Steelmaker ArcelorMittal Warns Decarbonization of Industry Would Cost Billions

A red-hot steel plate passes through a press at the ArcelorMittal steel plant in Ghent, Belgium, on May 22, 2018. Yves Herman/File Photo/Reuters

ArcelorMittal presented plans last week for carbon-neutral steel production across its European operations by 2050, but said that the right policies and massive investments of at least $786 billion would be necessary to transition to “green” hydrogen from coal used in furnaces.

The findings support research in the United States (pdf) suggesting that greenhouse gas regulations could see the steel industry shrink by 38 percent by 2040.

The company is committed to the transition to carbon-neutral steelmaking in line with the Paris Agreement and the European Union, President and CFO Aditya Mittal said in a report (pdf).

“Last year, we announced a target to reduce carbon emissions in our European operations by 30 percent by 2030, with a longer-term ambition to be carbon-neutral by 2050,” Mittal said.

The EU’s proposal for a European Green Deal has put pressure on high-carbon sectors such as transportation, electricity generation, and steel production, which currently require large amounts of fossil fuels as sources of energy.

The Problem With Steel

Historically, iron and steel were smelted in a blast furnace by combining coking coal, limestone, iron ore, and blasts of compressed hot air to produce pig iron. Coking coal is a low-ash, low-sulfur coal that has been “cooked” in the absence of oxygen at temperatures of more than 1,800 degrees Fahrenheit. In smelting, the coke acts both as a fuel—to provide the intense heat required—and as a reducing agent, separating oxygen from iron oxide ores to produce carbon dioxide, and leaving almost pure iron in the process. The limestone serves as a flux material, binding impurities from the ore to produce slag.

Steel coils produced at the NLMK Indiana steel mill in Portage, Ind., on March 15, 2018. Scott Olson/Getty Images

Today, the resulting pig iron is often combined with scrap in an electric arc furnace (EAF), where the intense heat of an electric arc is used to melt the iron and burn off any impurities. According to the Department of Energy, around two-thirds of U.S. steel is now produced from scrap by electric arc furnaces, with a high level of steel recycling recorded in the United States.

Even if an EAF is used, however, the furnace still requires an iron-bearing feedstock material, such as scrap steel or pig iron. Furthermore, according to the World Steel Association (pdf), “The production of primary steel is more energy-intensive than the production of secondary steel using scrap due to the chemical energy required to reduce iron ore to iron using carbon-based reducing agents.”

Steelmaking also employs large amounts of energy in the form of electricity to drive the steel mill, or power the electric arc furnace. The source of such electricity remains an issue for steel producers. In 2019, 59 percent of the state of Indiana’s electricity was produced from coal, according to the U.S. Energy Information Administration (EIA), while in neighboring Pennsylvania, nuclear power, natural gas, and coal produce 96 percent of the state’s electricity.

The Path Forward?

According to the authors of the European Green Deal: “Energy-intensive industries, such as steel, chemicals, and cement, are indispensable to Europe’s economy, as they supply several key value chains. The decarbonization and modernization of this sector is essential.”

Mittal is confident that the technology exists to produce steel without using carbon.

“With the right support, reducing carbon emissions is certainly achievable, but there is no denying it represents a significant challenge. Making steelmaking carbon neutral is complex and will cost billions of euros,” he said.

He believes that carbon-free steel production can be achieved through some combination of “smart carbon” or “circular carbon” from burning waste plastics and biomass, “clean energy” from wind and solar, and carbon capture and storage technology.

A red-hot steel plate passes through a press at the ArcelorMittal steel plant in Ghent, Belgium, May 22, 2018. Yves Herman/File Photo/Reuters

The reduction of iron ore to pure iron would eventually be performed not by coking coal or “smart carbon,” but by hydrogen. However, hydrogen is currently produced most efficiently by splitting natural gas into its carbon and hydrogen constituents to create “blue hydrogen.”

“Green hydrogen,” the preferred choice, would be produced by means of hydrolysis, with wind and solar providing the necessary energy for the hydrolytic reaction.

While explaining that carbon-neutral steel production is theoretically possible, however, Mittal also presented the price tag for the changeover. Transitioning the energy required for European steel production to biomass would cost 50 billion to 70 billion euros ($56 billion to $78 billion), Mittal says. The infrastructure required for capturing, transporting, and sequestering the carbon dioxide generated by European steel production would require an investment of 100 billion to 150 billion euros ($112 billion to $168 billion).

However, Mittal asserts that it is likely to be decades before renewable energy will be available at a scale that could benefit the steel industry.

“The energy infrastructure investment needed to move the entire European steel industry to clean electricity via hydrogen would be 450 billion–700 billion euros [$505 billion–$786 billion],” he said.

Implications for American Steel

According to the American Iron and Steel Institute (pdf), the industry supports 2 million U.S. jobs, while contributing some $520 billion in economic activity and $56 billion in federal, state, and local taxes. The steel industry also provides the raw materials for the construction and automotive sectors, as well as strategic industries such as national defense and the energy industry.

However, a 2017 report (pdf) by NERA Economic Consulting stated that a regulatory approach to reducing greenhouse gas emissions in the United States could be strongly negative for the economy—including the steel industry. The regulatory example used was the implementation of the 2013 Climate Action Plan (pdf) (CAP) produced by the Obama administration.

According to NERA, the CAP would have meant total job losses of 2.7 million, reduced household incomes, and GDP losses of $250 billion by 2025. The iron and steel industry would have shrunk by 19 percent, according to the report, with the coal and petroleum industries suffering even more severe contractions.

A worker at LB Steel LLC in Harvey, Ill., on Dec. 4, 2019. Scott Olson/Getty Images

The NERA report said that a considerable proportion of reductions in U.S. emissions would most likely be offset by increases in emissions in the rest of the world, where industries do not have emission restrictions. This “leakage” would likely undermine American environmental goals “unless other countries impose similarly stringent emissions restrictions.”

Cost of Compliance

According to Mittal’s estimates, “carbon-neutral steel will result in 30-80 percent higher cost versus today’s CO2 intensive steel.”

Mittal said that carbon-free steel production would have to involve a policy mechanism, such as a “carbon border adjustment” to create a fair and more competitive landscape “by aligning the carbon costs of EU domestic steel producers with that of imports.”