For primary steelmaking clean hydrogen-based DRI-EAF has emerged as the main decarbonization pathway, whereas secondary steel needs to switch to clean power sources.

The production process of steel is energy intensive and generates high CO2 emissions, accounting for up to 95% of its emissions. The current fuel mix heavily relies on fossil fuels, predominantly coal, occupying around a 75% share. The coal dependency has remained consistently between 70-75% over the decade,²¹⁵ substantially contributing to steel’s absolute emissions.

Over the last decade, steel CO2 emissions rose 2.5% annually, due to rising production driven by demand growth in emerging markets. Currently, 78%²¹⁶ of steel is produced using primary methods, while the remaining portion comes from secondary production. However, this distribution varies globally, with China predominantly using primary processes - mainly BF-BOF – for 90% of their steel, whereas North America relies on secondary processes for 70%²¹⁷ of its steel production. Other major steel-producing regions like India and the EU exhibit a more balanced distribution between primary and secondary steelmaking.

Energy intensity in steel production has remained relatively stable, averaging between 19-20 gigajoules per tonne (GJ/t) of steel over the past 5 years,²¹⁸ due to improved energy efficiency and increased secondary steel production. Primary steel production is particularly energy-intensive due to the high temperatures required to melt iron. Both primary steel production methods, BF-BOF and DRI- EAF, require up to 25 GJ/t of energy. In contrast the secondary steel method (EAF), reduces energy intensity by 2.5 times, down to 10 GJ/t, as melting scrap steel requires much less energy.

The industry targets a 45% reduction in intensity for primary steel and a 65% reduction for secondary steel by 2030.219 The 2050 net-zero compliant fuel mix will require disconnecting steel emissions from the growth in market demand. This entails reducing non-abated fossil fuels from their current dominant share of 86% in the fuel mix to 30%,²²⁰ which will require a substantial increase in CCUS deployment. For primary steel production, accelerated investments are needed, together with the commercialization of clean hydrogen fuels, coupled with implementation of CCUS-enabled technologies. In the case of secondary steel production, expediting the adoption of clean power through EAF processes is paramount.

Two leading decarbonization pathways have emerged for primary steel: clean hydrogen-based DRI-EAF is the most developed (TRL 6-8), and CCUS is rapidly developing (TRL 5-8). For secondary steel decarbonization, EAF-based production using 100% renewable electricity is a mature and available technology. Production costs for these technologies are 40-70% higher²²¹ than traditional steelmaking processes.

Clean hydrogen potential for primary steel: Using clean hydrogen in production processes has the potential to reduce emissions by up to 97%,²²² however, it comes with an expected green premium of 35-70%²²³ when compared to conventional BF-BOF processes. However, constraints around the capacity of EAFs in comparison to larger blast furnaces and deployment at smaller facilities impact the applicability of this technology.

CCUS technologies for primary steel: Most CCUS-based technologies are projected to become commercially available after 2028. These CCUS technologies have the potential to decrease emissions by up to 90%²²⁴ compared to BF-BOF. Bioenergy carbon capture and storage (BECCS), a modified CCUS technology, can achieve up to negative emissions from BF-BOF, though results are dependent on the source of bioenergy. However, all CCUS technologies entail a significant green premium in the range of 65-120%.²²⁵ Although DRI-EAF with CCUS is currently accessible, its carbon capture efficiency is limited. CCUS technology is most suited for decarbonizing BF-BOF assets, especially given the higher concentration of CO2 in blast furnace gases.

EAF-based secondary steel production: Powered by 100% renewable electricity, this method offers a promising pathway towards near-zero-emission steel at low cost. EAF technology can reduce emissions by 90-95% compared to BF-BOF, with only a marginal cost premium of 8-13%.²²⁶ Yet, there are limits around the applications for secondary steel due to variances in the quality of available scrap. Adoption is likely to be faster in regions where competitively priced clean power and scrap steel are readily available. China, for instance, is expected to witness an estimated 70% growth in EAF production by 2050 compared to 2020 levels.²²⁷ Additionally, SSAB, the largest steel manufacturer in Scandinavia, launched SSAB Zero™, produced from emission-free recycled steel. One of its main advantages is its near-zero-carbon emissions throughout the company’s operations, contributing to an emission-free value chain for end-users. However, this sustainability comes at a higher cost due to the manufacturing process.²²⁸

Steel decarbonization relies on the availability of clean hydrogen, CCUS and EAF-based secondary steel production. Establishing infrastructure for near-zero-emission production requires significant investments, estimated between $1.8-2.6 trillion.²²⁹ Of this, 90% should be directed towards creating clean hydrogen and clean power generation capacity, with the remainder for CO2 transport and storage. Around 50%²³⁰ of current steelmaking capacity is in regions with access to low-cost renewables or CO2 storage and should be prioritized for transition.

