Renewable Energy Institute today released a new report entitled "The Path to Green Steel: Pursuing Zero-Carbon Steelmaking in Japan".
Carbon emissions from the steel industry account for 48% of Japan's industrial sector and decarbonizing this sector is a critical pillar in reaching carbon neutrality. In Europe, steelmakers, car manufacturers, and others are cooperating to initiate green steel projects from both the supply and demand sides. Accelerated decarbonization efforts are critical for Japan's steel industry to remain competitive in the global market.
This report identifies the challenges of producing green steel in Japan through blast furnace, hydrogen direct reduced iron (H2-DRI), and electric furnace. The Japanese steel industry has already started pioneering efforts to switch to green steel, such as developing technology for producing high-grade steel sheets in large electric furnaces and using H2-DRI ironmaking technology.
Based on these initiatives, this report proposes five strategies for decarbonizing Japan's steel industry, including 'electric furnace phase-in and blast furnace phase-out' considering the regional economies that have supported Japanese steel production to date, expanding green steel demand, utilizing offshore wind power, and revising the government hydrogen strategy which treats gray and blue hydrogen in the same way as green.
We hope this report will contribute to constructive discussions toward the realization of green steel in Japan.
1. Accelerated Decarbonization is crucial for Japan's Steel Industry
・ Emissions from the steel industry account for 48% of Japan's industrial CO2 emissions and 13% of the country's total energy-related CO2 emissions. The steel industry’s decarbonization is a critical pillar to reaching carbon neutrality and will become more important in the future, as emissions from thermal power generation are expected to be reduced through the expansion of renewable energy sources.
・Japan's steel is 76% produced by blast furnaces, but blast furnaces have an equipment life of around 25 years, and about half of the current blast furnaces in Japan will reach their end of life by 2030.
・As we head towards 2050 carbon neutrality, decisions must be made on how to decarbonize the steel industry so that blast furnaces, which require expensive reinvestment, do not become stranded assets.
・ Low-carbon steelmaking projects have been launched around the world to reduce emissions by half or less, and the total planned production volume of such steel exceeds 100 million tons, which is equivalent to the annual production volume of Japan. There is also a growing demand for "green steel," particularly from European automakers. Accelerated decarbonization effort is needed for Japan’s steel sector, both in terms of supply and demand, in order to be competitive in the global market.
2. Bottlenecks of blast furnace + CCS pathway
・In Japan, the COURSE50 and SuperCOURSE50 projects, which use hydrogen in blast furnace production and CCS, have been the main efforts to decarbonize the steel industry. However, their reduction targets are 30% and 50%, respectively, and cannot be said to be a method aiming at zero-carbon steelmaking.
・In addition, COURSE50 shows only a 10% reduction in hydrogen use. The reduction from hydrogen use in blast furnaces is said to be limited to a little more than 20 %.
・ Ultimately, both COURSE50 and SuperCOURSE50 will rely on CCS to capture and store the CO2 emitted for the majority of their reductions in order to decarbonize. The amount of storage required in 2050 is estimated to be about 47 million tonnes per year. Based on the government's 2050 scenario, the estimated amount of storage required for CO2 for thermal power generation is about 250 million tonnes. On the other hand, the government's "CCS Long-Term Roadmap" sets the annual storage capacity in 2050 at 120 to 240 million tonnes, which means that in their plan, the entire storage capacity will be used up by thermal power generation measures alone. On the other hand, there is no concrete information on where the possible storage sites are located in Japan.
3. Challenges of Hydrogen Direct Reduction (H2-DRI) Ironmaking in Japan
・Half of the low-carbon steelmaking projects that have been initiated in Europe and elsewhere use the hydrogen direct reduction method. However, the prerequisite for this method is the availability of large quantities of inexpensive green hydrogen.
・Japan's hydrogen strategy provides a limited supply of hydrogen until 2030, and even less green hydrogen. It is not in line with the pace of steel decarbonization required for developed countries.
・Reflecting Japan's slow pace in expanding renewable energy generation, the cost of domestically produced green hydrogen is projected to be the highest of 25 countries in the world in 2030. Even with imports, Japan's reliance on marine transportation will make its hydrogen costs high in international comparison.
4. Power source decarbonization enables green steel production in electric furnaces
・Electric furnace steelmaking can produce green steel if the power sources used are decarbonized. In order to maximize this potential, maximum utilization of scrap iron and importation of direct-reduced iron is necessary. In addition, technological development is needed for the production of high-grade steel for automobiles.
