Green steel production is starting to emerge in Europe. Most steelmakers have developed decarbonisation roadmaps and announced transformational investments in green steelmaking production facilities. Some new entrants have also started constructing green steelmaking sites. These early investments tend to be supported by project-based funding or innovation funding aimed at demonstrating new technologies. Existing early-stage innovation financing exists at Member State level as state aid, but also at EU level through Horizon funding or the ETS Innovation Fund.
Scaling-up green steel manufacturing beyond pilot projects towards full commercial deployment will depend on there being sufficient demand for green steel specifically – and not just steel in general.
This CEPS Explainer examines the possible enablers to leverage demand for automotive steel to become an accelerator for the decarbonisation of the entire steel sector. In short, can automotive steel become a green steel lead market, understood as a market driving early investment and deployment, with the aim of driving lower technology costs through economies of scale and learning effects?
The Demand for Green Steel: By and from Whom?
The demand for green steel for the automotive industry can come from either the private or public sector – in the latter case policies such as public procurement could play a role. In either case, it’s essential to define what green steel is. For the purpose of this Explainer, green steel will simply mean ‘steel produced in a way that is compatible with climate neutrality in the long run, i.e. close to zero GHG emissions’. Likewise, decarbonised steel means close to zero GHG emissions embedded in the steel, not the carbon grade related to steel quality characteristics.
More specific definitions(also discussed below) may certainly be in order when discussing specific policy approaches. Various efforts are already underway, including ResponsibleSteel, or as part of the Science Based Targets Initiative. The ongoing G7 efforts to discuss ‘climate clubs’ and to improve data collection for steel production and embedded carbon in general can feed into this and support the global reach of any agreed definition.
When it comes to green steel demand from the private sector, the automotive industry and the construction industry are two of the most important sectors2 . We focus on the automobile sector in this Explainer, because the relative high value of automobiles in principle allows for the pass-through of green steel costs, which may be higher than conventional steel until sufficient commercial scale is reached. If the car industry starts buying more green steel, this would also be an example of initiatives such as the ‘First Movers Coalition’, which inter alia focuses on ‘mobilising collective demand’.
Vehicle manufacturers may have an interest in using green materials, as embedded carbon in materials accounts for a significant share of the embodied emissions in cars. If a car company adopts Scope 3 emissions reduction targets, increased use of green steel can be one way to make progress towards these targets. Especially as car manufacturers move towards increased electric vehicle production, the emissions embodied in the materials of an individual car will account for an increasing share of the total emissions in their value chain.
The Different Types of Automobile Steel
Automotive steel comprises different types of steel products. 40 % of a vehicle’s steel is used for the body. The drive train and suspension add another third, with the rest distributed throughout the rest of the vehicle – often in small parts.
For the body of a car, Advanced High Strength Steel (AHSS) is generally considered the best material. It is an alloy with additional metallic elements and solutions to increase strength. The key characteristic of AHSS is its tensile (i.e. a material that can be shaped and stretched) strength, which can be measured and graded in mega-pascal (MPa). AHSS and its different grades are categorised by vehicle producers and associations, showing that product differentiation plays an important role in automotive steel – something that can be potentially useful when considering steel differentiation according to carbon intensity.
Some automotive steel producers already manufacture AHSS using electric arc furnaces (EAFs). This makes it potentially possible to also produce AHSS using a promising green steel production route: Direct reduced Iron (DRI) + EAF. However, DRI depends on certain grades of iron. But are the types of iron that can be used in DRI also suitable for subsequent use in the production of AHSS?
A similar question can be asked of EAF-steelmaking based on scraps (i.e. secondary steelmaking). At least one steelmaker states that it can produce AHSS from scraps in an EAF. In general, the main constraint for scaling-up scrap-based steelmaking is the availability of high quality scraps. Hence, provided AHSS can be collected, it can also be used for secondary steelmaking. However, the fact that it is possible in principle does not mean it is already happening in practice – it may not be feasible to significantly scale up secondary AHSS steelmaking due to the costs or difficulties of ensuring a large enough supply of high quality scraps that would allow for AHSS production to meet the same quality requirements as through primary steel production.
Returning to the potential constraints of DRI, some steelmakers intend to replace blast furnaces with submerged arc furnaces. The main benefit is that submerged arc furnaces can process many more grades of iron. However, the resulting intermediate product still needs to be processed in a basic oxygen furnace (BOF) to end up with steel. While not as carbon-intensive as the blast furnace stage of primary steelmaking, BOFs would still likely need to be equipped with Carbon Capture and Storage (CCS) technology to approach carbon intensity levels that can be considered low-emission green steel.
Given its high share in overall automotive steel use, targeting AHSS for green steel production seems an attractive option. Yet other types of automobile steel could also be attractive. The fact that the volumes are lower need not necessarily imply that greening these steel products could not work from a lead market perspective. Other automotive steel types include high-carbon (for the chassis and frame and panels) and low-carbon (bolts and clutch), as well as galvanised steel (note that ‘carbon’ here refers to the physical carbon content, related to strength and not to GHG emissions). Perhaps the most important characteristic for automotive steel parts to be suitable for green steel lead market purposes is that it is value-added. If the value-added is low, it may require stronger incentives for manufacturers to move to (more-expensive) green steel parts.
About the Author
Milan Elkerbout is a Research Fellow and Head of the climate policy programme at CEPS.