Meeting the steel industry’s clean hydrogen demand would require substantial investments ranging from $200-$890 billion²³¹ for additional capacity. Regions with affordable natural gas and clean power are well-suited for near-term adoption of clean hydrogen. CCUS technologies are advantageous in settings with CO2 storage availability or proximity to industrial clusters where captured carbon can be used as feedstock. United States Steel Corporation and CarbonFree Chemicals Holdings have signed a non-binding MoU to collaborate on capturing CO2 emissions from US Steel’s Gary Works plant. They will deploy CarbonFree’s SkyCycle technology with the goal of capturing and mineralizing approximately 50,000 tonnes of CO2 annually equivalent to offsetting the carbon emissions of nearly 11,000 passenger cars each year.²³²

Clean power generation will be a priority in regions where the role of EAF production is expected to increase, such as China and North America.

The ability of customers to absorb a green premium of 40-70% per tonne²³³ is untested beyond prototype projects as low-emission steel represents less than 1% of global supply.

A 40-70% increase in the per tonne cost of steel translates into lower green premiums for end consumers. It can range from 0.5% for passenger cars to 2% for buildings.²³⁴

The ability for the industry to pass along this premium, or to monetize near-zero-emission steel as a differentiating attribute depends on the target consumer segment (for example, passenger cars vs buildings), and geography (developed vs developing regions). The largest forecasted increases in steel consumption globally align with the markets with likely the lowest ability to absorb a significant green premium.

Currently, several major global players are taking proactive steps towards decarbonizing steel production. China Baowu Group, the world’s largest steel producer, has signed an MoU with Rio Tinto to jointly explore green steel projects.²³⁵ They’ve also established a Global Low-Carbon Metallurgical Innovation Alliance with partners from 15 countries, aimed at reducing GHG emissions in steelmaking.²³⁶

In the automotive industry, bilateral offtake agreements with steel producers are impacting the market,²³⁷ offering convenient access to buyers who secure their supply in advance. For instance, Volkswagen Group and Salzgitter AG have signed an MoU to source near-zero-emission steel starting in late 2025.²³⁸

The Clean Energy Ministerial Industrial Deep Decarbonisation Initiative (IDDI)²³⁹ is developing globally recognized targets for the public procurement of near-zero-emission steel. The IDDI is set to introduce standardized definitions, methodologies and guidelines across the industry. Additionally, Responsible Steel have implemented auditable to near-zero-emission steel production certifications, available to its members.²⁴⁰ These initiatives signal a potential shift towards boosting demand and encouraging collective efforts towards near-zero-emission products, and ultimately driving a positive trajectory towards net-zero emissions.

Improving supply chain efficiency and promoting circularity is essential to accelerate secondary steel production in regions with limited access to scrap steel. In these areas, optimizing supply chains becomes paramount to ensure a consistent flow of recyclable materials. Implementing connected supply chain networks, supported by AI technology and blockchain, can enhance transparency and traceability, reducing waste and losses.²⁴¹ Moreover, promoting a circular economy model by encouraging steel producers to recycle and reuse their own steel scrap can reduce reliance on external sources. By integrating these strategies, regions facing scrap steel shortages can bolster their secondary steel production capabilities.

Policy efforts to promote and support the decarbonization of the steel industry are still in their early stages, particularly in the Asia Pacific region, which produces 70% of the world’s steel.²⁴²

Global steel production is highly concentrated, with the top five producing companies accounting for around 75% of production. Public policies should be aimed at:

- Supporting the development of clean power and clean hydrogen infrastructure

- Providing R&D support and market-based incentives to accelerate low-emission steel technologies, especially in their early stages

- Implementing demand-side interventions such as green public procurement and updated product codes to stimulate market demand for near-zero-emission steel.

While policy measures to facilitate decarbonization are beginning to emerge, they will require time to fully mature. Local regulations, such as Environmental Product Declarations (EPDs), often prioritize pollution control, life cycle assessments and performance standards but may not sufficiently address CO2 emissions reduction. Currently, policy development is mainly driven by Europe and the US. However, it is crucial to strengthen policy initiatives in the Asia Pacific region, given its substantial contribution to global steel production.

As steel is a highly traded commodity, international collaboration on policy measures is essential to prevent the uneven application of policies that could lead to market distortions.

In the steel industry, transforming existing assets with near-zero technologies could require cumulative investments of $372 billion by 2050.²⁵⁸ Such a requirement implies annual investments of $14 billion, in addition to the regular annual CapEx of $96 billion – an additional 15% investment.²⁵⁹

Current industry profit margins of 13%260 and WACC of 10%²⁶¹ suggest that the industry is not positioned to absorb these additional costs and generate sufficient returns to fund investment through own generated cash flows.

To direct the capital towards transforming the industry, policy interventions like carbon pricing, subsidies/incentives for technology development and public procurement commitments will need to be adopted to improve returns. Large institutional investors and multilateral banks (World Bank, Asian Development Bank etc.) can play a crucial role by providing access to low-cost capital linked to
stringent emission reduction targets. Additionally, capital flows within this industry are tied to region-specific technology pathways. For the EU and China, the capital should mainly be directed towards expanding their EAF asset base as secondary steelmaking assumes a major role. In India and the US, capital flows will need to address the maintenance of existing EAF asset base as capacity expansion will be limited by scrap availability.

Approximately 70% of large publicly-traded steel companies consider climate change as a key consideration for their strategic assessment and integrate it into their operational decision-making.²⁶² Meanwhile, 12% of companies are building basic emissions management systems and process capabilities. Finally, 12% of companies acknowledge climate change as a business issue.