High-cost producers of steel via the conventional blast furnace (BF) and basic oxygen (BOF) routes may be forced to rationalize production in a Paris-aligned world, with 132 million mt/year of capacity in Japan, Germany, China, Italy and the US at risk of becoming stranded assets, according to a report by climate analytics not-for-profit TransitionZero published March 17.
“In an economically rational Paris-aligned world — where conventional unabated BF-BOF producers are forced to rationalize output — 10% or 132 million mt/year of conventional BF-BOF production from Japan, Germany, China, Italy and the US is outside a net-zero carbon budget by 2030,” the report said.
According to TransitionZero’s Global Steel Cost Tracker (GSCT), the production cost of 132 million mt/year between now and 2030 is $1.1 trillion per year, based on 2015-2021 average costs.
“These production costs could prove conservative, given the spike in commodity and high electricity prices from Russia’s invasion of Ukraine,” it noted.
By 2040 the percentage outside the carbon budget climbs to nearly 40%, with Japan, Germany, Italy and the US being the most impacted. The amount of conventional BF-BOF production outside the budget by 2050 increases to 514 million mt/year, with the remaining production still in operation likely to have been equipped with carbon capture and storage technology.
In the IEA’s net-zero emissions scenario, emissions from steel will have to decline by two-thirds by 2040. The steel industry emitted around 3.6 billion mt of CO2 in 2020, with BF-BOF production responsible for most of this.
“We focus exclusively on conventional BF-BOF production because this process route is responsible for most direct carbon emissions from steel,” the analysts explained. “Our model optimizes for an economically rational net-zero aligned world. Substantial amounts of steel are traded globally, meaning steel is a trade-exposed industry. The cost of steel production is an important factor in keeping a steel-producing country or a particular steel plant competitive in such an international market. As such, we assume the highest cost producers are forced to rationalize production first.”
TransitionZero is a climate analytics not-for-profit. They created GSCT, Global Steel Cost Tracker, an open data project that estimates the plant production costs of BF, BOF and electric arc furnace (EAF) steel production. The cost estimates are broken down by raw materials, energy, labor, and other costs.
— Annalisa Villa