5. Three Pillars for Zero-Carbon Steelmaking in Japan
There are three decarbonization pillars for the Japanese steel industry: maximum use of recycled iron by electric furnaces; utilization of hydrogen direct-reduced iron (H2-DRI) imports; and introduction of direct-reduced ironmaking utilizing domestically produced hydrogen in optimal locations in Japan. Crude steel production in Japan will shift from a focus on blast furnace steelmaking to electric furnace steelmaking. The rational choice for Japan is to make maximum use of the large amount of scrap iron that exists in Japan, import or produce a limited amount of hydrogen direct-reduced iron domestically, and make steel in electric furnaces.
|[Pillar 1] Maximum utilization of recycled iron by electric furnaces|
As a basic strategy toward zero-carbon steelmaking, it is essential to take measures to utilize scrap iron as much as possible. In the future, it will be necessary to develop technologies and invest in equipment to manufacture products using scrap iron that has not been conventionally manufactured using electric furnaces. What is also needed are measures on the scrap iron side. In particular, in order to ensure the quality of scrap iron once consumed in the market and to recover it efficiently from every corner, comprehensive measures are required, including those by the private sector and the government, from the design of products and buildings to intermediate treatment and recovery.
|[Pillar 2] Utilization of H2-DRI imports|
H2-DRI Ironmaking requires a large amount of hydrogen and a large amount of renewable energy for hydrogen production. It is rational to produce H2-DRI in regions (overseas) with low renewable energy generation costs and abundant steel resources, and import it to Japan as hot briquetted iron (HBI). This would not only reduce the total cost of zero-carbon steelmaking in Japan and help ensure international competitiveness but also avoid the excessive infrastructure investment required to import large amounts of hydrogen.
[Pillar 3] Introduction of H2-DRI ironmaking utilizing domestically produced hydrogen in optimal domestic locations
The introduction of H2-DRI ironmaking plants should be pursued as an option for domestic zero-carbon ironmaking as we can take advantage of the various benefits of domestic production. For this option, we would need to allow for a certain level of higher costs compared to other options. In order to keep production costs low, it would be rational to concentrate hydrogen production and H2-DRI ironmaking in locations suitable for domestic renewable energy generation.
6. Transition Strategies for Steel Decarbonization in Japan
|[Strategy 1] "Electric Furnace Phase-in and Blast Furnace Phase-out Plan" considering the local economic development|
In order to take over and develop the Japanese technology that has been developed in the steelmaking and manufacturing process, as well as the local industries and employment that have supported the steel industry, an "electric furnace phase-in/blast furnace phase-out plan" will need to be developed to introduce electric furnaces as the blast furnaces are shut down. It is necessary to hold dialogues and strategize with local stakeholders under the leadership of the government and local authorities, taking into account the local employment and economy.
|[Strategy 2] Leading the world in building supply chains and the international Hydrogen Direct Reduced Iron (H2-DRI) market|
The H2-DRI market is expected to play a major role as a decarbonization solution not only in Japan but also in many other countries around the world that do not have the conditions and technology to develop their own plants. Japan will lead the world in forming an "international green DRI market" to accelerate global decarbonization by supporting the realization of H2-DRI ironmaking plants at an early stage and building a collaborative structure that will also contribute to the local economy and society.
|[Strategy 3] Select optimal sites for H2-DRI ironmaking in Japan in conjunction with offshore wind development|
Regions with high potential for offshore wind power, a large-scale renewable energy source, are candidates for H2-DRI ironmaking. Some of these regions have blast furnace steel production currently underway. In order to realize H2-DRI ironmaking in Japan, strategic collaboration is needed among the three parties: offshore wind developers, hydrogen producers, and H2-DRI ironmakers.
|[Strategy 4] Reduce domestic demand and maximize utilization of scrap steel by shifting to a circular economy|
In Japan, where population decline is certain, it is necessary to consider decarbonization strategies for the steel industry, at least on the assumption that the scale of domestic demand will shrink. Furthermore, it is essential to consider GHG emissions and resource balance, recycling from a life cycle perspective, and pursuing longer product life and reducing product weight. At the same time, dealing with issues such as designing products and buildings suitable for recycling, forming closed loops, and supporting the sophistication of intermediate treatment is key in order to utilizing valuable recycled steel sources without degrading their quality as much as possible.
|[Strategy 5] Develop policies to increase demand for green steel|
Specifying the future demand for green steel will reduce the risk of investment in zero-carbon steelmaking. In order to increase the green steel demand, the following pull policies are recommended.
