Green energy and resource availability

Background

To successfully transition to low-emissions steel production, companies need access to various low-emissions energy sources and raw materials. Depending on production routes chosen, both the iron and steelmaking processes can require large amounts of natural gas, renewable energy, green hydrogen, biomass, high-quality iron ore, and scrap for their low-emissions production.^[1]^[2] These resources also need to be relatively cheap to make the transition and production affordable. However, because the need for green energy and materials is increasing across all industries, demand is already outstripping supply.^[2]^[3] The rising global electricity and resource consumption demand caused by growing populations and wealth further intensifies this issue. The scarcity of green electricity and raw materials increases inter-industry competition for the resources, increasing their prices and making them less affordable.^[2] This trend comes in addition to the higher prices consumers already have to pay for green energy due to its initial green premium.^[4]

Causes of renewable energy and raw material cost increases. Source: Merholz, 2023.

A green steel transition cannot be achieved without heavily investing in and expanding the availability of affordable green energy resources.^[3] Changes in low-emissions production routes of iron and steel are predicted to increase the industry’s electricity needs by 2300-2700 terawatt-hours per year (TWh/y) by 2050. An additional 3000-4300 TWh/y of green electricity would be needed to produce the necessary green hydrogen for global steel production. This adds up to a total of 5300-7000 TWh/y, which is more than double the current European Union electricity consumption, in order to meet the electricity needs of a low-emissions steel industry.^[1] Achieving this goal will require stepping up renewable energy and hydrogen production targets, and then reaching those targets.^[5] Therefore, hydrogen and green energy production should be increased, so that these and other relevant resources are available to steel producers to achieve the greatest possible emissions reduction.

Policy Action

Policy targets to increase the availability and accessibility of green energy and raw materials include:^[6]

Increase the availability of low-emissions energy sources and decarbonize the power sector through investments into green energy systems, international trade and cooperation, public-private partnerships, etc.^[7]^[8]
Ensure rapid commercialization and expansion of green hydrogen production through investments in and support of research and development (R&D), public and private green procurement, economic incentives, or guaranteed pricing, e.g., with contracts for difference.^[8]
Use economic policies such as subsidies to reduce the price of low-emissions energy and raw materials, and use financial instruments such as carbon caps or taxes to increase fossil fuel costs, thus making green energy more competitive.^[1]
Incentivize steel producers to switch the energy sources and raw materials used as input, e.g., through production standards, economic or legal penalties, licensing restrictions, or provision of financial resources to incentivize and promote such changes. Better data collection and labeling of plants’ emissions could be used to publicly compare the emissions of companies and create pressure through reputational risk.
Implement standards or incentives to increase the share of EAF facilities instead of BF-BOF plants.^[7] This requires collaboration with steel producers.
Analyze regional and national steel production in order to understand resource needs and transition pathways, and to ensure that the necessary energy and raw materials are available to steel producers.