German steel industry to become major green hydrogen offtaker
Europe’s steel industry is set to be a significant consumer of renewable hydrogen and German steelmakers in particular have some of the most advanced plans in the region to tap the new green energy source.
Potential future demand from the German steel sectorcould amount to 850,000 metric tons per year by 2030, according to German steel association WV Stahl, with producers planning to connect to a national hydrogen pipeline network now under construction, as well as producing their own green hydrogen from electrolyzers onsite, saving 28 t of CO2 per metric ton of hydrogen.
The German government expects total hydrogen demand of 95-130 TWh (2.85 million-3.90 million t/y) by 2030, with 40-75 TWh from new demand.
Carbon-accounted hot-rolled coil steel commanded a $120/t premium to the Platts conventional HRC assessment of $615/t ex-Ruhr on Aug. 7.
Platts, part of S&P Global Commodity Insights, assessed the cost of green hydrogen production via alkaline electrolysis in Germany, backed by renewable power purchase agreements, at an average of Eur7.98/kg ($8.71/kg) in July.
“The steel industry offers one of the most encouraging new use cases for low-carbon hydrogen due to the amount of CO2 that can be abated per kilogram of hydrogen,” Commodity Insights senior hydrogen analyst Matthew Hodgkinson said. “However, switching to low-carbon steel production is expensive, with ETS prices of at least Eur150-200/t required to make it comparable to current production methods.”
Platts assessed nearest December EU ETS prices at Eur71.04/t Aug. 7.
Complete decarbonization of EU crude steel production would require around 6 million to 8 million t/y of low-carbon hydrogen, comparable with current total hydrogen demand, Hodgkinson said.
German steel producers, backed by national and EU government policies, aim for climate neutrality by 2045, targeting a 30-50% reduction in greenhouse gas emissions by 2030.
Greening steel
Steel production accounts for around 5% of European CO2 emissions, and 8% globally. Germany is Europe’s largest steel producer and seventh biggest in the world, and the sector accounts for around 30% of the country’s industrial emissions.
Steel is produced through two main production routes that both emit CO2 — the blast furnace/basic oxygen furnace (BF/BOF), and the direct reduction iron/electric arc furnace (DRI/EAF) routes.
The predominant BF/BOF route removes oxygen from iron ore using a carbon reducing agent, such as coking coal, leading to around 1.6-2 t of CO2 emissions per metric ton of crude steel produced. The basic oxygen furnace then converts molten iron from the BF into steel.
Meanwhile, DRI plants can use natural gas, hydrogen or a mixture to remove oxygen from iron ore. Using only renewable hydrogen produces zero greenhouse gases. The EAF melts scrap steel or DRI to produce steel using electric arcs.
Around 60% of European steel production is via BF and around 40% via EAF, according to industry association Eurofer. Germany produced about 35.4 million metric tons of steel in 2023, down 4% year on year, of which 9.8 MMt was produced via EAF and 25.63 MMt via BF.
Steelmakers plan to replace BFs with hydrogen-based DRI, with most DRI plants in Germany to be paired with an EAF (see map).
Salzgitter, Stahl-Holding-Saar and Thyssenkrupp have all issued tenders to source large volumes of low-carbon hydrogen for their steel production from later in the decade.
These companies, along with ArcelorMittal, received state funding commitments in 2023 and 2024 under the EU’s Important Projects of Common European Interest program on hydrogen and low-carbon technologies.
Powering up
The switch will see a huge leap in renewable power demand.
The German steel industry’s current electricity demand from the grid is 12 TWh, according to WV Stahl. This could double by 2030 to 24 TWh, with crude steel production estimated around 42 MMt/y. Further green electricity will be required to power electrolysis, of around 28-29 TWh.
While being a large increase, those figures are a relatively small fraction of German power demand of around 500 TWh in 2023, forecast to rise to 649 TWh in 2030, according to Commodity Insights data.
European steelmakers are already marketing low-carbon steel products. Platts launched its daily carbon-accounted steel premium assessment in May 2023, which reflects any differential achieved for spot sales of hot-rolled coil on an ex-works basis, with total accounted carbon emissions of 2.1 t of CO2, or less, for every metric ton of steel produced.
Decarbonizing logistics: charting the path ahead
As global organizations chart a path to net zero, many are looking to the next frontier of emissions reduction: “Scope 3” emissions. These emissions are not directly produced by a company’s operations, but embedded in its supply chain. They account for the vast majority of companies’ emissions, and a significant portion are generated from supply chain and logistics activities—in particular, from the combination of road and ocean freight.In total, logistics emissions from freight and warehousing account for at least 7 percent of global greenhouse gas (GHG) emissions. Any successful path to net zero will thus need to address them as part of a company’s holistic environmental, social, and governance (ESG) strategy.
