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Steel is essential to making many technologies that end the combustion of fossil fuels, including electric vehicles, wind turbines and solar panels. Unfortunately, to produce a lot of steel, manufacturers need to burn a lot of fossil fuel.
Steel production accounted for 2% of UK emissions in 2019 and is the second largest consumer of energy among the country’s heavy industries. About two-thirds of this energy comes from coal.
The steelworks’ blast furnaces burn a special type of coking coal (which is converted into a hard and porous fuel called coke) at temperatures of up to 2,000 °C, producing large amounts of carbon dioxide (CO₂) – about 1.8 tonnes for every tonne of steel. This method accounted for 82% of steel production in the UK in 2021, and 71% of all steel made worldwide that year.
While coal-fired steelmaking can be decarbonized to an extent by capturing CO₂, there must be a suitable storage site nearby or sufficient demand in other industries to use that CO₂. This is not the case for the blast furnace at Port Talbot, Wales, which accounts for half of the UK’s steel production.
Coking coal prices have more than doubled since the start of the pandemic and Ukraine’s invasion has disrupted supplies. In 2021, the UK imported 39% of its coking coal from Russia, with almost all the rest coming from the US and Australia.
Another option is to use natural gas, another fossil fuel. But since 2020, gas prices have also increased a lot. These recent increases in fuel costs demand a reevaluation of how steel is made.
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Completely removes fossil fuels from the steelmaking process with green hydrogen (hydrogen that is split from water using electricity generated by renewable or nuclear power). As a result, it can become insulated from increases in fossil fuel prices and carbon taxes, all of which have made steelmaking more expensive with fossil fuels in recent years.
The UK steel industry is currently granted a free allocation of emission allowances, which significantly reduces the effective carbon price paid by steel producers. Our recent research shows that, if this exemption is phased out, steelmaking with green hydrogen produced using wind and solar electricity will in fact be cheaper than all other options.
Green steel
Hydrogen can convert iron ore into a pure form known as sponge iron through a process known as direct reduction. This involves heating hydrogen to between 800 and 1,000 °C which reacts with the oxygen in the iron ore to release pure iron and water vapor, with no carbon emissions. The sponge iron is then processed in an electric arc furnace to make steel.
Electric arc furnaces can also recycle scrap metal, and while the UK has no direct reduction furnaces, it already has five electric arc furnaces that recycle scrap to supply 18% of the country’s steel. If renewable electricity powered these furnaces and was used to produce the hydrogen that fuels the production of sponge iron, the total emissions from the steel industry could be zero.
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Both the EU and the UK have committed to end Russian coal imports in 2022, and major producers such as Tata Steel and ArcelorMittal have stopped using Russian commodities in their supply chains.
While high gas and electricity prices are causing some industries to switch back to burning coal, our findings show that green hydrogen offers a cheaper alternative for steelmakers. At recent fossil fuel prices, we estimate that direct reduction steelmaking with green hydrogen could be about 15% cheaper than the cheapest coal-fired alternative (including carbon capture and storage) over a typical 25-year project lifetime.
A lot of electricity is used in steelmaking with green hydrogen and electric arc furnaces. Therefore, in a recent paper, we looked at reducing industrial electricity bills by eliminating the green levy (which raises funds to support the deployment of renewable technologies and support vulnerable consumers) and energy network maintenance costs and instead shift them to general taxation.
This would put the UK steel industry on a par with France and Germany. We found that price parity could be achieved by increasing the average income tax bill by 68p, rising to around £5.50 if UK steel production were to switch entirely to green hydrogen in direct reduction.
The UK government is considering exempting industries that use a lot of energy. But rising fossil fuel prices have driven up wholesale electricity costs so much that their removal and network maintenance fees will not have a significant impact on bills.
Instead, steelmakers and other heavy industries can use cheap renewable electricity in the green power pool.
The UK cannot afford to keep coal-fired steelmaking in its decarbonisation strategy and must instead ensure the steel industry is ready to use green hydrogen fuel.
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