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War in Ukraine has threatened a vital component of the US industrial base: steel production. Reports surfaced over the weekend that a large steel plant in Mariupol, Ukraine, had become one of the last strongholds of Ukrainian troops in the besieged city. Fighting appears to have escalated there on Monday when videos surfaced showing violent explosions at the Azovstal plant, which produces millions of tons of dirty steel.
In 2021, Russia and Ukraine supplied more than 60 percent pig iron imported by the United States. Pig iron, made from iron ore, is the raw material used in much of steel production, and the war prompted a panic buying of pig iron by American steelmakers. After the February 24 invasion, US steel prices increased by 50 percent. December US Chamber of Commerce poll commercial construction industries have found that high steel prices, combined with product shortages, could slow down the post-pandemic recovery in commercial construction.
This disruption in steel supply will affect everything from the auto industry to inflation. It could also have a very negative impact on renewable energy, a fast-growing sector in the US that is already facing severe supply chain constraints.
In February, the Bureau of Oceanic Energy Management auctioned a record $4.37 billion for the right to build wind turbines off the coast of New York and New Jersey. Ocean wind turbines require large amounts of steel, and it was originally proposed that the winning bidders use American-made steel as required by the Buy America Act. However, the New York agency that oversees the auction definite that this requirement should not apply: using US-made steel would be too expensive, in part because the United States does not produce enough of the types of steel required for today’s massive wind turbines.
The United States is unable to produce the steel needed to build the clean energy infrastructure needed to move from fossil fuels to zero-carbon energy sources. At the same time, the US steel industry currently has no plans to build new clean steel facilities, meaning that wind turbines and the rest of the clean energy infrastructure will be built from dirty steel. In November 2021, Lorenzo Gonçalves, CEO of leading American steel company Cleveland-Cliffs, said his company’s coal-fired blast furnaces “were here to stay”.
global steel industry accounts for 8 percent of carbon dioxide emissions and consumes approximately 15 percent of the world’s coal. By far the most intensive part of the steelmaking process is the production of pig iron. US steelworkers demand be the cleanest in the world, but this claim does not take into account the emissions that are simply transferred to countries like Russia and Ukraine along with iron production.
The solution to dirty iron is not to build more coal-based iron plants in America, but to use green hydrogen, which can be produced emission-free using renewable energy, to turn iron ore into direct reduced iron. . (also known as sponge iron). Green hydrogen (as opposed to “grey hydrogen” made from natural gas) is produced from water by splitting it into oxygen and hydrogen in plants called electrolyzers.
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Sponge iron can replace pig iron as a raw material for steel production. This is a proven technology and the European steel industry is leading the way in converting its steel industry to hydrogen fuel. In Germany the government direct funding replacement of coal-fired blast furnaces producing pig iron with green hydrogen technology for sponge iron production. In December, Kobad Bhavnagri, Head of Industrial Decarbonization at Bloomberg NEF, stressed that the global steel industry is at a turning point. “The global steel industry is poised to begin a titanic turnaround from coal to hydrogen, a transition that will bring both great disruption and great opportunity,” he said. “Companies and investors have not yet assessed the scale of the upcoming changes.”
Energy costs will also contribute to this transition. The cost of renewable electricity used in green hydrogen technology continues to fall, while the cost of coking coal – the type of coal used to make pig iron – is at an all-time high. In January, consulting firm McKinsey & Co. proposed that these higher prices could accelerate the switch to green hydrogen replacing coal in steel production, noting that high coking coal prices “may become the norm, not the exception.”
Major US steelmakers have no plans to invest in green steel production, nor are there incentives to do so in the current environment of high prices and high margins.
Replacing dirty iron imports with clean sponge iron production directly supports the existing US steel industry, creating new steel industry jobs and protecting existing ones. In general, this rated that the transition to a zero-emission economy will create 20 million jobs, including many well-paying jobs in the steel and automotive industries, construction and renewable energy.
However, major US steelmakers have no plans to invest in green steel production, nor have incentives to do so in the current environment of high prices and high margins. As is the case with the oil and gas industry, US steelmakers profit from the sale of expensive steel. The industry is unlikely to change without stimulus, so US elected officials and politicians must develop industrial policy to make that happen.
Carbon emissions from the steel industry have historically been considered “hard to reduce”. This is no longer the case. The United States has the opportunity to lead the transition from coal-fired blast furnaces to hydrogen-fueled sponge iron production. Without it, we will not be able to complete the transition to the clean energy of the future.
Justin Mikulka is a Research Fellow and Zach Exley is an Executive Director New Consensus, a think tank working on detailed plans, such as the Green New Deal, which governments can follow to transition to clean energy while achieving economic recovery.