Decarbonization of Steel Relies on Collaboration Throughout the Value Chain

Last month, Deloitte released a report analyzing potential pathways to decarbonizing the steel industry. The report highlights the critical role of the value chain and collaboration in achieving decarbonization, alongside key hurdles and potential solutions for progressing toward net-zero emissions.

Steel is a resource vital to all major industries and the development of the global economy. However, it accounts for roughly 10% of global CO2 emissions, making it one of six "hard-to-abate" sectors. This classification arises from the long lifespan of production assets, the high cost of replacing them, and the significant energy required for decarbonization efforts.

Organizations throughout the steel value chain are currently working to reduce their Scope 1 and 2 emissions through initiatives such as adopting energy-efficient technologies, electrifying processes and operations, and implementing zero-carbon alternatives. However, meaningful decarbonization in the sector necessitates reducing Scope 3 emissions.

Both upstream activities (such as raw material acquisition and production processes) and downstream activities (like product transportation, processing, and waste removal) must contribute to Scope 3 emissions reductions across the industry. Due to the complex interdependencies within the value chain, every entity must collaborate to establish and commit to reduction targets.

Steel production, primarily through blast furnaces and basic oxygen furnaces, accounts for 95% of greenhouse gas (GHG) emissions within the value chain. By contrast, mining operations and logistics represent just 4% and 1% of emissions, respectively.

Conveniently, the largest steel manufacturers dominate a significant portion of the global steel market, positioning them to drive substantial change across the value chain. Many companies within the chain attribute the majority of their emissions to Scope 3—largely stemming from steel production. According to the report, implementing alternative production methods, such as electric arc furnaces (EAF), could reduce emissions by at least 60%.

To achieve decarbonization, upstream entities responsible for mining and steel production must coordinate closely with downstream organizations. Deloitte conducted interviews with over 100 senior executives from 57 organizations within the steel industry to explore these dynamics.

Steel production is responsible for about 10% of global emissions, and demand for steel is projected to increase by as much as 35% by 2050 compared to 2019 levels. If the world’s 20 largest steel producers successfully decarbonize their operations, the resulting emissions reductions could reach as much as 37%.

The report identifies six major hurdles to decarbonizing steel:

• Limited supply and high costs of green electricity and green hydrogen
• Inconsistent policies and regulatory incentives, which hinder the implementation of low-carbon steel standards and fair competition
• Insufficient availability of high-grade iron ore suitable for decarbonization
• A shortage of skilled workers to support the transition
• A lack of capital to invest in decarbonization solutions
• Uncertainty around the long-term demand for low-carbon steel

Collaboration among all participants in the steel value chain is crucial to overcoming these challenges and achieving net-zero emissions. To reduce investment risks, steel manufacturers—the primary contributors to GHG emissions—require assurances from suppliers regarding sufficient feedstock of low-carbon iron ore and from customers regarding demand for low-carbon steel. Achieving these goals will necessitate significant adjustments, and in some cases, transformative changes in operations related to mining, production, and sourcing across the industry.

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