DOI: 10.1111/jiec.

12997

R E S E A R C H A N D A N A LY S I S

Renewables-based decarbonization and relocation of iron

and steel making
A case study

Dolf Gielen1 Deger Saygin2,3 Emanuele Taibi1 Jean-Pierre Birat4

1 International Renewable Energy Agency

(IRENA), Innovation and Technology Centre Abstract

(IITC), Bonn, Germany The article assesses the future role of hydrogen-based iron and steel making and its potential
2 SHURA Energy Transition Centre, Istanbul,
impact on global material flows, based on a combination of technology assessment, material flow
Turkey analysis, and microeconomic analysis. Renewable hydrogen-based iron production can become
3 Sabanci University, Tuzla, Istanbul, Turkey
the least-cost supply option at a carbon dioxide (CO2 ) price of around United States dollars
4 IF Steelman, Semécourt, France
(USD) 67 per tonne. Availability of low-cost renewable electricity is a precondition. Australia is
the world’s largest producer of iron ore and at the same time a country with significant low-cost
Correspondence
Dolf Gielen, IRENA Innovation and Technology renewable electricity potential. A shift to direct reduced iron (DRI) exports could reduce global
Centre, Thomas-Dehler-Haus, Willy-Brandt- CO2 emissions substantially and at the same time increase value added in Australia, while main-
Allee 20, 53113 Bonn, Germany.
taining steel production in countries that are currently processing ore into iron and steel, such as
Email: [email protected]; www.irena.org
China, South Korea, and Japan. The approach could be expanded to other parts of the world and
Funding information other energy-intensive industry sectors. Such relocation analysis in a climate context can become
The IRENA contribution has benefited from a a new industrial ecology research area. Iron and steel industry CO2 emissions can be reduced by
Voluntary Contribution of the Government of
nearly a third, around 0.7 gigatonnes (Gt) CO2 per year. To achieve these emission reductions,
Japan.
investment of USD 0.9 trillion, or 0.7% of the total energy sector investment needs, would be
Editor Managing Review: Lei Shi
required, global DRI production would have to increase seven-fold from today’s level, and the
hydrogen energy used would equal 1% of global primary energy supply. Such a shift could develop
from 2025 onward at scale, if the right policies are put in place.

KEYWORDS
commodity trade, decarbonization, hydrogen, industrial ecology, iron and steel, renewable energy

1 INTRODUCTION

1.1 Industrial competitiveness in times of decarbonization policies

The Paris Climate Agreement and the subsequent Special Report of the Intergovernmental Panel on Climate Change (IPCC, 2018) have created a
new level of urgency that has prompted policy makers to revisit industrial greenhouse gas emissions. There is a renewed effort to find and deploy
innovative solutions to decarbonize industry, a sector that has made limited progress to date.
High costs have hampered action to date. Morfeldt, Nijs, and Silveira (2015) estimate a carbon dioxide (CO2 ) price range of United States dollars
(USD) 25–120 per tonne1 for the blast furnace (BF)-CO2 capture and storage (CCS) route to be globally cost competitive by 2050. Ruijven van
et al. (2016)) estimate a CO2 tax of USD 100 in 2020 rising to USD 324 per tonne by 2050 to reduce global iron and steel sector emissions by 80–
90% compared to the 2010 level. Mousa, Wang, Riesbeck, and Larsson (2016) calculate a USD 50–200/t CO2 tax for cost-competitive BF charcoal
injection. Vercoulen et al. (2018) estimate a 70% reduction in East Asia iron and steel sector CO2 emissions in 2050 with a CO2 tax of USD 200/t.

1 All tonnes (t) refers to metric tons.

Journal of Industrial Ecology 2020;1–13. wileyonlinelibrary.com/journal/jiec ○

c 2020 by Yale University 1
2 GIELEN ET AL .

