By Clyde Russell
LAUNCESTON, Australia (Reuters) – Decarbonising steel production is one of the major challenges of the energy transition, especially given that consumers across the world show little appetite or capacity to pay more for green steel products.
This means that greening a sector responsible for around 8% of global carbon emissions is likely to rely on government policies and regulations to create price signals.
The debate is really over what policies are likely to produce the best and quickest results, with options ranging from subsidising green steel plants, or products made with green steel, to instituting carbon taxes that encourage producers to change how they make steel.
Japan, the world’s third-largest steel and vehicle producer, has recently announced new policies that may provide an incentive to both consumers, manufacturers and steel makers.
The Ministry of Economy, Trade and Industry (METI) has introduced a subsidy of 50,000 yen ($330) for clean energy vehicles (CEVs) built with low-emission steel.
This adds to consumer subsidies introduced last year of up to 850,000 yen for the purchase of an electric vehicle and up to 550,000 yen for a plug-in hybrid electric vehicle.
Under the plan, METI will evaluate submissions by automakers on their low-emission steel procurement and allocate subsidies based on the percentage of green steel being used, according to Matt Pollard, an analyst at clean energy consultancy Climate Energy Finance.
“In the broader context, it is important for METI to publicly release the carbon accounting methodologies, green product definitions and emission thresholds it will use to determine products and producers that will benefit from the models approved under the new subsidy scheme,” Pollard said.
Put simply, how all this works is likely to determine whether it is actually successful.
Japan’s steel sector produces about 85 million metric tons a year, the majority from coal-based blast furnaces, making it more polluting than the U.S., EU and China steel sectors, which all have more electric arc furnace capacity.
It’s possible that Japan’s steel sector will now have incentives to switch, but what technologies and processes will be key.
GREEN OPTIONS
Using hydrogen to turn iron ore that’s been upgraded into either direct reduced iron (DRI) or hot briquetted iron (HBI) is one method that’s been proposed, but the problem for Japan is that it doesn’t have the capacity to produce green hydrogen at scale, given the lack of renewable electricity generation.
Importing hydrogen is also unlikely given the challenges in liquefying and shipping what is a volatile substance.
Increasing the use of electric arc furnaces is also a possibility, but this needs high-grade iron ore, or DRI or HBI, to work.
Electric arc furnaces also need to be powered by renewables or nuclear to be considered green, and Japan’s current electricity generation is still mainly powered by coal and liquefied natural gas.
The trick to getting the subsidies to work is to make it possible to produce green steel at a price that is at least equal to, but preferably lower, than the level of the subsidy.
If Japan is providing $330 for an electric vehicle made with low-emission steel, can steel makers make a profit?
Research from clean energy think tank Transition Asia said the premium for producing steel with green hydrogen and DRI in China is about $225 a ton, which gives a cost per vehicle of about $203 assuming the typical passenger car uses 0.9 ton of steel.
Transition Asia data suggested a slightly higher cost than China for green steel in Japan and South Korea, but actually lower than in the European Union.
The costs will vary from country to country, but the research does suggest that even a modest subsidy can provide sufficient incentive for steel producers to make green steel, car makers to switch to using it and consumers to embrace buying the finished product.
The views expressed here are those of the author, a columnist for Reuters.
(Editing by Sonali Paul)
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