In principle, having two available routes often triggers an intense debate about which will be the dominant one. We don't believe it's quite so black and white and see both routes being crucial for meeting the goal of a net zero steel industry. Developed countries might prefer to invest in the hydrogen route more quickly, while developing and coal-heavy countries like India and China may choose to rely more heavily on CCS technology. The climate benefits from both and the discussion should focus on the speed of change rather than a battle between technology. Finally, such debates shouldn't distract us from tempering the demand for steel, as the climate benefits most from steel that isn't produced.
Basic economics makes it clear that green steel is more expensive – although luckily, this markup seems to have a relatively small impact on the consumer price of many products that are made from steel.
Unfortunately, this price gap is not easy to close. Our calculations suggest that all else being equal, hydrogen-based steel matches the price of coal-based steel if:
- The carbon price quadruples from €85 per ton CO2 to about €340 per ton, which is unlikely to happen anytime soon and is above many forecasts for the EU-ETS carbon price of around €150 per ton by 2030
- The coal price increases tenfold from $100 per ton to about $1000, which is unlikely to happen given the vast coal reserves in the world
- The price of green hydrogen is reduced from about €6 per kg today to about €1.5 per kg, which in real terms, could be achieved somewhere between 2035 and 2040 according to Bloomberg New Energy Finance. Low-cost regions like China, Brazil, Africa, the Middle East and Australia are likely to see this sooner (around 2035) than high-cost regions like Europe (around 2040)
- A combination of these factors
With the aim of increasing the price of carbon or coal, policymakers can initiate pricing mechanisms that capture the environmental impact of coal-based steel and make green steel more competitive.
A reduction in the cost of green hydrogen could be a key reason for policymakers to aim for Research and Development (R&D) policies that lower the cost of (domestically) produced electrolysers. It may also encourage policies which aim to lower the cost to run them, for example by increasing the share of renewables in the power grid which is likely to result in lower power prices.
Finally, steel producers may be forced to produce green steel by regulation and users of green steel might be willing to pay a premium.
If these things come together, the steel industry might begin putting the pedal to the metal sooner rather than later.