ArcelorMittal calls for internationally competitive prices for renewable energies, hydrogen
Steelmaker ArcelorMittal has called for guaranteed internationally competitive prices for renewable energies and hydrogen in sufficient quantities in the long term for Germany to successfully transition to carbon-neutral steel production.
The steelmaker May 17 called for a clear industrial policy, saying that the necessary economic policy framework needed to be put in place more quickly by Germany and the EU.
“Despite significant progress and an EU-approved funding commitment from the German government for the planned decarbonization projects at the flat steel sites in Bremen and Eisenhuttenstadt, the company is facing challenges, particularly due to high energy and hydrogen costs,” it said, adding that competitive energy prices were a significant factor in its final investment decision to decarbonize production in Germany.
ArcelorMittal said CO2-neutral pig iron production required a hydrogen price of around Eur2/kg to remain competitive, but hydrogen prices were Eur7-9/kg. It said it was also difficult to operate EAFs economically in the long term due to high electricity prices.
Platts, part of S&P Global Commodity Insights, assessed the cost of green hydrogen production via alkaline electrolysis in Germany, backed by renewable power purchase agreements, at Eur6.58/kg ($7.13/kg) on May 16, down from Eur7.77/kg a month before.
The assessment reflects one possible pathway for producing EU Renewable Energy Directive-compliant green hydrogen.
The recent debut auction under the EU’s European Hydrogen Bank, providing subsidy support for green hydrogen production, cleared at below 50 euro cent/kg, with seven projects totaling 1.5 GW in Iberia and the Nordics the winners.
The winning bids demonstrated both the competitive locations for green power production, along with a willingness of end users to pay a premium for the renewable hydrogen.
There were also several bids from projects in Germany for well under Eur1.50/kg, EC data showed.
Carbon neutral by 2050
ArcelorMittal aims to reduce its CO2 emissions in Europe by 35% by 2030 and reach carbon-neutral production globally by 2050.
In Germany, the company is converting its blast furnace technology to natural gas to reduce emissions and plans to eventually move to hydrogen-based direct reduction and electric arc furnaces.
In February, the German government announced Eur1.3 billion support ArcelorMittal’s plan to build EAFs in Bremen and Eisenhuttenstadt, as well as a direct reduction plant in Bremen.
The steelmaker said at the time the use of green hydrogen could result in savings of more than 6.3 million mt/year of CO2 by 2030 and produce 3.4 million mt of CO2-reduced steel in both plants.
“Decarbonizing our production is a top priority for us, but the current costs and future price forecasts for energy and hydrogen pose a considerable challenge,” ArcelorMittal Germany CEO of the flat steel plants in Bremen and Eisenhuttenstadt Thomas Bunger said in the statement.
“An industrial policy aimed at reducing these costs is crucial for our success and the success of the entire industry,” he said.
“We need the rapid expansion of renewable energies and the development of domestic hydrogen production while at the same time increasing hydrogen imports in order for the transformation to succeed,” ArcelorMittal Europe Vice President Lutz Bandusch said.
The steelmaker said establishing a “green lead market” was crucial to the viability of producing CO2-reduced steel competitively, while labeling initiatives could also be helpful to set additional incentives, such as in public tenders and government procurement.
ArcelorMittal also called for “decisive action” at national and EU levels against distortions of competition, which it said would include closing the remaining weaknesses in Carbon Border Adjustment Mechanism to reduce the risk of part of the industrial value chain migrating outside Europe.
“ArcelorMittal remains firmly committed to achieving CO2-neutral production worldwide by 2050. Active support through government measures is essential for the transition to a sustainable future,” it said.
ArcelorMittal produces CO2-reduced steel under its XCarb brand and subscribes to the ResponsibleSteel standard, which guarantees socially and environmentally responsible supply chains and production methods, it said.
Platts, part of S&P Global Commodity Insights, assessed domestic HRC prices in Northern Europe at Eur630/mt ex-works Ruhr May 16, down 8.7% since the start of 2024.
Authors: Jacqueline Holman, jacqueline.holman@spglobal.com, James Burgess, james.burgess@spglobal.com
Carbon border adjustment debate divides EC, steelmakers
European Union steelmakers may be at loggerheads with the European Commission on how a Carbon Border Adjustment Mechanism can be introduced in Europe, according to views expressed during a European Steelmakers’ Association March 17 webinar that focused on EU climate policy.
