Steel, the essential grey link in the green energy supply chain
The improvement of energy efficiency in industrial production has slowed over the past two years, despite the COP28 targets. The steel sector faces challenges due to the high costs of equipment and renovation, alongside competitive pressure from companies that are not subject to the same rules, as they operate in different regulatory regimes. With steel being a crucial raw material for the energy transition, it is imperative that the sector enhances its energy efficiency.
Energy efficiency
Improving energy efficiency focuses on three key aspects: the electrification of processes still reliant on fossil fuel combustion, the introduction of new technologies, and encouraging consumers to reduce their energy consumption.
More energy efficiency is necessary for a stable energy supply and the reduction of CO2 emissions, which benefits both national finances and individual households. Additionally, it decreases demand for oil and gas, forming the foundation of the IEA’s scenarios for achieving carbon neutrality. Prioritising smarter energy use is essential for industrialised nations—the largest energy consumers—where construction, transport, and industry represent the main sources of inefficiency. Despite the objectives announced at COP28, improvements in energy efficiency have slowed in the past two years.
Steel sector
The greatest challenge for the industrial sector, particularly the steel industry, lies in the limited scope for quick fixes to achieve energy efficiency gains with existing technology. Steel producers have been investing in improving energy efficiency for decades to lower costs and reduce environmental impact—a win-win situation for the industry. Since 1960, these efforts have led to a 60% reduction in energy intensity in steel production. However, energy remains the second-largest cost in steel manufacturing after raw materials, with significant implications for greenhouse gas emissions. As modern blast furnaces approach their practical energy-use minimums, the industry must develop new strategies and innovations to reduce CO2 emissions.
Steel plants, such as TATA Steel in Velsen-Noord, continue striving for further improvements, including optimising motor systems and heat recovery. AI-driven process controls and predictive maintenance are reshaping efficiency strategies. Hydrogen and electrification of steel production offer promising long-term solutions, albeit with high costs and infrastructure challenges.
Material reuse also plays a crucial role, with electric arc furnaces fed by scrap consuming 58% less energy to produce a tonne of steel than traditional blast furnaces. However, limited scrap availability constrains the potential energy savings, underscoring the necessity of reducing the amount of iron ore required for steel production.
Rodrigo Lencina, Industry and Sector Expert – Steel and Metals Transformation, BNP Paribas: “Global sustainability targets, such as those outlined in the Paris Agreement, compel steel producers to invest in energy-efficient production processes. Carbon pricing—although varying by country—is also a driver in reducing fossil fuel consumption. Collaboration among producers, governments, consumers, suppliers, and academic institutions is essential to accelerating progress.
Continued investment in more efficient energy use is vital for steel production, with a dual focus on competitiveness and environmental objectives. The path to low-carbon production requires both incremental improvements and bold innovations. Given steel’s critical role in both solar and windenergy, reducing the industry’s carbon footprint is essential for a sustainable future.”
To enhance energy efficiency, investment is required, necessitating collaboration between governments and banks. A simple and stable regulatory and financial framework is essential to support this crucial aspect of the energy transition.