This paper outlines new efforts in the global iron and steel industry that focus on hydrogen production from renewable power (green hydrogen)
for iron making as a key mitigation option. The status of technology development is discussed and a new approach is proposed where the energy-
intensive iron-making step is relocated close to iron mining locations with low-cost abundant renewable energy resources. The potential of material
flow optimization has been ignored in the energy transition debate to date, while it offers particular opportunities for energy-intensive industries,
especially in relation to maximization of renewable energy use. The iron and steel industry case is elaborated in this paper as an example of this
approach that could be expanded to other energy-intensive industries.
Energy-intensive industries are responsible for around two-thirds of total global direct and indirect industrial CO2 emissions. This includes
the production of iron and steel as well as non-ferrous metals, cement, chemicals, and petrochemicals. Improved energy efficiency is among the
key measures for CO2 emission abatement in industry. Best practice technologies offer improvement potentials of 27 ± 8% worldwide (Saygin,
Worrell, Patel, & Gielen, 2011). Bioenergy and biochemicals, solar thermal heating, and heat pumps can contribute up to 21% of final industrial
energy demand and feedstock use by 2050 (Saygin, Gielen, Draeck, Worrell, & Patel, 2014; Taibi, Gielen, & Bazilian, 2012). These potentials are
insufficient to decarbonize industry.
To date, significant emission reduction in energy-intensive industries has proven to be challenging. A first concern is competitiveness. Because
of the high energy cost share in materials production (more than 25% in some cases), a rise in energy costs can substantially affect competitive-
ness. Policies at a national or region level may deteriorate competitiveness or even lead to relocation of industrial facilities (Branger & Quirion,
2014; Gielen, 2000). Such relocation can be detrimental for the environment if comparatively clean and efficient production is replaced with dirty
and inefficient production abroad. But relocation can also be beneficial from a CO2 perspective, if it opens clean energy access (Birat & Carvallo
Aceves, 2012). Low-cost renewable electricity at remote locations constitutes a key emission mitigation option that changes the paradigm (IRENA,
2019a).
The consequences of the recent renewable energy cost reduction for the choice of industry location are not yet reflected in most assessment
scenarios and roadmaps (Bellevrat et al., 2009; IPTS/EC, 2013; Junjie, 2018; Napp, Gambhir, Hills, Florin, & Fennell, 2014; OECD, 2014). Whereas
the technical aspects of hydrogen-based iron and steel making have been studied extensively (Mayer, Bachner, & Steininger, 2019; Nuber, Eich-
berger, & Rollinger, 2006; Otto et al., 2017; Razani da Costa, Wagner, Patisson, & Ablitzer, 2009; Vogl, Åhman, & Nilsson, 2018), limited attention
has been paid to the integration of clean hydrogen supply and iron and steel making (Cavaliere, 2019).
The global trade in energy-intensive commodities is substantial. Changing the nature and direction of trade flows for environmental reasons
is a theme that is well aligned with the principles of industrial ecology. While in the past industrial ecology concepts have been applied for inte-
grated assessment of new technology adoption in the steel industries (Considine, Jablonowski, Considine, & Rag, 2001) or from the viewpoint
of metabolism and materials stock analysis (Wang, Müller, & Hashimoto, 2015), the concept of using remote but abundant renewable energy
resources in combination with changing trade patterns is new. The impact on global commodity trade can be substantial, an aspect with poten-
tially important economic and geopolitical consequences.
This paper focuses on Australia as a supplier and East Asian countries as consumers of iron and steel. As the world’s largest iron ore exporter,
Australia accounted for USD 49.3 billion of global iron ore exports, equivalent to 51.9% of total global exports in 2017. Australia produced around
860 million tonnes (Mt) of iron ore in 2017. In comparison, its production of iron and steel is negligible. The value added of iron ore is limited with the
average export value being less than USD 50 per tonne of ore. Therefore, a significant opportunity exists to increase the value added in Australia.
At the same time China, the largest iron ore importer, has significant air pollution problems. The iron and steel industry contributes significantly to
air pollution as it consumes coal, thereby resulting in significant particulate matter emissions (Yang et al., 2018). Moving the most polluting iron-
making step abroad can help reduce local air pollution. In combination with a new clean production process, air pollution can be eliminated. At the
same time, Australia has a unique low-cost renewable electricity generation potential based on solar and wind. If these sources can be leveraged to
produce hydrogen for the direct reduced iron (DRI) route, it opens a perspective for exports of green iron2 with very low CO2 emissions.
Today, hydrogen is typically produced through steam reforming of natural gas. In China, coal is gasified for hydrogen making and globally 4% of
hydrogen is a by-product of chlorine electrolysis. The bulk of hydrogen is further processed on-site for ammonia production and refining (IRENA,
2018a). At present, some countries have ambitious plans for international hydrogen trade using ships (ARENA, 2018; Prudencio, 2019). Japan in
particular is developing this option (Ezawa, 2019). Shipping of commodities such as iron produced with hydrogen would allow for a faster capacity
expansion of the hydrogen production.

2 METHODS

This paper is based on a combination of technology assessment for iron and steel making processes, material flow analysis for the global iron
and steel metabolism and microeconomic analysis of the economic viability of different production routes considering energy and logistics
costs.

2 In this paper, green iron is defined as the iron that is produced using hydrogen from renewable electricity.
GIELEN ET AL . 3

It is beyond the scope of this paper to discuss various modeling approaches in detail. Econometric models, computable general equilibrium mod-
els and input–output table-based economic models all have their benefits and drawbacks to address this specific problem. They add economic
rigidity and allow for identification of value chain relations and trade-offs that may be missing in partial equilibrium models, such as Pareto opti-
mal conditions. However, for energy transformation with a time horizon of several decades these models lack the proper representation of very
profound technological change. For example, renewable power generation, electricity grids, and hydrogen production are usually not reflected in
detail. Extensive modeling framework comparison work has been done by the IEA Energy Technology Systems Analysis Programme (ETSAP, 1997)
that concluded: “Long-term emission reductions depend more upon new technology than economic policy. The reduction in economic growth due
to emission restrictions contributes only a few percent of the emission reductions, however. Therefore, it may be sufficient to use partial equi-
librium models … which introduce price-elastic energy demands but do not otherwise represent the economic system.” Efforts continue to adjust
energy transition modeling tools and policy making needs, for example, in the context of the Long-Term Energy Scenarios campaign under the Clean
Energy Ministerial (CEM) (LTES and IRENA, 2019).
While technology-rich partial equilibrium models for the global iron and steel industry have been applied in the past (e.g., Gielen, 2000), the rapid
yet uncertain technology innovations taking place make outcomes very sensitive to input technology data assumptions. These relations are often
obscured when complex models are used. The following analysis should be considered as a starting point that exposes key sensitivities. Subsequent
use of more sophisticated tools can result in additional insights.
The REmap energy transition scenario developed by the International Renewable Energy Agency (IRENA) covers all energy conversion and
use activities and has an emission path consistent with a 50% chance of at most 1.5 ◦ C of global temperature rise by the end of this century. The
scenario is revised annually in a bottom-up approach starting from country, sector, and process data. Details of IRENA’s REmap modeling approach
and its strength and limitations have been discussed previously (Gielen et al., 2019; Kempener et al., 2015; Saygin, Kempener, Wagner, Ayuso, &
Gielen, 2015).
REmap findings have been further processed with the E3ME model, an econometric model including detail for the energy sector, indicating
limited impacts on global job creation and gross domestic product (GDP), but with a wider variation on a region level (Garcia-Casals, Ferroukhi, &
Parajuli, 2019; IRENA, 2018b). The results suggest that Oceania is only moderately affected in GDP terms. However, the analysis excluded non-
energy commodity trade effects. Analysis on a country level is currently ongoing.
Given the lack of accurate economic information for emerging low-carbon steel technologies, special attention was paid to gather latest tech-
nology information. A roadmap is outlined that puts emphasis on the renewable electricity-iron-making nexus and trade. Analysis of the socio-
economic impacts has been excluded from this paper.