Introduction of a CBAM on top of the EU’s current Emissions Trading System would be an “overcompensation” in terms of ensuring a fair market for clean steel and risks not being compatible with World Trade Organization policies, Mette Koefoed Quinn, the European Commission’s head of unit, ETS Implementation and IT, DG Climate Action, told industry representatives on the Eurofer webinar. The ETS currently offers some free allocations to steelmakers to avoid carbon leakage.
Eurofer’s members are meanwhile pressing for the ETS to continue for a transition period of eight years after the CBAM is introduced, during which time free ETS allocations would continue to be made to EU steelmakers, the association’s director general Alex Eggert said.
This transition period should run until a sustainable market for “green” steel is fully formed in 2030, according to the association.
“We’ve had intense discussions with trade lawyers who all confirm that carbon border measures are absolutely compatible with WTO….. and even a combination of the two (CBAM and the ETS) to cover the delta between free allocations and carbon costs at the border is compatible,” Eggert said. Europe’s steel industry has already suffered a competitive disadvantage – estimated to have cost the sector some Eur3 billion in 2018 at current prices – due to the ETS system, where the shortage of free ETS allocation to the sector is currently put at around 20%, he said.
The EU is extremely exposed to international competition, with a high cost susceptibility because the EU imports around 30 million mt of steel a year and exports some 20 million mt/year, according to Eurofer data.
CBAM may be implemented in 2023
The European Parliament March 10 approved the principle of setting up a CBAM and the EC is expected to move ahead with a legislative proposal for its introduction in June, for possible implementation in 2023. Andrei Marcu, founder and executive director, European Roundtable and Climate Change and Sustainable Transition, said that so far the only place that a CBAM has been applied is in California. However, US President Biden is understood to be considering one at national level.
WTO Deputy Director-General Alan Wolff said last month that cooperation between nations will be essential to avoid disputes around carbon border taxes. On March 5 the WTO launched a Trade and Environmental Sustainability joint initiative group with 53 member countries, which is expected to be a forum for the discussion of carbon border taxes.
Under the European Green Deal, the EU steel industry needs to reduce its carbon emissions by 55% from 1990 levels by 2030, and achieve net-zero carbon production by 2050. According to Eurofer’s climate and energy director, Adolfo Aiello, this may involve investments of Eur144 billion including in breakthrough technologies which could increase steel production costs and prices by between 35% and 100% above current levels, as a well as supplies of up to 400 TWh of climate-neutral electricity, seven times more than what the sector purchases from the grid today .
The investments required are expected to come from steel sector companies themselves, public sector bodies such as the EU Innovation Fund, and ETS revenues, around 80% of which are currently being used for “green” actions, according to the EC.
“We support climate ambition but it needs to be achieved in the most cost-efficient way: higher climate ambition means and needs better carbon leakage protection, and more support for low carbon technologies,” Aiello said. Carbon is currently priced in the EU at around Eur40/mt, having risen dramatically over the past three years after hovering around Eur7/mt for several years. This decade carbon prices might even rise to “three-digit” levels, he said.
“Fair burden-sharing is needed between ETS and non-ETS sectors,” he said, adding the commission needs to redirect more of the ETS revenues to industry.
EC considering six options
The EC is looking at six different options to decarbonize, but does not consider that a CBAM could be complementary to the ETS system, Quinn said. It would be an alternative, she said.
Phase 3 of the EC’s ETS allocation system has just finished, without carbon leakage having been seen, she said. In Phase 4 of the ETS, designed to cover the January 2021 to 2030 period, free allocations to companies are now being calculated.
The overall structure of the ETS is being reviewed: there will be sufficient free allocation, to the benefit of steelmakers, Quinn said. “The current system foresees the sufficient allocation of free allowances until 2029-30: giving adequate carbon leakage protection. However, we’re now looking at whether to introduce CBAM… the commission says it’s either CBAM or free allocation, you can’t have both because that’s a risk of double compensation…. but a transition period might be needed and that’s one of the alternatives we’re looking at,” she told the webinar.
While ETS free allocations are currently giving adequate carbon leakage protection, they are reducing the incentive to go for quick decarbonization: “The pricing is not coming through as it should into the products and this is a problem,” Quinn said. CBAM could provide a useful incentive to the steel industry to decarbonize within Europe and externally, she said.
— Diana Kinch