are currently using it to determine the economics of providing high temperature process heat using renewable electricity. This work will also cover the potential to use mine water and latent heat pumping (i.e., partially freezing the water source to extract more energy, thus reducing water requirements).

Stakeholder engagement

We looked at how the decarbonisation process can be carried out in the UK, by considering stakeholders’ views. Understanding under which conditions and context the steel industry in the UK can be decarbonised, identifying elements for and future paths towards decarbonising the steel industry.

What we found:

We examined how stakeholders’ expectations can shape the steel decarbonisation agenda and which conditions are involved in the idea of a future decarbonised industry. We also identified elements for and future paths towards decarbonising the industry through qualitative reasoning where stakeholders share their thoughts and feelings on decarbonisation, without involving measuring by one-to-one interviews and path ranking and development, where they would have to rank order different and preferable options regarding decarbonisation.

Policy options

We have identified the best policy or combinations of policies, to support decarbonisation based upon synthesis of work in other strands. Our goal is to analyse policy solutions identified across the strands and recommend appropriate policy choices and solutions to support decarbonisation of the UK steel industry.

What we found:

We have examined the techno-economic modelling results and common proposed solutions for industrial decarbonisation, with an eye toward UK specific solutions and the relevant role of the international policy community, if at all. We have used stakeholder engagement and feedback to shape analysis, as well as identified a number of routes for future research and policy engagement.

Our research concludes that the government should consider socialising the cost of renewable levies and network maintenance, or moving them from electricity to gas, and lay out steps to expose industry to the full cost of its greenhouse gas emissions while preventing carbon leakage (such as developing a carbon border adjustment mechanism, to be phased in as emissions trading scheme free allowances are phased out). There is a need to foster internal demand for steel produced by decarbonised routes and work towards consensus between the stakeholders involved in the process, rather than government expecting industry to act and vice versa.

Our research also concludes that the government should provide funding towards the development of a zero emissions steel plant based on green hydrogen, direct reduction of iron, and electric arc furnaces. This could be a collaboration between the public and private sectors.

Methodology and data collection

To provide quantitative evidence around the costs and emissions of low emissions steelmaking, we integrated a model of the key processes in low emissions iron and steel production (including hydrogen direct reduction of iron and electric arc steelmaking) with a long-term energy system planning tool featuring key low-carbon electricity generation technologies, electrolysers, and energy storage in the form of underground hydrogen storage and underground compressed air electricity storage. The energy system planning tool was formulated as a linear programming problem and solved using CPLEX via the CPLEX Connector for MATLAB. 20 years of historical wind and solar capacity factors for Great Britain were taken from renewables.ninja, and time slicing was used to preserve the variability in renewables availabilities while ensuring reasonable runtimes.

We developed a spreadsheet tool to compare a wider range of key options for low emissions steelmaking, including advanced ironmaking processes and carbon capture. We examined the literature to find inputs to these models.

These tools were used to assess the importance of several factors relevant to decarbonising steel production in the UK, including electricity prices, carbon prices, and compensation towards the costs of carbon emissions.

We conducted expert interviews with around 20 industry stakeholders to identify stakeholders’ expectations about the most plausible decarbonisation routes and the conditions that they consider necessary to achieve their expectations. The stakeholders represented organisations including steel manufacturers, trade associations, environmental NGOs, and central government departments. Interview content was developed based on literature review and informed by the techno-economic analysis conducted by other members of the research team. Multiple-criteria decision analysis (MCDA) was used to understand the stakeholder preferences, with a set of four decarbonisation routes developed for this. Each of these routes included a technological preference, market actions, and policy changes. The stakeholders were also provided with six criteria to consider in a comparative assessment of the decarbonisation pathways.

The potential to reduce heating demands in steelmaking was assessed by developing a thermodynamic process model of heat pumps operating on the reverse Joule-Brayton cycle (in which the working fluid remains as a gas throughout the cycle) and considering the economics of such heat pumps when used to preheat furnace gases, including hydrogen produced via water electrolysis. Enthalpies were calculated at each point in the heat pump using CoolProp (an open-source thermophysical property database), and heat pump designs were optimised by using multivariable nonlinear optimisation tools in MATLAB to find the temperatures and pressures that maximise coefficient of performance. Heat exchanger designs were optimised separately to minimise cost while ensuring that pressure drops were within acceptable limits.

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