Renewable Energy Institute released a new report entitled "The Path to Green Steel: Pursuing Zero-Carbon Steelmaking in Japan" (English translation of key findings published on 18 November 2022 and full report on 13 February 2023).
The steel industry accounts for 48% of emissions from Japan's industrial sector, and decarbonizing this sector is a critical pillar in the strategy toward reaching carbon neutrality. In Europe, steelmakers and car manufacturers, among 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 furnaces, hydrogen-based direct reduced iron (H2-DRI) making, and electric furnaces. 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 technology.
Based on these efforts, this report proposes five strategies for decarbonizing Japan's steel industry, including 'electric furnace phase-in and blast furnace phase-out' with consideration to 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 grey 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 decarbonization of the steel industry is a critical pillar in the strategy toward reaching carbon neutrality and will become more important in the future, as total emissions from thermal power generation are expected to fall through the expansion of renewable energy sources.
・Blast furnaces currently account for 76% of Japan’s steel production. Approximately half of the blast furnaces currently in use in Japan, with average equipment life of 25 years, will reach their end of operational lifetimes by 2030. As we head towards 2050 carbon neutrality, decisions must be made on how to decarbonize the steel industry and not to reinvest a significant amount of money in blast furnaces which may become stranded assets.
・ Low-carbon steelmaking projects have been launched around the world to reduce emissions by half or more, and the total planned production volume of such low-carbon steel exceeds 100 million tonnes, which is equivalent to the total annual production volume of Japan. There is also a growing demand for "green steel," particularly from European automakers. Accelerated decarbonization efforts are 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, so-called “COURSE50” and “SuperCOURSE50” projects, which use hydrogen in blast furnaces along with CCS, have comprised the main efforts to decarbonize the steel industry. However, their carbon reduction targets are 30% and 50%, respectively, and cannot be claimed as methods aiming at zero-carbon steelmaking.
・In addition, COURSE50 shows only a 10% reduction in overall CO2 emissions with the use of hydrogen alone, with a theoretical maximum reduction percentage in the low twenties in blast furnaces.
・ 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. If relying on this pathway, 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 CO2 storage required 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. Moreover, there is no concrete information on the location of possible storage sites in Japan.
3. Challenges of H2-DRI making in Japan
・Half of the low-carbon steelmaking projects that have been initiated in Europe and elsewhere use the hydrogen-based direct reduction method. However, the prerequisite for this method is the availability of large quantities of inexpensive green hydrogen.
・Japan's hydrogen strategy provides for 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 selected countries in the world in 2030. Even with imports, Japan's reliance on marine transportation will make its hydrogen costs high.
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 steel and importation of direct-reduced iron as the new source of iron is necessary. In addition, technological development is needed for the production of high-grade steel that can be used for example for automobiles.
5. Three Pillars for Zero-Carbon Steelmaking in Japan
There are three decarbonization pillars for the Japanese steel industry: maximum use of scrap steel by electric furnaces; utilization of H2-DRI imports; and introduction of DRI making utilizing domestically produced hydrogen in optimal locations in Japan. Crude steel production in Japan will shift from a focus on blast furnaces to electric furnaces. The rational choice for Japan is to make maximum use of the large amount of scrap steel 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 steel as much as possible. From now, it is necessary to develop technologies and invest in equipment to manufacture products using recycled steel that has not been conventionally manufactured using electric furnaces. Measures are also needed on the scrap steel side. In particular, in order to ensure the quality of scrap steel once consumed in the market and to recover it efficiently from every corner, comprehensive measures are required, including those by the private sector and government, from the design of products and buildings to intermediate treatment and recovery.
|[Pillar 2] Utilization of H2-DRI imports
H2-DRI 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 iron ore, and then 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 making utilizing domestically produced hydrogen in optimal domestic locations
The introduction of H2-DRI plants should be pursued as an option for domestic zero-carbon ironmaking as we can take advantage of the various benefits of domestic production. In order to keep production costs low, it would be rational to concentrate hydrogen production and H2-DRI 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" with consideration to local economic development
In order for zero-carbon steelmaking methods to become dominant in Japan and continue the development of Japanese technology in the steelmaking and manufacturing process, as well as assist the local communities that have long-supported the steel industry with their workforce and skills, 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 have dialogue and strategize with local stakeholders under the leadership of the government and local authorities, taking into account local employment and the economy.
|[Strategy 2] Leading the world in building supply chains and the international 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 should lead the world in forming an "international green DRI market" to accelerate global decarbonization by supporting the realization of H2-DRI plants at an early stage and building a collaborative structure that will also contribute to local economies and society.
|[Strategy 3] Select optimal sites for H2-DRI making 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 plants. Some of these regions have blast furnace steel production currently underway. In order to realize H2-DRI making in Japan, strategic collaboration is needed among three parties: offshore wind developers, hydrogen producers, and H2-DRI producers.
|[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 while 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 advancement 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. The 2030 and 2050 renewable energy targets need to be raised and its cost needs to be further reduced. If the current government policy of treating grey and blue hydrogen with high CO2 emissions in the same way as green hydrogen remains in place, the produced steel will not be considered green, even if H2-DRI is used. An urgent revision of the hydrogen strategy is needed. Carbon pricing is a further 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
Introduction: Decarbonizing the Steel Industry, a Critical Pillar to Achieve Carbon Neutrality in Japan
Chapter 1: Current State of the Japanese Steel Industry and Key Technologies for Decarbonization
1-2 Key Technology Options for Decarbonizing the Steel Industry
Chapter 2: Why Accelerated Decarbonization is Important for Japan’s Steel Industry
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
3-2 Issues of Blast Furnace + CCS Pathway
Bottlenecks of CCS, the Essential Tool for the Continued Use of Blast Furnaces
CCS does not capture 100% of CO2 emissions
Japan's Hydrogen Costs are Highest of Any Countries
Importing hydrogen will not eliminate the cost difference.
[BOX 1] Quality of iron ore required for direct reduction ironmaking + electric furnace method
Can the Electric Arc Furnace Method of Scrap Utilization Cover All Demand?
Japan’s Electricity Costs are Higher Compared to Other Countries
Chapter 4: Japan's Zero-Carbon Steelmaking in the Carbon-Neutral Era
[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 2: Lead the world in the international hydrogen direct reduced iron (H2-DRI) market and supply chain
Strategy 3: Selection of optimal sites for direct hydrogen reduction ironmaking in Japan in conjunction with offshore wind power development
Strategy 4: Promote reduction of domestic demand and maximum utilization of scrap iron by shifting to a circular economy
2) Ensure the Design Suitable for Recycling
3) Formation of Closed Loop
4) Support for Upgrading Intermediate Treatment
2) Action Initiatives from the Private Sector
3) Promotion of Public Procurement
[BOX 3] U.S. Federal Buy Clean Initiative
Reference: Near Zero Emission Steel Definition