Decarbonizing Iron and Steel Production
--David Foster and Valerie Karplus
The Roosevelt Project is a multiyear effort at MIT and Harvard University to design climate policies that also address the social equity needs of American society. Its basic premise is that the energy transition in America cannot be sustained without broad public support.
As part of the project’s third phase, we recently published a report on the steel industry, Iron and Steel Decarbonization by 2050: An Opportunity for Workers and Communities, https://ceepr.mit.edu/wp-content/uploads/2024/07/The-Roosevelt-Project-Iron-and-Steel-Decarbonization-by-2050.pdf. In this report, we outline challenges and solutions in moving to a low emissions iron and steel industry and supply chains that address the needs of its diverse communities, from the iron mining towns of Mountain Iron and Babbitt, MN, to Braddock and Clairton, PA, to Cleveland, OH, to Gary and East Chicago, IN, or to Hickman and Osceola, AR.
First and foremost, our analysis found that the primary challenge to decarbonization of iron and steelmaking was economic, not technological. Several technologies already exist to decarbonize the industry substantially. What is missing is the economic incentive for industry to invest in those technologies.
The iron and steel industry is highly capital intensive, while at the same time it faces a highly competitive and volatile global market. As a result, any company that invests billions of dollars in producing “green steel” via direct reduced iron with clean hydrogen, carbon capture and sequestration (CCS), or decarbonized electricity technologies would have to be, at the very least, compensated for those investments—and ideally profit from them, as buyers recognize its importance to achieving their own climate targets. No such “green premium” exists today, beyond a few isolated examples. In fact, the overcapacity of steel in the world, including in China where half of the world’s steel is made, has made profitability—and long-term investment—in the industry extremely difficult.
Our report recommended solving this problem by allocating the revenue from the current Section 232 national security steel tariffs to fund the capital investments for steel decarbonization for the next 5-8 years. During that period of time, the markets to support green steel could be developed through a new series of trade agreements and greenhouse gas emissions pricing mechanisms. The Section 232 tariffs on steel were introduced in 2018 and have been supported by both the Trump and Biden administrations and have broad, bipartisan support. They currently provide between $1.5-2.5 billion annually.
We further recommended that a national commission of stakeholders oversee the allocation of this funding for capital investments. Here, stakeholders include the steel industry, labor, communities, and the relevant government agencies. A technical Office of Steel Decarbonization within the Department of Energy would implement the resulting recommendations.
Community benefits and involvement are essential to the success of such a program. Our report surveyed a diverse group of steel communities, including both communities located near blast furnaces and those located next to electric arc furnaces, which began production more recently. We found that respondents in these communities overwhelmingly valued the economic benefits of the industry but also worried about its environmental impacts on human health. Our review of decarbonization technologies found they would also reduce the local environmental impacts of iron and steelmaking, producing co-benefits.
We see great potential for a bipartisan consensus to set the decarbonization of iron and steelmaking in motion today. Our report found that a technology agnostic federal commission could use steel tariff revenues to spur innovation while addressing the main hurdle—economics. This approach could decarbonize the industry, improve lives in nearby communities, and, importantly, show how other industries can follow suit.