In addition to the decarbonization strategy for steel production described above, a fundamental revision of Japan’s energy policy is essential, including its electricity and hydrogen strategies. Renewable energy cost needs to be further reduced and the 2030 and 2050 renewable energy targets need to be raised. If the current government policy of treating gray and blue hydrogen, which have high CO2 emissions, in the same way as green hydrogen, they will not be considered green steel, even if H2-DRI is used. An urgent revision of the hydrogen strategy is needed. Carbon pricing is another essential policy to decarbonize the steel industry such as the introduction of an effective carbon tax and a mandatory emissions trading system.
Table of Contents (of the Japanese full version report)Introduction: Decarbonizing the Steel Industry, a Critical Pillar to Achieve Carbon Neutrality in Japan
Chapter 1: The Japanese Steel Industry and Key Technologies for Decarbonization
1-1 Current Status of the Steel Industry in Japan
1-2 Key Technology Options for Decarbonizing the Steel Industry
Chapter 2: Why Accelerated Decarbonization is Important for Japan's Steel Industry
2-1 Reduction needed by 2030 to achieve the global temperature target of 1.5°C
2-2 Length of Investment Cycle and Size of Investment – Investment Decision to be Made in the 2020s
2-3 Companies and Policies in Europe are Moving Toward Low-Carbon Steelmaking in 2030
2-4 Demand Side Movements for Low-Carbon Steel Products
Chapter 3: Decarbonization Challenge of Steelmaking in Japan
3-1 Japan's Plan for Zero-Carbon Steelmaking
3-2 Issues of Blast Furnace + CCS Pathway
COURSE50 - A Transitional Measure towards 2050
CCS is Essential for the Continued Use of Blast Furnaces and their Bottlenecks
CCS does not capture 100% of CO2 emissions
3-3 Challenges of Hydrogen Direct Reduced Iron in Japan
Can Japan's Hydrogen Supply Contribute to Green Steelmaking?
Japan Has One of the Highest International Hydrogen Costs
Imported Hydrogen will not be Cheaper
[BOX 1] Quality of Iron Ore Required for Direct Reduced Ironmaking + Electric Furnace
3-4 Challenges and Developments of the Electric Furnace (Recycled Iron Manufacturing)
Can the Electric Furnace Cover All Steel Demand?
Can the Electric Furnace Method of Scrap Utilization Cover All Demand?
Japan's Electricity Costs are Higher Compared to Other Countries
3-5 Summary of Issues for Steel Decarbonization Approach in Japan
Chapter 4: Japan's Zero-Carbon Steelmaking in the Carbon-Neutral Era
[Pillar 1] Maximum Utilization of Recycled Iron by Electric Furnaces in Response to the Age of Resource Recycling
[BOX 2] Demand Response by Electric Furnaces - Tokyo Steel's Contribution to the Power Grid
[Pillar 2] Utilization of Hydrogen Direct Reduced Iron (H2 -DRI) Imports
[Pillar 3] H2 -DRI by Domestically Produced Hydrogen in Optimal Domestic Locations
Chapter 5: Transition Strategies for Decarbonizing Steelmaking in Japan
Strategy 1: "Electric Furnace Phase-in and Blast Furnace Phase-out Plan" Considering the Local Economic Development
Strategy 2: Leading the World in Building Supply Chains and International Hydrogen Direct Reduced Iron (H2-DRI) Market
Strategy 3: Select Optimal Sites for H2 -DRI in Japan in Conjunction with Offshore Wind Development
Strategy 4: Transition to a Circular Economy to Reduce Domestic Demand and Maximize Use of Scrap Steel
(1) Incentives to Increase Demand for Scrap Use
(2) Ensure the Design Suitable for Recycling
(3) Formation of Closed Loop
(4) Support for Upgrading Intermediate Treatment
Strategy 5: Develop Policies to Increase demand for Green Steel
(1) Clarify the Definition of Green Steel
(2) Action Initiatives from the Private Sector
(3) Promotion of Public Procurement
[BOX 3] U.S. Federal Buy Clean Initiative
(4) Emission Reduction from LCA Perspective - Creating a Mechanism for Embodied Carbon Reduction
Reference: Near Zero Emission Steel Definition