Low embedded carbon steel: What is it, when will it be here – and what will it cost?

Like most industrial developers, Panattoni has invested considerable time and effort in creating buildings with a low operational carbon footprint on schemes that meet or exceed BNG targets. At schemes such as our industrial units in Bristol, we’ve employed low-carbon construction techniques and are always mindful of the need to be as sustainable as possible. But – and it’s a big but – our buildings are made from concrete and steel.

These materials are two of the most expensive in terms of CO2 emissions. Cement produces 8% of global CO2 emissions, and steel is estimated to produce between 7.2% and 11%.

Yet, to meet the Paris Agreement’s targets, emissions from these industries must fall by at least 30% by 2030. That’s a big ask and a big cost.

Did you know

In 2020, on average, every tonne of steel produced led to the emission of 1.891 tonnes of CO2 into the atmosphere. (Worldsteel.org / 2024)

Low ‘embedded carbon’ steel

Before we go any further, let’s just clear up some confusion around terminology. With ‘low carbon’ prefixing so many products and services these days, it’s important to remember that steel is made by adding carbon to iron. Low-carbon steel has always existed. It’s called mild steel, and you wouldn’t want to construct a building with it. We’re concerned with low embedded carbon steel – steel produced by low-carbon methods.

Hydrogen-based direct reduced iron (H-DRI)

Currently, the favoured technology in low embedded carbon steel is hydrogen-based direct reduced iron (H-DRI). Traditionally, iron is smelted from ore using coke in a blast furnace. The coke is also the source of carbon needed to turn iron into steel. With H-DRI, hydrogen is used instead of coke. The process operates at a lower temperature and produces a very pure product called sponge iron. This can then be fed into an electric arc furnace and mixed with oxygen and pulverised coal to create steel. The process avoids the need for a blast furnace altogether, saving a significant amount of energy – and associated CO2 emissions – in the process.

The trouble with H-DRI

But this ‘low carbon’ steel is still some way from net zero carbon! Firstly, as you may have noticed in the preceding paragraph, coal isn’t just an energy source for steel production, it’s part of the product. So, coal mining seems to be here to stay. Secondly, hydrogen production creates its own environmental problems.

Hydrogen gas in its pure form is rare, so it must be extracted. Green hydrogen, produced from renewables, is expensive, and some steel producers are using grey hydrogen, which is not sustainable at all.

Sweden leads the way in green steel – but at what cost?

However, despite the challenges of H-DRI, it is almost certainly the future for low embedded carbon steel. A company called H2 Green Steel has now started production at Europe’s first green steel plant in Boden, northern Sweden.

Their process uses green hydrogen, whose only byproduct is water vapour. The renewable energy to produce the hydrogen will be hydroelectric and they expect to cut emissions by about 90% compared with traditional methods.

Great for the environment, but the end product will cost a whopping 25% more than traditionally produced steel. Green steel at this price will seriously impact the costing model for industrial developers – but there is a real opportunity to get ahead of the game. Increasingly, both consumers and investors are demanding that sustainability be part of the criteria for the whole value chain. Investors are particularly concerned about the effect of carbon pricing on long-term returns. So, any developer who resolves the cost conundrum around green steel will reap significant rewards in the future.

The government’s target

The UK government is targeting a 95% reduction in CO2 emissions from steelmaking by 2050. But the cost increases for the UK could be more than the 25% Sweden is facing. As we have seen, green steel requires much more electricity than traditional methods and UK businesses pay about 60% more for electricity than their counterparts in the EU. So, to get even remotely affordable green steel, the government will have to restructure the energy market. It will also have to maintain tariffs to protect UK steel producers from being undercut by foreign competitors.

Policies pulling in opposite directions?

Even so, for industrial developers, current pricing models could be untenable. The government intends to ‘get Britain building’. They talk of giga factories, railways, power stations, hospitals and, of course, warehouses. Is the big jump in steel prices simply going to be passed on to occupiers and businesses, and ultimately to consumers via much higher prices? Increased inflation and an ongoing cost of living crisis are definitely not what the government wants as it tries to ‘Make Britain a green energy superpower’.

Most of the big statements from the new government concerning steel are about producers. They need to engage seriously, and soon, with steel’s big consumers.