3 RESULTS

3.1 The iron and steel industry CO2 emissions and abatement options: Latest insights
Production of iron and steel ranks as one of the largest sources of industrial emissions (Andrew, 2018). Production of one tonne steel emitted on
average 1.83 tonnes of CO2 . Iron and steel production accounted for approximately 7–9% of total global fossil fuel CO2 emissions in 2017 (WSA,
2019). In 2015, 1.5 gigatonnes (Gt) of finished steel products were manufactured (Figure 1). The BF-basic oxygen furnace (BOF) route accounted
for nearly three-quarters of the total production. The remainder came from the electric arc furnace (EAF) route (27%) that used primarily scrap
steel. This category also includes iron and steel produced through the DRI–EAF route that accounted for around 5% of total steel production in
2015. DRI is a solid product that is produced through solid state chemical reduction of iron ore to iron. Around 100 Mt DRI were produced in 2018
(8% of all iron), an increase from 62 Mt in 2015 (Midrex, 2019). In 2015, nearly 400 Mt of post-consumer scrap was generated. This is equivalent
to a quarter of the total finished steel products manufacturing volume. Combined with the processing scrap and home scrap (i.e., generated within
the steel mill), total scrap input for steel production totaled more than 600 Mt in 2015 (see Figure 1).
China’s steel production accounts for more than half of total global production. China’s EAF share is low because of limited scrap material avail-
ability (Xylia, Silveira, Duerinck, & Meinke-Hubeny, 2018) since most steel is used for long-life infrastructure (Müller, Wang, & Duval, 2011). Steel’s
residence time in the economy is about 40 years, because 50% of steel is used in infrastructure and the rest in equipment, machinery, automobiles,
etc. The recycling rate is high, but this applies to the world production of 40 years ago.
A large body of literature discusses iron and steel production energy use. The Supporting Information S1 provides an overview. Coal and coke
account for a significant share of the total energy consumed for iron production in BF. Coal and its products represent 78% of the sector’s total
energy demand (accounting for the energy content of BF and coke oven gases as by-products) (see Table 1). This conversion step is the main source
of CO2 emissions.
The BF-BOF route dominates global steel production and benefits from economies of scale and continuous technology improvement. Several
alternative process routes are being developed (Birat, Lorrain, & de Lassat, 2009; Karakaya, Nuur, & Assbring, 2018).
Electrolysis is today applied on an industrial scale for production of aluminum and other non-ferrous metals but not for iron making. The DRI
production process is commercially available worldwide. Coal-based DRI making in India is driven by indigenous coal being unsuitable for blast
4 GIELEN ET AL .

F I G U R E 1 Material flows in the global iron and steel sector, 2015 (in million tonnes per year)
Note. BF, blast furnace; BOF, basic oxygen furnace; DRI, direct reduced iron; EAF, electric arc furnace.

TA B L E 1 Global energy use for iron and steel making, 2015

Energy use Share

(EJ/year) (%)
Coking coal and coke 24.1 70.0
Other coal 6.1 17.6
Blast furnace gas and coke oven gas −3.3 −9.6
Natural gas 2.3 6.7
Oil 0.4 1.2
Biomass 0.1 0.4
Electricity 4.0 11.8
Heat 0.6 1.9
Total 34.4 100.0

Note. Includes BF and coke ovens.

