Written evidence submitted by Green Alliance (GST0008)

Green Alliance is an independent think tank and charity focused on ambitious leadership for the environment. Since 1979, we have been working with the most influential leaders in business, NGOs and politics to accelerate political action and create transformative policy for a green and prosperous UK.

We have previously looked at steel’s role in a more circular economy[i] and, more recently, made the case for a target for decarbonisation of the sector and trial of hydrogen-based steel making. As part of this we gave evidence last year to the BEIS select committee’s steel inquiry and made a number of other policy recommendations, including a submission to HMT ahead of last year’s spending review This year, we are expanding our work on industrial decarbonisation and working on a deep dive into the steel sector, funded by Liberty Steel. This will explore routes for decarbonising the steel sector, including barriers and policy solutions, and examine the role resource efficiency can play in reducing steel sector emissions. We’d be happy to feed in more of our findings to the committee as our work develops.

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Key messages: 

Making the UK a world leader in clean steel

Maintaining a domestic steel industry is strategically important for the UK, providing well paid jobs in areas with historically lower salaries and supplying a range of other domestic industries. But this is an industry that is struggling to survive. Primary steelmaking is also hugely polluting. Incompatible with Britain’s climate goals, there is a choice: futureproof the industry by decarbonising or be left behind. Clearly, a roadmap is needed that requires action from both Government and industry.

The Government has taken some welcome steps including in re-starting the Steel Council[ii], pledging to consider the implications of the Climate Change Committee’s recommendation for near zero-emission iron-ore steelmaking by 2035[iii], and establishing the Clean Steel Fund[iv],. Last year’s industrial decarbonisation and net zero strategies also included a welcome mix of policy proposals in this area and the commitments made around COP26 on steel. But there is a worrying lack of urgency: no agreement has been reached on a long-term target, the Clean Steel Fund is not due for allocation until 2023, and the UK is well behind other regimes in progressing other policies such as reforms to carbon leakage protection and markets for lower carbon steel.

The Steel sector can provide a powerful case study for decarbonising and reviving UK industry as well as levelling up the country. Steel underpins other key green industries and climate adaptation.  

    Electric Arc Furnaces (EAFs) which recycle scrap steel represent a no regrets option for decarbonising steel, with optionality built for hydrogen production in future. The UK already has several EAF plants but could expand its capacity to replace at least some of its virgin steel production

    Resource efficiency can significantly reduce carbon emissions from the steel sector. The government must also extend welcome moves to create a market for low-carbon steel to ensure it is also incentivising more efficient use of steel

    Policy solutions are needed rapidly, set out in a roadmap that requires action from Government and industry. To ensure both parties contribute, Government support should be offered with deadlines for reciprocal industry action

Background:

Maintaining a domestic steel industry is strategically important for the UK. British produced steel supplies the foundations for a range of essential industries, from energy and transport to aerospace and construction. For example, 96 per cent of Network Rail’s rail tracks are made with primary steel from Scunthorpe[v], 45 per cent of the steel required for production in Nissan’s Sunderland plant is supplied by Port Talbot[vi] and British Steel is providing bespoke steel sections for Hinkley Point C.[vii]

While both the Port Talbot and Scunthorpe plants are centred around blast furnaces, recycled steel plays a key role in UK production too, with Liberty Speciality Steels creating bespoke alloys for the aerospace industry[viii], and Sheffield Forgemasters supplying steel for numerous sub-marine platforms and surface vessels including Britain’s Trafalgar, Vanguard and Astute UK submarine programmes.[ix]

The UK’s steel sector is also a key industrial employer, benefiting towns across our industrial heartlands. Around 600 businesses are involved in the sector[x], and it provides more than 33,400 highly skilled jobs across Britain[xi]. The industry also supports a further 40,000 employees in its supply chains[xii] with steel sector wages 46 per cent above regional averages.[xiii] However, this is an industry that is struggling to survive. The ongoing troubles at Liberty Steel, the latest in a long-line of industry fallouts and bailouts, are creating even greater uncertainty too.

Decarbonising Steel: Technical Options

Resource efficiency

Smarter use of steel can greatly reduce domestic and international carbon emissions from steel making. Material efficiency alone reduces demand for cement and steel by 20%.[xiv] Markets will and should evolve to maximise savings and early movers will see big advantages.

This means using and reusing steel as efficiently as we can, so we need less of it, and less material is wasted during manufacturing. Better specification and design rules will mean less material is needed, can ensure the longevity of products, and make it easier to reuse components without melting them down and starting again.

While measures are starting to be developed by Government to create a market for low carbon steel, there is a risk these are designed in ways that don’t also incentivise resource efficiency solutions such as improved longevity of steel products.

