Government intervention is necessary to drive “lead markets” and de-risk low-emission technology investment, with the first step being to establish a standard for green steel that consolidates the vast existing steel initiatives. Without this, there may be no mass market for green steel and upcoming green steel projects could end up stranded, says Sandbag.
The Belgium-based climate think tank points out that measures are needed until the operating costs gap between green and conventional production routes is bridged. The green steel standard should not discriminate against scrap, as the sliding scale does.
“Once green steel has been defined, the material needs to be applied in downstream manufacturing sectors, ideally those that command high volumes … such as automotive, so that the premium is well diluted and has the least impact on the willingness of end-users to pay extra,” the organisation says in a report seen by Kallanish.
Thereafter, authorities can enact pull mechanisms as demand-side measures to guarantee the offtake of green steel by manufacturing sectors and the consequent purchase by end-users. These can include green public procurement, quota systems for material sourcing or financial incentives to offset the green premium, as well as trading systems for the exchange of green steel certificates.
Until operation costs equalise, these will need to be complemented by push mechanisms such as financial incentives to encourage steelmaking decarbonisation. “These … will need to be tailored to replace flat steel, which in the EU is mainly produced via the carbon-intensive BF-BOF route, and designed to absorb fluctuating green premiums that cast uncertainty on offtake agreements with downstream manufacturers,” Sandbag notes.
“At the heart of the green steel challenge is the price premium. While the conventional BF-BOF route has predictable operating costs that can be replicated across plants and locations, cleaner production processes are subject to greater fluctuations depending on technological and regional factors,” Sandbag says.
“A green premium that adequately compensates for the additional operating costs of one green steel plant may not be sufficient for another, making pull mechanisms a potential source of uncertainty in terms of inflation, increased public spending or undue profits. In essence, mitigating the risks associated with investment in clean steelmaking technologies requires either public authorities or the steel value chain to bear the burden of unclear costs,” the think-tank concludes.
Adam Smith Poland