Source. OECD/IEA (2018).

furnaces. Gas-based DRI production elsewhere relies on low-cost natural gas. The drop in gas prices in the United States due to the recent boom
in shale gas production has attracted new gas-based capacity. One gas-based plant operates in the United Arab Emirates where the process CO2
is captured and used for enhanced oil recovery (Tenova, 2017). Hydrogen-based DRI production has received increasing attention as an enabler
for renewable energy use and a CO2 emission mitigation option with pilot projects in Austria (Prammer, 2018; Zauner, 2018) and Sweden (Hybrit,
2018), among others.
Smelting reduction using coal and avoiding coke making is another development. There are several configurations and technologies available,
such as HISARNA. Some are already commercial, others are still in a research stage (Junjie, 2018). Smelting reduction eliminates the need for coke
ovens and reduces the need for iron ore preparation: coal is gasified and the gas is used to reduce iron ore. CO2 emissions from smelting reduction
processes can also be captured more easily as the CO2 concentration in the flue gas is higher than for BF gas (due to the use of oxygen instead of
air in the case of HISARNA) (Kuramochi, Ramirez, Turkenburg, & Faaij, 2012). CO2 storage remains a challenge and the technology progress in the
last two decades has been slow.
The industry is pursuing various low-emission reduction routes (Birat, Lorrain, & de Lassat, 2009; Suopajärvi et al., 2018):

• Hydrogen reduction using renewable power (DRI-EAF, see below)

GIELEN ET AL . 5

• Electrolysis using renewable power (comparable to today’s Hall–Heroult electrolysis process for aluminum production. Such a process for iron
and steel making has not been deployed beyond lab scale)
• CCS (a process that is not deployed today but that could be retrofitted to BFs in certain conditions or in combination with smelting reduction and
gas-based DRI making)
• Biomass products substituting coal and coke (small-scale BFs that use charcoal for iron production are deployed in Brazil on a significant scale,
and biomass has been co-processed in coke ovens)

In addition, efforts are aimed at energy efficiency, circular steel economy and the use of natural gas as a coal and coke substitute. However,
these yield limited emissions reductions and new low-carbon production routes are needed. The ULCOS project assessment concluded that no-
regret options are lacking (Birat & Lorrain, 2009).3 At the time, the reference steel production route cost around USD 220 while the DRI-EAF route
cost around USD 300 per tonne of steel.4 The difference was mainly due to high energy costs for hydrogen production (Bellevrat & Mananteau,
2009).
Falling costs of renewable power and green hydrogen have changed the outlook (IRENA, 2019b). It should be noted that similar cost reductions
have not yet occurred for competing options. In fact, CCS project costs have turned out to be higher than anticipated while development has stalled.
Charcoal has much higher costs than coke and its mechanical stability limits its use in shaft furnaces. In addition, sustainability issues, including
climate neutrality, requires continuous close control of supply chains (IRENA, 2014).

4 HYDROGEN-BASED IRON AND STEELMAKING PROCESSES: A RECENT DEVELOPMENT

A DRI-EAF route that uses hydrogen from renewable power reduces CO2 emissions by 80–95%, compared to the BF-BOF route (Otto et al., 2017;
Prammer, 2018). One option for hydrogen iron making is the CIRCORED process. This process produces hot briquetted iron (HBI) from iron ore
fines. HBI is a DRI-type product. The only commercial application was in Trinidad and Tobago. DRI was produced in fluidized bed reactors with
hydrogen from steam reforming of natural gas. From 1999 the plant was operated at up to 105% of its designed capacity until October 2001. When
the HBI market conditions deteriorated, the decision was made to halt operation. The plant was restarted in 2004 but stood again idle as of June
2019 (Midrex, 2019; Nuber et al., 2006).
Hydrogen direct reduction steel making needs 12.5 gigajoule (GJ) electricity per tonne, mainly for the electrolyzer hydrogen production (Otto
et al., 2017; Vogl et al., 2018). However, an entirely hydrogen-based process will require process redesign and experimentation. This may require
a decade, as a shaft furnace with pure hydrogen has never been operated in practice (Hamadeh, Mirgaux, & Patisson, 2018; Razani da Costa et al.,
2009). Physical and metallurgical aspects need to be considered (Ripke, 2017). To date, it is not possible to make steel from iron ore in a single step
so DRI/HBI is an intermediate. As DRI from hydrogen is low on carbon, some carbon must be added to the EAF (12–15 kg C/t liquid steel; Tenova,
2019).
Hydrogen-based iron making is technically feasible and various producers are working to develop this option further (Birat, 2019). The following
initiatives have been identified:

• The hydrogen subproject of the ULCOS program, run mostly from France (Université de Lorraine)
• Hybrit project, SSAB, Sweden
• SuSteel, VoestAlpine, Austria
• Salcos-Macor, Salzgitter, Germany
• ArcelorMittal Midrex plant, Germany
• Flash iron making, the United States

Hybrit’s aim is to develop a DRI-H2-EAF process through the consortium of Swedish steelmaker SSAB, power utility Vattenfall, and LKAB,
Europe’s largest iron ore producer. The Swedish government provided a Euro 50–60 million (USD 55–66 million) subsidy for a demonstration plant.
The aim is to have a pilot plant (proof of concept) up and running by 2020, with a demonstration plant post-2024. This plant uses HYL/Energiron
technology (Tenova, 2018). HYL is a well-established gas DRI production technology and the natural-gas-based process already operates with syn-
gas with a 70 vol% hydrogen content. The energy consumption for the reduction step is 8.5 GJ/t hydrogen (Tenova, 2018).

3 ULCOS considered initially 80 iron and steelmaking routes in phase 1 and focused on five in phase 2: Smelting reduction with CCS, direct reduction with CCS, hydrogen reduction, electrolysis and

electrified blast furnace, and/or blast furnace with CCS.