Recycling

Better use of our existing resources should also mean maximising the recycling of scrap steel through the UK’s electric arc furnaces (EAFs) rather than exporting it as waste only to reimport the high value products other countries turn it into. The UK exports 70% of the 10Mt of scrap steel produced annually[xv] - more than our total volume of steel production.

However, currently much the UK’s scrap steel is of low quality due to contaminants such as copper, which makes it unsuited for producing certain grades of steel via EAFs. Steel waste sorting and processing facilities in the UK must be upgraded and incentives created to encourage higher quality scrap generation that is sold mostly for domestic use rather than exported.

EAFs are already an established part of the UK’s steelmaking infrastructure, and a good route to steel decarbonisation. Recycling already steel produces far fewer emissions than primary steelmaking, and these emissions can be reduced further as we decarbonise the grid. Further to this, they allow for batch production rather than providing a continuous output, offering considerable flexibility.

The UK is in a strong global position for the availability of scrap steel and these actions alone could deliver a significant reduction in UK steel emissions, and ensure that the UK is able to maximise its export of high value products, where it is best placed to compete globally

There is a clear pathway for decarbonising the UK steel industry that is based largely on EAFs, along the lines of that set out in Figure 1. This would see scrap-EAF steelmaking becoming the dominant steelmaking method in the UK with 80% share of the sector in 2050, and hydrogen EAF (H-DRI EAF – see later) steelmaking making up the remaining the 20%. To achieve this, the capacity for EAF steelmaking using scrap steel should be rapidly built up, with the two remaining blast furnace (BF/BOF) steelworks in the UK fully transformed by 2035. Note that it is likely that the transition from blast furnace steelmaking would be more stepped than shown as production at the two UK sites is rapidly reduced when each of their blast furnaces are due for relining.

Figure 1: A no-regrets pathway from decarbonising the UK steel industry by shifting to electric arc furnace steelmaking, using both scrap steel and hydrogen reduced iron as inputs.

Assuming constant steel production of 7 million tonnes annually up to 2050, adopting this pathway would rapidly bring down the emissions of the steel sector, with a 70% reduction by 2035 and 94% reduction by 2050 relative to 2019 levels, with a corresponding drop in average emissions intensity across UK production from 1.6 tCO2e/t steel to 0.1 tCO2e/t steel. These emissions reductions are largely achieved through the decommissioning of the two existing blast furnace steelworks and the decarbonisation of the national electricity grid, both by 2035.

Importantly, this analysis assumes that no further technological improvements are made to address the residual emissions from EAF steelmaking (due to the consumption of carbon electrodes and the lime and carbon added to form the slag), but it is more than likely that by 2050, these would have been implemented, resulting in further emissions reductions.

It is important to note that there are further emissions, not considered in this analysis, related to processing the steel after it leaves the EAF, which occur mainly from using natural gas to pre-heat steel. While not as significant as the emissions from the main steelmaking phase, these will need to be addressed through, for example, induction or hydrogen heating. Nevertheless, pursuing an EAF-led industrial strategy for steel will result in guaranteed emissions reductions, while also offering flexibility in terms of inputs and operation.

Figure 2: a) Total emissions from UK steel industry (including direct emissions and indirect emissions from electricity generation) when following pathway in Figure 1 b) The average emissions intensity of UK produced steel when following pathway in Figure 1.

From our discussions with steelmakers and experts, the main barriers to a pathway along these lines are the relative cost of electricity in the UK compared to that in other European countries and availability of good quality scrap as noted above.

There would also be implications for employment in an EAF only or heavily EAF centric pathway. This is a reason to work out the expected long term trajectory for the UK industry as soon as possible and develop a strategy alongside this for a just transition for steelworkers. There will be alternative roles created in a transition to clean steel including in scrap sorting, improved product design and specification and hydrogen production.

Hydrogen for primary steelmaking              

While pursuing a pathway largely based on secondary steelmaking using EAFs is sensible for the UK, some level of primary steelmaking capacity is necessary to ensure quality inputs for certain high-end steels. One promising route to decarbonisation for the primary steel sector is hydrogen-based steelmaking. Direct reduced iron (DRI) technology means that hydrogen can replace coal as the reduction agent in steelmaking, producing steam instead of carbon dioxide. The precursor to iron manufactured through DRI, known as sponge iron, can then be made into steel in an EAF. Hydrogen can be made from natural gas if the UK manages to establish carbon capture and storage systems that can remove the resulting carbon dioxide, but the preference would be to use green hydrogen produced using renewable energy which would have lower overall emissions and is expected to become cheaper over time.

