There is a clear business case for top importer regions Europe, Japan, and South Korea to establish “green iron corridors” for the sourcing of competitive low-emission metallics from regions with more favourable criteria for production, says the Rocky Mountain Institute (RMI).
“Current subsidies will unlock cost reductions for hydrogen-based iron production in developed countries today, but ultimately the supply chain will be optimised around competitive renewable energy resources,” RMI says in a note seen by Kallanish.
Looking at subsidies, iron ore quality and management, shipping distances, and renewable resources, RMI has developed a model to identify cost-competitive regions for green metallics supply. The modelling confirms the lowest-cost export options with high-grade iron ore co-located with favourable renewable energy resources and enabling policies can produce iron at $390/tonne – comparable to recent global prices.
These export locations include the US – due to IRA subsidies and tax credits – South Africa, Canada – with tax credits – Mauritania, Australia, Brazil, and Chile. They could be paired with importers with strong steelmaking capacity, reliance on iron ore imports, and demand for green hydrogen to meet energy security and decarbonisation targets.
“Transporting finished green iron sees both cost and energy savings compared to transporting hydrogen and ore separately,” RMI observes.
It would help importers lower costs and enable a faster transition for their steel sector, helping to avoid some of the domestic hydrogen-based DRI production infrastructure spending that is required for 1.5°C alignment.
“At least $5.5 billion has been allocated to ten commercial-scale hydrogen-ready DRI facilities by government funds in Europe, but even with these generous subsidies companies are struggling to reach final investment decisions, citing high costs for domestic hydrogen as a financial barrier,” RMI notes.
While the iron can be imported, domestic steelmaking activities can be maintained, and these make up approximately 75% of the iron and steel direct jobs, it adds.
“In Europe, the combination of committed buyers demanding green steel who are willing to pay 20-30% premiums for green products and implementation of carbon taxes makes a strong business case for establishing these trade corridors sooner rather than later,” RMI says.
As free emissions allowances are phased out and CBAM phased in, steel made, for example, in Germany from the lowest-cost green iron imports compared to domestic fossil-based steel with projected ETS carbon taxes will be a roughly similar cost in 2028. In 2030, it will be significantly cheaper, the institute observes.
“Action is needed across the value chain to make this [green iron corridors] a reality: governments must show intent, steelmakers in importing regions must show appetite, and iron producers and iron ore miners in exporting regions must begin laying the investment foundations,” RMI concludes.
Adam Smith Poland