4 We assume a currency exchange rate of 1.12 USD/Euro throughout this study.
6 GIELEN ET AL .

Producon cost index [-] F I G U R E 2 Cost comparison between blast furnace and DRI
160 technology for crude steel production in Europe
140 Note. BF, blast furnace; BOF, basic oxygen furnace; DRI, direct reduced
120
iron; EAF, electric arc furnace. Underlying data used to create this figure
can be found in Supporting Information S2.
100
Source. Hybrit (2018); Mayer et al. (2019).
80

60

40

20

0
BF/BOF DRI-H2-EAF Hybrit DRI-H2-EAF VoestAlpine

Energy Raw materials Others Depreciaon

TA B L E 2 Unit costs of different iron and steel production technologies in Europe (net of taxes)

Techno-economic specification Conventional High cost Low cost

Electricity price (USD/kWh) — 0.057 0.034
Technology (USD/t steel) BF-BOF DRI-H2-EAF PDSP
Coke 94.9 0.0 0.0
Electricity 0.0 247.5 148.0
Iron pellets* 0.0 94.9 0.0
Iron ore 213.6 213.6 213.6
Services 50.9 45.2 45.2
Labor 55.4 49.7 49.7
Capital (wear and tear) 54.2 54.2 54.2
OPEX (USD/t steel) 469.0 705.1 510.8
Difference with BF-BOF (USD/t steel) 236.2 41.8
Process emissions (tCO2 /t steel) 1.7 0.0 0.0
Break-even CO2 price (USD/t CO2 ) 157.1 28.3
Investment costs (USD/t steel) 1258 1179
CAPEX** (USD/t steel) 118.7 111.9
* **
Notes. Additional costs due to the intermediate stage of producing iron pellets out of iron ore. Greenfield’ facility assumptions: 2% interest rate, 12 years
lifetime, and investment phase. The low interest rate is balanced by a low economic lifetime, technical lifetime is several decades.
Source. Mayer et al. (2019).

Production plants would be added in the 2030s and 2040s (Hanley, 2018). Hybrit’s costs are 20–30% higher than the conventional route assum-
ing greenfield conditions and current Swedish energy prices (Figure 2). The cost difference is sensitive for coking coal, electricity, and CO2 emission
prices (Hybrit, 2018). It should be noted the CO2 price in Europe has risen to around Euro 25 (USD 28) per tonne in Q2 2019, which tilts the eco-
nomics in favor of the low-emission process.
SuSteel is a smelting reduction process for iron ore using a hydrogen plasma. There is ongoing research at a VoestAlpine pilot plant in Don-
awitz (Austria). Plasma direct steel production’s (PDSP) main advantage compared to the DRI-H2-EAF route is its even higher grade of integration,
allowing for oxygen reduction that is even possible at low temperatures, so-called plasma smelting. The process results in a steel quality product.
However, PDSP is still at an early stage of development (Mayer et al., 2019).
VoestAlpine estimates that a transition to hydrogen-based steel making could start from 2035 (Prammer, 2018). Between 2020 and 2030 there
are research, development, and deployment (RD&D) financing needs of around Euro 60 million (USD 67 million): Euro 30 million for electrolysis,
Euro 20 million for SuSteel, and around Euro 10 million for new feedstock refining and pre-treatment. Between 2030 and 2035 around Euro 1
billion would be needed for upscaling. According to VoestAlpine, the production cost for producing 1 tonne of steel from the DRI-H2-EAF would
be 75% higher than for the reference BF-BOF route (see Table 2). Iron feedstock cost and energy cost dominate total expenditures. It should be
noted that this compares existing plants without depreciation and financing costs with the full cost (including depreciation and financing) of the
new process. When both processes are compared on a greenfield basis the new process cost increase ranges from 20% to 45%, see Figure 2 (Mayer
et al., 2019). PDSP could reduce the cost further (Table 2). Results are sensitive for the electricity price assumptions; a lower electricity price of
USD 25/MWh brings the total production cost down by more than USD 125/t (−18%).
GIELEN ET AL . 7

SALCOS is based on a gradual transition pathway increasing green hydrogen additions. According to the developers, SALCOS plans to proceed
in stages:

• Add a gas-based DRI plant to feed existing BFs.

• Additionally, large amounts of hydrogen may be fed to the DRI making.
• An EAF plant is added, to be fed with DRI.
• Closure of BF-BOF, entire steel making will be based on the DRI-EAF route.

Depending on the phase, the process can save between 10% and 85% of the total CO2 emissions (EC, 2018; Salzgitter Flachstahl, 2018; Salzgit-
ter, 2019).
ArcelorMittal has contracted Midrex, the leading gas DRI plant provider, to build a hydrogen DRI plant in Hamburg with a capacity of 100 kt/year
(Arcelor, 2019). The plant will initially operate on hydrogen from natural gas with the intent to shift to green hydrogen from offshore wind in later
years.
Finally, hydrogen-based flash iron making starting from natural gas consumes about 10.8 GJ/t iron, excluding ore preparation and conversion
of iron into steel. This is a conservative estimate of the process’ energy demand during commercial scale operations. The process will require ore
fines. Additionally, the product is low-carbon iron, closer to steel in its chemical composition. Temperatures are also higher than for existing DRI
production (1,325◦ C compared to 1,090◦ C) (Green, 2018), which enable the reaction to progress more quickly, resulting in smaller reactors.
This summary of ongoing efforts shows significant uncertainties. Future economic viability is not only a matter of process technology; the whole
supply chain and its local characteristics must be considered.