While hydrogen DRI is still being trialled, DRI using gas is already an established technology in some countries with more favourable energy prices. Installing DRI plants that can use either gas could be a sensible intermediate step in the move towards H-DRI. and maintains the advantage of an EAF-centred route which allows inputs to be flexed between scrap, sponge iron and a combination of the two, depending on availability and production requirements.

Carbon capture and storage (CCS) technology appears less attractive for steel decarbonisation for several reasons. First it is reliant on CCS infrastructure being delivered and in the right location – this will be a particular problem for Port Talbot. It also means upgrading already ageing infrastructure at UK plants missing the opportunity to leapfrog potentially several stages of evolutionary progress and to switch from continuously producing blast furnaces to more flexible EAFs. Finally, CCS will like likely face continued high operating costs from carbon removal in comparison to the H-DRI route for which the costs are expected to come down as technologies evolve and renewable energy capacity is built up.

The race is on

The global race for clean steel has already begun, and the UK risks falling behind.

The US and EU have already signalled their intention to work together to switch their imports towards greener steel and the EU’s plans for carbon-border adjustment will create a similar effect. The UK government also helped kickstart a process at COP which will see a range of countries around the world start to demand cleaner steel in their public procurement and their area similar moves from a range of private companies.[xvi] If UK companies cannot produce clean steel, they will begin to find themselves excluded from key markets.

On the production side, Europe is seeing a rush of investment. By May last year there were already 23 planned or live hydrogen-based steelmaking trials, pilots and full-scale projects[xvii] in Europe. Since then there have been several more announcements signalling an intention to move towards H-DRI including by Tata Steel’s Netherlands arm. Of all the projects in Europe, Sweden’s HYBRIT is the most advanced, producing 100 tonnes of hydrogen-reduced sponge iron in June, and it aims to be commercial by 2026[xviii]. The German Government has also given ArceorMittal’s Hamberg site €55 million to support a demonstration scale hydrogen DRI unit of 100,000t[xix]. Due to be operational by 2025, this validates a pathway for the UK to follow.

Urgent action is needed now for the UK to both ensure the no-regret option of building up EAF capacity but also to retain the option for H-DRI by joining the race to develop this technology. UK industry should develop the know-how to operate these facilities, and be given the confidence to invest ahead of imminent, and costly, replacement cycles for equipment.

Acting now could avoid costs associated with decommissioning current plants if they become obsolete and potentially give us the opportunity to build expertise in an emerging new technology rather than having to buy it in later. We’ve seen the cost of decommissioning before, with the Government initially providing £233 million to support the on-site development of SSI’s Redcar steelworks after its closure[xx], and committing a further £71 million to its clean up and regeneration in January 2020.

Policy Options

At present it seems like the Government and industry are both waiting for the other to take the first steps in wholescale decarbonisation of the sector: the industry is waiting for a more supportive policy framework while the government wants guarantees of industry investment in the process. This needs to be overcome with a clear, joint action plan, setting out a target for sector decarbonisation by 2035 and then establishing respective roles and responsibilities in delivering this goal. Both industry and government should be prepared to deliver on their promises according to a transparent set of deadlines if they expect continued cooperation.

Some of the key elements of a policy package are already promised but delivery is slow. We are still developing recommendations in this area but a comprehensive set of policies could include:

-          A clear goal that signals intention to government and investors

-          Delivery of a predictable carbon price that provides an underlying signal to investors and consideration of either a UK CBAM or comparable product standards that would help level the market between domestic steel production and imports over the longer term

-          The establishment of a structured process to address concerns about electricity prices that

-          Incentives for better scrap sorting and other market issues that appear to support export over domestic sale

-          Measures to help overcome the higher capital and operating costs of low carbon production in a consistent manner. At the moment, for instance, capex support could be available through the business model the Government is developing for industrial CCS but not for some other types of investment. Some opex costs could also be recovered through a new market for low-carbon products but proposals to date appear to be centred around a voluntary approach, which may not enable producers to pass on the additional costs of low carbon production.

-          R&D support for a range of decarbonisation techniques, including the

• the trial and commercialisation of hydrogen-produced steel in the UK/. We’ve previously proposed the following approach: A £1.3 million research project, facilitated by the Materials Processing Institute, to

research and understand the product impact of hydrogen in both smelting and heating

needed for a hydrogen steelmaking pilot in the UK.

• £10.65 million pilot project, facilitated by the Materials Processing Institute and utilising

its existing pilot electric arc furnace facility to trial and optimise the process design for

hydrogen steelmaking in the UK.

• A £140 million demonstration project to test the commercial viability of hydrogen

steelmaking in the UK. This would be a public-private initiative in partnership with an

existing, commercial, full-scale UK electric arc furnace (EAF) site, funded half (£70 million)

by industry and half (£70 million) by the Government.

March 2022