Decarbonisation needs net-zero market, production support: UK Steel

To support steelmaking decarbonisation and prevent offshoring, the UK government must create a net-zero steel market, using measures such as a Carbon Border Adjustment Mechanism (CBAM), as well as provide direct support for net-zero production. So says UK Steel.

The net-zero steel market approach is similar to the automotive market, where the government has intervened to ban the sale of new internal combustion vehicles from 2030. Policy recommendations include CBAM, product standards, and green public procurement.

The direct net-zero steel production support mirrors the approach taken for the power sector, where renewable energy generators are provided with a guaranteed price via a levy on energy consumers. Examples of this include co-investment in significant asset and infrastructure changes before the end of their natural lifespan, R&D funding, and support for hydrogen production and infrastructure, UK Steel says in a new report on its vision for the steel industry’s net-zero transition.

There are significant growth opportunities, with UK demand for finished steel forecasted to grow from 9.4 million tonnes in 2015 to 11mt in 2030. This represents a 6.8mt/£3.8 billion ($4.49 billion) a year opportunity for the UK industry, UK Steel observes in the report sent to Kallanish.

However, producing steel with net-zero emissions is significantly more expensive than traditional alternatives. “The cost of emitting carbon has not yet been internalised within the cost of steel and prevents companies from investing in decarbonisation because there is no method of receiving a return on the additional CAPEX and OPEX … required,” UK Steel points out.

The steel sector has two key targets. One is the government’s 2050 Net Zero target, which could require the steel sector to reduce its emissions by over 95%. The other is the Climate Change Committee’s 6th Carbon Budget for 2033-37, which includes a recommendation for all ore-based steelmaking to be near zero emission by 2035.

There are two main technology routes available with a decarbonisation target of 2035: electrification and CCUS. Both can be implemented by 2035 or even sooner if the right policy framework and investment support are in place. Immediate policy requirements are parity of industrial electricity prices, energy efficiency funding, improved scrap utilisation and quality, and R&D funding. CBAM, green public procurement and carbon pricing should then be implemented from 2026.

For the sector to further decarbonise beyond 2035, technologies such as hydrogen-based steelmaking would need to become a feasible option, UK Steel concludes.

Adam Smith Poland