5 ENERGY COSTS DETERMINE THE ECONOMIC VIABILITY OF GREEN IRON MAKING

Energy cost amounts to USD 50 per tonne liquid iron for a BF (see Supporting Information S1 for details). The BOF steel-making step is energy
neutral. Low-cost renewable electricity can be an important game changer for hydrogen. Whereas European producers bank on low-cost surplus
renewable electricity, dedicated stand-alone hydrogen production projects are being considered at remote locations, in light of new hydrogen trade
opportunities. For example, Australia could supply East Asia with hydrogen at Australian dollars (AUD) 4.61 per kg (USD 3.23 per kg) by 2025 with
an export potential of 25–345 petajoules (PJ) in that year. This could grow to 621–3,180 PJ in 2040 (ACIL Allen Consulting, 2018).5 The same study
provides a production cost range of AUD 2.57–7.43 per kg of H2 (USD 1.70–4.95 per kg).
Alkaline electrolyzers represent today’s industrial scale production units. This technology is known from chlorine production, an industry that
operates globally at megatonne scale. Dedicated electrolyzers for hydrogen production from water are currently being upscaled. Several units with
a capacity of tens of megawatts (MW) have been installed. Development is now aiming for units of hundreds of MW (IRENA, 2019b). Apart from
alkaline electrolyzers, proton exchange membrane (PEM) electrolyzers and solid oxide electrolyzer cells (SOEC) are under development. These
offer the prospect of somewhat higher efficiency and higher operational flexibility, which can be beneficial for the integration of variable renewable
power. However, at this stage PEM electrolyzers are twice as expensive and their efficiency and life span is still below that of alkaline electrolyzers,
while SOEC is still at RD&D stage, with some pilots being deployed at hundreds of kilowatt (kW) scale (IRENA, 2018a).
Typical electrolysis efficiency is currently at around 67%, based on the lower heating value of the hydrogen product. Around 85% is the thermo-
dynamic limit. Electricity cost determines total green hydrogen production cost. The lower heating value of 1 tonne hydrogen is 120 GJ. Renewable
electricity can be generated at utility scale for USD 20–30 per MWh today. Such prices have been recorded for solar PV and wind projects in many
desert locations in the Middle East, Mexico, Chile, and the United States. Such prices might also be reached in Australia where the levelized cost
of electricity generation from wind ranges today from AUD 40 to AUD 95 per MWh (USD 28–66/MWh) and from AUD 46 to AUD 100 (USD
32–70/MWh) for solar PV.
Future electricity cost of USD 25/MWh translates into a hydrogen cost of USD 144/t DRI (see Supporting Information S1). Based on these
numbers, the energy cost is USD 95/t iron higher than for the BF process. The electricity cost for the EAF must be added for a fair comparison of
the BF-BOF and DRI-H2-EAF route.6 Total energy cost increase is USD 115/t iron. The resulting net cost increase for the new process amounts to
USD 75 per tonne of steel (Figure 3).
Given a net cost increase of USD 75/t for iron and coal savings of around 12 GJ/t iron, the net cost amounts to USD 6.3 per GJ of coal replaced.
The same cost would roughly apply to China, Japan, and South Korea. If the costs are expressed per tonne of mitigated CO2 , they amount to USD

5 This is Cost Insurance Freight (CIF) import price including liquefaction, loading, and shipping costs of AUD 1.30, AUD 0.45, and AUD 0.36 per kg, respectively. Various governments are aiming for

3 USD/kg in the coming years, which translates into an energy unit supply price around twice that of liquefied natural gas.
6 Here it is assumed that an existing depreciated EAF plant is used, thereby any capital costs are excluded. Given electricity accounts for the largest share in production costs, any O&M costs are

also excluded.
8 GIELEN ET AL .

F I G U R E 3 Cost differentials for steel production based on DRI using H2 versus BF (Australia DRI case, China steel production)
Note. DRI, direct reduced iron; BF, blast furnace.
Underlying data used to create this figure can be found in Supporting Information S2.

67/t CO2 . Once CO2 is priced sufficiently and local air pollution standards continue to be tightened, there is a strong economic case for wide
application of this process. Further improvements in the economics of the H2-DRI route and lower renewable electricity cost offer a prospect of
improved competitiveness.
The DRI-EAF route allows a geographical separation of the energy-intensive iron-making process and the steel-making process. DRI making
can yield global CO2 emissions reductions and increase value added in iron ore mining countries, while maintaining production in existing steel
producing and consuming countries.
It is also interesting to note that Japan is considering importing hydrogen from Australia (Ezawa, 2019). At the same time Japan imports sig-
nificant amounts of iron ore and coking coal from Australia. Given the high cost of hydrogen transportation alone (>USD 1/kg even in the most
optimistic case, USD 8.3/GJ), it may be economically and environmentally better to replace iron ore imports with DRI imports.

