Explainer: How Australia is uniquely placed for a low-cost green steel industry

Using green hydrogen to produce low-cost steel is a cheaper prospect for an industry keen to decarbonise, but researchers say transition investment is crucial for iron ore producing nations to become green steel players.

Research, published in Nature Communications by analysts at Oxford University, suggests a global shift to green hydrogen as part of the steelmaking process will open new markets to manufacturers. They say Australia could lead the world in having low-cost green steel.

“Green hydrogen-based steel is likely to shift profitable steelmaking dynamics and open new market opportunities [but] taking advantage of locally available renewable energy resources is critical to maintaining and growing market share,” they write.

Right now, metallurgical coal is intrinsic to the manufacture of around 70% of the world’s steel in Blast Furnace-Basic Oxygen Furnaces.

When this material is heated to more than 1,000°C in the absence of oxygen, it produces coke – a highly pure form of carbon – which is fed to the furnace with iron ore.

With coke acting as a reducing agent, the carbon monoxide it produces when heated in the furnace reacts with the ore to produce pig iron. This is an industry-standard feedstock that is further refined to make steel.

But this process also releases carbon dioxide – the major contributor to atmospheric warming – so industries and governments are looking for new ways to decarbonise steel manufacture.

One way to do this is by using cleaner reducing agents for the process.

Furnaces using electric arcs are already used in steel production, with methane deployed in place of coke, and scrap steel in place of ore.

And electric arcs reduce carbon even now. Methane is a less long-lived greenhouse gas, while the use of recycled steel avoids carbon-intensive extraction.

Carbon from this process can further approach near-zero levels by using green hydrogen from renewable electrolysis, instead of hydrocarbons.

What is green steel?

That, says Swinburne University of Technology’s Professor Geoffrey Brooks, whose work is honed on the process of metal production and refinement, is a straightforward process.

“There is so much interest in this topic,” says Brooks, who was not involved in the Oxford research.

“One of the reasons is that when you look at the heavy industries that could be decarbonised, steel is the obvious one.

“First of all, the scale of it – it’s a huge industry – but also, just fortunately, the reaction between hydrogen and iron oxide is a relatively straightforward [one]… so we know it works, we know you can make steel this way.

“It’s a matter of how to do it economically, and cleverly.”

Cracking a clever and economic method could have big financial benefits for steelmakers, as well as environmental benefits for the planet.

In 2020, the World Steel Association apportioned 2.6 billion tonnes of direct carbon emissions to the sector’s creation of 1.9 billion tonnes of steel. That’s about eight percent of the world’s total carbon output. At the same time, McKinsey found steelmakers could be threatened by a 14% decrease in value if they fail to reduce their carbon waste.

But there’s a big investment gap

The Oxford assessments point to Australia as a potential winner from a shift to green steel production. Excluding labour costs, which are typically higher in developed nations, they estimate Australia would be the third-cheapest country to produce green steel, thanks to its higher access to solar energy. 

Australia and Brazil, they say, are uniquely placed as the world’s major exporters of iron ore and have prime environmental conditions to spearhead the green hydrogen sector – effectively extracting raw material and processing it within their borders.

Realising the opportunity, however, would need “concerted investments and collaboration across private and public sectors, particularly in terms of connecting close-by renewable electricity generation to sources of ore extraction and processing.

Brooks agrees that investment will be a major factor in whether Australia becomes a player in the green steel industry.

States like Western Australia are already the site of promising industry investment, but Brooks also sees an opportunity to optimise ore quality for use in green steelmaking overseas.

And while Brooks has seen a massive uplift in work for him and his colleagues consulting with industry, he believes investment will be a major barrier to the speed with which transition will occur.

“The idea that we’re going to rebuild the whole world’s steel industry by 2050, I think, is a bit naïve,” he says.

“It’s not the scientific restriction, it’s the investment and human aspect of it. For example, the disruption that will occur by changing all the steelmaking technology in the world is enormous.

“The capital investment itself is another staggering thing to think about, because of the scale of the industry.”

Brooks points to the sheer cost of Tata Steel upgrading its Port Talbot steelworks in South Wales, UK. The company estimates the cost of converting its operations to electric arc in the realm of £3 billion.

Even with massive government support, it’s a major financial hurdle for operators to consider. How green steel investment comes together is, therefore, an important issue to watch.

“Yes, there’s a lot of excitement, there’s a lot of interest and a lot of investment going on, there is a strong forward momentum for this happening,” says Brooks.

“But it would be naïve to think this will be an easy transition. I think it will be quite complex.”