• Automotive Industry
  • Carbon Reduction

Green Steel Adoption Accelerates in the Automotive Industry

Jacques Moss
Jul 19, 2022

Guidehouse Insights

A key barrier to industrial decarbonization has been a lack of market willingness to absorb price increases imposed by steep emissions reductions. This picture is beginning to change. The iron and steel industry, which accounts for approximately 7% of global emissions, is benefiting from strong demand commitments from some steel consumers, especially within the automotive sector. These commitments are helping to support an expanding pipeline of steel production projects integrating hydrogen direct reduction, carbon capture and sequestration (CCS), and other emissions-reducing technologies. 

For example, Volvo recently committed to using 100% green steel in its manufacturing process by 2050 as part of the industry-led SteelZero initiative. The company was also the first to engineer a vehicle using solely fossil-free steel—a prototype mining haul truck manufactured using material sourced from SSAB's innovative HYBRIT steel project. Mercedes Benz will also begin purchasing fossil-free steel from HYBRIT starting this year. Likewise, Ford has pledged to use 10% green steel by 2030 as part of the World Economic Forum’s First Mover coalition, launched at COP26. Other automotive manufacturers have established a range of targets for reductions in lifecycle emissions from vehicles, including Volkswagen, Jaguar Land Rover, Toyota, and General Motors.

Automakers Are a Natural Fit 

Automakers can play a key role in kickstarting demand for green steel. The industry is a major consumer of steel products, with the metal accounting for just over half of the material used in a new automobile, and the sector as a whole representing around 12% of global steel demand

The environmental impacts of the industry tend to be front of mind for consumers in a way that isn’t true of other end-uses. As a result, automakers are often willing to pay a premium to position their products as more climate friendly than competitive models. Adding to this trend is the fact that vehicle electrification and power grid decarbonization are causing material usage to account for a rising proportion of the industry’s lifecycle emissions. According to the Energy Transitions Commission, embedded emissions from material usage is expected to represent more than half of an EV’s lifecycle emissions by 2030, compared with around 20% of lifecycle emissions for an internal combustion engine vehicle today. 

The increase in consumer prices associated with green steel use in high value products such as automobiles is proportionally relatively modest. It is estimated that switching to green steel would raise the price of a new vehicle by less than 1%.

Several Technology Options Exist

The steel industry is exploring a range of technologies to reduce its carbon emissions:

  • Scrap-based electric arc furnace (EAF) production: The least energy intensive and most well-established technology, scrap-based EAF production is emissions free if powered by renewable electricity. However, this route is constrained by the availability and quality of scrap steel, especially in emerging economies. 
  • CCS: This route is being explored by some major steel producers, including ArcelorMittal and U.S. Steel. A key advantage of CCS can be retrofitted onto existing steel plants without extensive changes to the production process or material inputs used.
  • Electrowinning: This fully electrified process is used at commercial scale in the production of aluminium and some other metals. Expected to play a role only over the long term, ArcelorMittal is leading an electrowinning trial at pilot scale as part of the Siderwin project, supported by the European Union's Horizon 2020 R&D initiative.
  • Hydrogen direct reduction: This route is being used for the largest share of planned green steel projects, often alongside complementary technologies. This pathway uses hydrogen to break the oxygen and iron bonds in iron ore, rendering it into a material suitable for secondary steel production in an EAF. Analysis by Guidehouse Insights indicates that by 2030 the iron and steel industry could account for more than 50 TWh of low carbon hydrogen demand globally.

As the latter three technologies entail both additional CAPEX and increased operating costs, emerging automotive demand for green steel could prove to be a key enabler of emissions reductions.