6 THE POTENTIAL SIGNIFICANCE OF AUSTRALIA DRI EXPORTS FOR EAST ASIA

STEELMAKING AND GLOBAL CO 2 EMISSIONS

In the REmap case (Gielen & Saygin, 2018; IRENA, 2018b), BF share is estimated to decline to 45% between 2015 and 2050. A quarter of all iron
production is smelting reduction coupled with CCS and 30% from DRI route partly fueled with renewable hydrogen. In addition, 40% of all steel
production would be from scrap. Biomass, in the form of charcoal or other solid biofuels accounts for a quarter of the total energy needs of the
remaining BF capacity in use. Additionally, some electricity can be injected into BF or smelting reduction furnaces, thus replacing coal and coke.
Steel production is projected to increase from 1,620 Mt in 2015 to 2,200 Mt in 2050 (and additionally 120 Mt cast iron) (Figure 4). Scrap supply
is projected to increase from 619 Mt in 2015 to 1,081 Mt in 2050. Consequently, primary iron production is expected to increase from 1,228 Mt
in 2015 to around 1,450 Mt by 2050. Iron production from BF is halved by 2050, with DRI production growing to 15–29% of the total global iron
supply. Around 350 Mt new capacity must be added between now and 2050. DRI capacity would increase six-fold from today. Given historical
growth rates this should be considered an ambitious objective.
The largest DRI plants today have 2–2.5 Mt/year capacity (Midrex, 2019). Around 175 such plants are needed between now and 2050. The
investment cost of the latest VoestAlpine DRI plant in Texas amounted to USD 370/t DRI capacity (OECD, 2014). 400 Mt production capacity
(an 89% capacity factor) translates into an investment need of USD 148 billion. Today’s electrolyzer costs of USD 750/kW are projected to fall in
the coming years to around USD 500/kW (IRENA, 2018a). For 350 Mt iron production, 182 gigawatt (GW) capacity is needed (assuming near to
100% capacity factor).7 This translates into a cumulative investment of USD 91 billion between today and 2050. In terms of hydrogen use, around
5 exajoules (EJ) per year would be needed if all DRI routes used hydrogen, around 1% of global primary energy use.

7 1 Mt iron production capacity/year translates into 115 t/hour. At 3,400 kWh hydrogen/t (12 GJ/t) and 75% electrolyzer efficiency, 4.5 MW electrolyzer capacity is needed per tonne of iron per

hour.
GIELEN ET AL . 9

Fuels and utilities

Coal, coke and other products 630
Gas 30
Oil 7
Biomass 114
Hydrogen 35
Limestone/dolomite 229

Loss 85

BF gas 860 BOF gas 149

Sinter 900 637 1,449 Crude 2,400 Finished 2,200 Steel 2,064
Iron ore BF
Pellets 400 BOF products
2600 steel steel
Fines 800
421

BF slag 175 Home scrap Processing

Steel slag
256
197 scrap 136
Total products
Smelt 420
in use
reduction
550 927 47,700 Mt
EAF
DRI 425
Net additions
110 120
Foundries 1,351 Mt

Scrap supply Post consumer

1,081 scrap 748

F I G U R E 4 Material flows in the global iron and steel sector in the REmap case, 2050 (in million tonnes per year)
Note. BF, blast furnace; BOF, basic oxygen furnace; DRI, direct reduced iron; EAF, electric arc furnace.

Transporting iron instead of iron ore reduces the transported weight by about one-third which yields additional economic benefits. Ore shipping
costs from Western Australia to China (Qingdao port) are currently USD 10/t. Moreover, shipping of coal can be reduced by 0.5 t/t iron. In total,
shipping cost savings amount to around USD 15/t. This estimate is uncertain as it depends on the kind of ship that transports DRI or HBI and since
it refers exclusively to steel produced for China. At present, these are not the large capsize ore carriers, but this may change. There is also a need to
transport DRI in a nitrogen atmosphere to prevent spontaneous combustion.
The Pilbara region in North West Australia contains large quantities of iron ore. Iron ore is surface mined and transported by rail to the port,
where it is crushed. The crushed ore is separated into lump and fines components, which are sold as separate products. While there is a limit on the
use of ore fines in BFs, there are no such constraints in the DRI process. Fines trade at around 75% of the lump ore price and have therefore a cost
advantage of around USD 10/t compared to lump ore. This translates into approximately USD 15/t iron product (Chemlink, 2003). Gas-based DRI
production processes using fines have successfully operated in Australia. While Australia reached nearly 2 Mt DRI production in 2003, production
ceased from 2005 onward (Midrex, 2019).
The electricity supply for electrolysis must also be considered. Variable renewable power generation operates with capacity factors between
20% (solar PV) and 60% (offshore wind). The current average capacity factors in the Australian energy mix are around 38% for wind and 22% for
solar. Assuming complementarity (solar during the day and wind in the evenings and at night) 1 GW solar and 1 GW wind would yield a combined
60% capacity factor. 182 GW renewable power availability around the clock translates into around 180 GW solar PV, 180 GW wind and 180 GW
dispatchable renewable power (including the combination of wind or solar and storage), a total of 540 GW renewable power generation nameplate
capacity.8 Assuming on average USD 1,000/kW investment cost, this translates into an investment of USD 0.54 trillion. 15 GW variable renewable
power is currently being developed in the Pilbara region for iron mining and processing purposes (CWP Renewables, 2019).
Total investment needs for DRI, electrolyzers, and power generation are around USD 0.9 trillion, dominated by the renewable power generation
capacity investment. The 540 GW renewables capacity in Australia can be compared to the total renewable power capacity of 16,000 GW in 2050
according to IRENA’s REmap case, a roadmap aligned with the goals of the Paris Climate Agreement (IRENA, 2018b). It should be noted that this
represents a more than 10-fold increase from today’s electricity generation capacity in Australia (around 48 GW). But the abundant renewable
resource would make such expansion feasible. The CO2 reduction that can be achieved amounts to around 700 Mt per year in 2050, about 2% of
global CO2 emissions.

