Decarbonisation too slow, stranded asset risk growing: GEM

The transition away from coal-based steelmaking is moving far too slowly, says US-based non-governmental organisation Global Energy Monitor (GEM).

As of March 2023, 43% of planned capacity uses largely gas and electricity-based electric arc furnaces, while 57% of planned capacity uses the coal-based blast-basic oxygen furnace route.

However, the International Energy Agency (IEA)’s Net Zero by 2050 scenario indicates that 53% of overall steelmaking capacity needs to use EAF technology by 2050. 42% of primary steelmaking alone needs to use EAFs in a hydrogen-based direct reduced iron or iron ore electrolysis configuration to meet that goal.

“Current capacity plans will result in a mere 32% of total capacity using EAF in 2050, far less than what is needed. While the growing proportion of EAF in planned capacity is promising, existing BF-BOF capacity must be closed and planned BF-BOF capacity cancelled,” the NGO says in a new report seen by Kallanish.

Overcapacity remains a big problem. OECD reported a 26% global excess capacity – 632 million tonnes – in 2022. The Global Steel Plant Tracker indicates a 11mt net capacity gain in 2022 and a fall in capacity utilisation rates of top producers from 75% in 2021 to 72% in 2022.

“While overcapacity presents a challenge to steelmakers in terms of profitability, it also creates an opportunity to shift investments in the sector to support the green steel transition,” Global Energy Monitor observes.

Three-quarters of steelmaking capacity under development is in Asia, with 55% from China and India. Considering the BF-BOF route in isolation, Asia is responsible for 99% of new developments. India is now the world’s largest developer of new BF-BOF capacity, holding 40% of BF-BOF capacity under development, while China is responsible for 39%.

Stranded asset risk is growing: the steel industry could face as much as $554 billion in stranded asset risk amid decarbonisation and simultaneous BF-BOF capacity buildout. From 2021 to 2022, BF-BOF assets under development in countries with net-zero carbon commitments increased approximately 7% or 36m t/year.

Governments are handing out subsidies for green steel now, notably in the EU, US, and Australia. “The green steel transformation is becoming a race, and governments subsidising uneconomic capacity using the coal-based blast furnace-basic oxygen furnace route will be left behind,” the organisation notes.

“Capacity development plans in Southeast Asia need to be redesigned in alignment with net-zero plans, meaning no new coal-based blast furnace-basic oxygen furnace steelmaking developments and plans to retire and replace blast furnaces with fossil-fuel-free alternatives,” it concludes.

Adam Smith Poland