Pathways to a low-carbon iron and steel industry in the medium-term – the case of Germany

Highlights

• German steel sector is unlikely to meet climate targets for 2030 if set as flat targets.

• New processes are unlikely to be available on time to help meet the climate targets for 2030.

• German steel sector is only likely to meet climate targets by strongly decreasing production.

Abstract

The iron and steel industry is a major industrial emitter of carbon dioxide globally and in Germany. If European and German climate targets were set as equal proportional reduction targets (referred to here as “flat” targets) among sectors, the German steel industry would have to reduce its carbon dioxide emissions from about 60 million metric tons currently to 28–34 million metric tons by 2030. Technical options to further reduce CO₂ that are based on existing production processes are limited. Hence, in the future, the CO₂ emissions of the steel industry could be reduced by alternative and new production processes and variations in production levels. This paper describes four production pathways from 2015 to 2035 that reveal the impact of constant, increasing and decreasing production levels as well as different production processes. The diffusion of energy-efficient technologies, the increase of renewables in the German electricity mix and the age and lifetime of blast furnaces are considered as well. The findings suggest that the German steel sector will only manage to achieve its European CO₂ emissions reduction target for 2030 if it strongly decreases its production levels. Furthermore, it is highly unlikely that the German steel sector will meet its German climate target regardless of the production pathway selected. The findings suggest that efforts to reduce CO₂ emissions in the steel industry should focus on two areas. First, alternative steelmaking processes need to be developed. Besides low-CO₂ process technologies, CO₂-free processes should be considered as well. Direct reduced iron could be produced based on hydrogen and then fed into an electric arc furnace powered by electricity generated using CO₂-free sources. Steel could also be produced using electrolysis based on CO₂-free electricity. However, because these technologies might take decades to develop and introduce, there should be a second focus on incremental CO₂ reductions in the short to medium term.

Introduction

The steel industry is a major carbon dioxide (CO₂) emitter (e.g. Fischedick et al., 2014, Hasanbeigi et al., 2014, International Energy Agency Clean Coal Center, 2012). In Germany, it accounts for 4% of the country's total greenhouse gas (GHG) emissions (Fischedick et al., 2014). Within the framework of the extended Kyoto Protocol (Kyoto II), the European Union (EU) has agreed to reduce its GHG emissions (among these, CO₂ emissions have the largest share) by 20% until 2020 compared to 1990 (Umweltbundesamt, 2014a, Umweltbundesamt, 2014b, Bundesministerium für Wirtschaft und Energie (BMWi), 2015). The European Council has set a further GHG reduction target of 40% by 2030 compared to 1990 to be shared among the sectors covered by the European Emission Trading Scheme (ETS) and sectors not included in the ETS. This target is aimed to be met collectively by the EU with the reductions in the ETS and non-ETS sectors amounting to 43% and 30% by 2030 compared to 2005, respectively (European Council, 2014). Germany adopted the Energiekonzept in 2010 that aims to reduce CO₂ emissions by 55% by 2030 compared to 1990 (Bundesregierung, 2010). This study assumes targets set as equal proportional reductions (flat targets) for all sectors (Table 1), since no more specific targets have been set so far.

Further significant improvements and reductions in CO₂ emissions by best available technologies seem to be limited (Fischedick et al., 2014, Boston Consulting Group, 2013). Therefore, several global initiatives are underway to develop breakthrough technologies that drastically reduce CO₂ emissions (e.g. Tonomura, 2013, World Steel Association, 2009, Han et al., 2014). In Europe, the ULCOS initiative aims to bring four innovative steelmaking technologies to the market (e.g. a new smelt reduction technology HIsarna) (IEAGHG, 2014).

Here, the German steel industry is taken as a proxy for the European Union (EU) and beyond. What opportunities does it have to drastically reduce its emissions in the medium term? – In order to answer this question, likely production developments of the German steel industry have been defined that consider the path dependencies due to existing facilities (i.e. blast furnaces) and historical high and low production levels. How can the German steel industry reach lower CO₂ emissions within these pathways? What are the impacts due to a production decrease, or the introduction of low-CO₂ steelmaking processes?

Several studies have tried to estimate the future energy consumption and CO₂ emissions of the steel industry. Moya and Pardo (2013) used a bottom-up model and included economic data on best available technologies and emerging technologies. For 2030, they found CO₂ emission reduction potentials of 65% for the European iron and steel industry, if companies would permit payback periods of about 6 years. They assumed that two ULCOS technologies (i.e. top gas recycling blast furnace and ULCORED) and carbon capture and storage (CCS) will be ready for application by 2020. They consider site-specific payback periods. However, they do not include the age of the plants in their analysis, nor do they consider changing future production levels.

Brunke and Blesl (2014) also constructed a site-specific model to show how energy-efficient technologies can compensate rising energy prices till 2035. They assumed constant production throughout the studied period and did not examine total CO₂ emission reductions in the German steel industry. They found that primary steelmaking will face increasing production costs in the future since energy-saving potentials are limited, while secondary steelmaking can compensate rising energy prices to some extent by implementing energy-efficiency measures.

Kuramochi (2016) analyzed medium-term CO₂ emission reduction potentials in the Japanese steel industry. He focused on an increased use of domestically-recovered steel scrap in primary steelmaking. According to his findings, 5.4% of the CO₂ emissions in 2010 could be cut by 2030. Total CO₂ emissions could be reduced by 12% in 2030 compared to 2010 using other best available technologies and increasing the use of coke substitutes in blast furnaces.

Fischedick et al. (2014) analyzed the economical and technical potential of innovative primary steel production technologies in Germany up to 2100 (i.e. top gas recycling blast furnace with CCS, direct reduction based on hydrogen, electrolysis of iron ore). They find that climate targets can be achieved in the long term by applying these technologies.

This paper analyzes future pathways to reach lower CO₂ emissions levels in the German iron and steel industry until 2035. Although the current climate targets are set for 2030, this paper's timeframe is 20 years from 2015 in order to reflect the industry's longer investment periods. The study constructs a model to estimate energy consumption and CO₂ emissions in the German steel industry between 2015 and 2035. Blast furnaces (i.e. the key CO₂ emitting plants within the steel industry) are modeled plant-specifically, considering age and capacity. Other structural factors are included: scrap availability, CO₂ emission factor of the power system, the diffusion of energy-efficient technologies, and a new iron-making process. Future energy consumption on the energy carrier level and CO₂ emissions are estimated by multiplying the specific energy consumption per steelmaking process and CO₂ intensity by the respective production level of the steelmaking process considered. Four future production pathways are defined to show the impact of constant, increasing and decreasing crude steel production. The paper aims to show how likely it is that the German steel industry will meet future climate targets.

Section 2 gives a short introduction to the German steel industry. Section 3 describes the model, and section 4 shows the structural parameters that shape energy intensity and CO₂ emissions in the steel industry. Section 5 defines the resulting production pathways and presents the estimated future energy consumption and CO₂ emissions of the German iron and steel industry until 2035. The paper ends with a sensitivity analysis, discussion and conclusions in sections 6 Uncertainty and sensitivity analysis, 7 Discussion, 8 Conclusions.