8 As hydrogen can be stored, the complementarity is not critical to ensure its continuous supply. So solar PV only with enough hydrogen storage capacity is also an option once electrolyzer costs

fall to USD 200/kW (IRENA, 2019b).

10 GIELEN ET AL .

7 DISCUSSION

7.1 Uncertainties and need for further work

This analysis fills an important knowledge gap in the techno-economic analysis of CO2 emission mitigation options in the iron and steel sec-
tor. Producing DRI via different types of fuels has been the subject of various studies. However, comparison of sources shows that important
technology uncertainties remain (notably iron making or direct steel making, the future feedstock iron, and hydrogen cost) but at the same
time the sources suggest accelerating dynamics. This paper quantifies for the first time the global potential, investment needs, and emissions
mitigation benefits of renewables-based hydrogen for DRI making. DRI can replace iron ore trade to create benefits for both exporting and
importing countries. As only generic company-based cost data is available, it is impossible to compare the findings based on similar metrics.
The bottom-up data we used for the analysis can be regarded as plausible as they originate from peer-reviewed literature and industry sources.
In addition, the required CO2 price of USD 67 per tonne by 2050 is comparable with estimates for other mitigation options in the iron and
steel sector, as discussed above. A more formalized partial equilibrium model of the global iron and steel sector can help in future sensitivity
analyses.
A CO2 price can support renewable hydrogen-based iron making. The moderate 20–45% crude steel price increase suggests there may be
a niche market without such a CO2 price. But a massive expansion hinges on climate policies. The economic opportunity for Australia as a coal
exporter and user shows that there may be interesting possibilities for energy transition in fossil fuel exporting countries, which can help to over-
come the deadlock in the climate process.
While our results add a new technology data point, the analysis needs to be expanded with more country-specific plant and country data
that encompasses different technical performance characteristics of hydrogen and iron production and their associated costs. Additional trade
routes and their potential benefits should also be studied to draw global conclusions. Our analysis shows how material flows may change
in the iron and steel sector due to renewable H2-DRI growth for emissions reductions. Impacts on logistics and infrastructure can be pro-
found. The case in this paper can be expanded to other energy-intensive sectors such as chemical and petrochemicals and cement. A sin-
gle decarbonization scenario has been investigated in this study. Therefore, it is recommended to explore more pathways for robust decision-
making.

8 CONCLUSIONS

Relocation of energy-intensive industries offers significant potential to increase renewable energy deployment while creating more value added
through sustainable industrial activities in resource-rich countries. Such relocation analyses in a climate context can offer a new area of industrial
ecology research.
A significant opportunity exists to reduce CO2 emissions in the iron and steel industry based on the use of hydrogen from renewable power.
The economic viability depends on the final demonstration of industrial feasibility of hydrogen reduction, energy cost, ore feedstock cost, and
economies of scale. Since there is no economic case today, a CO2 price of more than USD 67/t is needed.
Australia could be a favorable location to develop such an industry, with DRI exports replacing iron ore exports. Australia has a potential to
produce large amounts of low-cost hydrogen that could be the basis for an economically viable process. On a global scale this development would
imply relocation of the key energy-intensive iron-making step and transforming it into a DRI-making step. The economics are comparable or better
than those for alternative options such as CCS.
Development of commercial-scale hydrogen iron-making processes is therefore a priority. While hydrogen from renewable sources is more
expensive than hydrogen from fossil sources at today’s prices, there is a realistic potential that hydrogen from renewables will be the cheapest
supply option in Australia and other locations with comparable quality renewable resources from around 2025. Such industry could subsequently
develop at scale, if the right policies are put in place. This is critical from the viewpoint of decarbonizing the global iron and steel industry by 2050,
in line with climate policy objectives. While countries such as Japan are considering the import of hydrogen from Australia, there may be a stronger
economic case for importing renewables-based DRI.
The roadmap suggests 0.7% of total energy sector investment needs would save 2.3% of all global energy-related CO2 emissions. To achieve
these emissions reductions, global DRI production would have to increase seven-fold from today’s level. Around 5 EJ (or 460 billion cubic meters)
per year of hydrogen would be required, equivalent to 1% of global primary energy supply. Such a shift could develop from 2025 onward at scale, if
the right policies are put in place.

ACKNOWLEDGEMENTS

The authors wish to thank four anonymous reviewers for their comments.
GIELEN ET AL . 11

CONFLICT OF INTEREST STATEMENT

The authors declare no conflict of interest.

ORCID

Dolf Gielen https://orcid.org/0000-0002-6924-0788

Deger Saygin https://orcid.org/0000-0002-3302-1428
Emanuele Taibi https://orcid.org/0000-0003-0604-9019
Jean-Pierre Birat https://orcid.org/0000-0001-6839-8842

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SUPPORTING INFORMATION

Additional supporting information may be found online in the Supporting Information section at the end of the article.

How to cite this article: Gielen D, Saygin D, Taibi E, Birat J-P. Renewables-based decarbonization and relocation of iron and steel making: A
case study. J Ind Ecol. 2020;1–13. https://doi.org/10.1111/jiec.12997