Low-carbon steel: everyone wants it, but no one talks about the cost - 경향신문

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Every June in New York, United States, the steel think tank World Steel Dynamics hosts the ‘Global Steel Dynamics Forum’. It is a venue where leaders of major global steelmakers and of demand industries such as raw materials, energy, and automobiles gather to discuss the future of the steel industry. The theme of the forum this year was ‘The Age of Steel Recalibration’. The diagnosis was that overcapacity, protectionism, energy shortages, decarbonization costs, and artificial intelligence (AI) are disrupting the industrial order all at once. The forum concluded that the future winners will not be the companies with the largest production capacity, but those that connect raw materials, energy, logistics, and customers and supply the products the market wants in a timely manner.

However, what impressed the writer most at a forum dealing with such sweeping change was not new technology or industrial innovation. While everyone spoke of a shift to low-carbon steel, in reality no one could clearly answer who would pay for it.

Steel accounts for 78% of global anthropogenic greenhouse gas emissions, because the reduction of iron ore in blast furnaces consumes vast amounts of coal and energy. To cut this, scrap use must increase, hydrogen-based reducing gas must be injected into blast furnaces, and capacity for direct reduced iron (DRI) and electric arc furnaces must expand. Ultimately, the industry needs to move to hydrogen-based direct reduction that uses hydrogen produced by renewable energy or nuclear-powered electrolysis. The problem is that none of these paths is cheap. Replacing inexpensive coal with hydrogen and zero-carbon electricity inevitably raises raw material and power costs along with the burden of new capital investments.

At this forum, the US steelmaker Nucor explained that it supplies its low-carbon steel brand ‘Econiq’ to the automotive sector. However, there was no mention of sales volume or premiums. A German SHS executive also said that low-carbon steel may win customer preference, but could not guarantee the ability to charge an additional price.

This is not only a problem for steelmakers. Automakers declare supply-chain carbon reductions yet hesitate to purchase low-carbon sheet. Shipbuilders promote eco-friendly vessels, but overseas shipowners do not recognize a premium for low-carbon plate. Construction companies talk about ESG, yet still prioritize price in raw material tenders. The government likewise asks the steel industry to cut carbon while seeking the cheapest steel in public procurement. All the actors who call for a low-carbon transition step back when faced with the real costs.

Steel is a commodity with standardized quality and specifications, active international trade, and fierce price competition. Even if one company spends heavily to convert to low-carbon facilities, it will lose ground in the market if competitors in other countries keep supplying cheaper high-carbon products. Rather than being rewarded, first movers take losses. In the end, steelmakers wait for customer companies to place low-carbon steel orders, customer companies wait for consumers to pay first, and the government dithers while waiting for a ‘voluntary transition’ by companies. With no one willing to take a loss, there is plenty of talk but no market force at work.

In a situation where premiums for low-carbon steel are not guaranteed, telling companies to push through facility conversions that cost trillions to tens of trillions of won on goodwill alone is irresponsible. That does not mean the government should make up all steelmakers’ losses. Steelmakers must also shoulder costs through process innovation and cost reduction. They must not pass on inefficiencies of existing facilities, labeling them as decarbonization costs and shifting them to society.

This is not a call for a subsidy free-for-all. First the rules of the market must be established. There needs to be a unified standard for what qualifies as low-carbon steel, a clear distinction between actual emission reductions and the allocation of reductions via mass balance, and transparent disclosure of carbon emissions by product.

The government must become the first buyer itself. The K-Steel Act, enacted last December and implemented in June this year, has established a basis for certifying low-carbon steel and supporting demand creation. Now the share of certified low-carbon steel must be raised step by step, starting with roads, railways, ports, and public buildings. While demanding reductions from steelmakers, the government must abandon the duplicity of insisting on the lowest bid in public procurement.

From 2025, Japan evaluates automakers’ plans and performance in adopting low-carbon steel and adds up to 50,000 yen to electric vehicle subsidies. Instead of paying steelmakers directly, the government has induced automakers to purchase low-carbon steel. In our case as well, steelmakers and automakers could agree on multi-year minimum purchase quantities, and the government could use policy finance and guarantees to lower initial risks. In construction, base demand should first be expanded through public infrastructure projects. Since shipbuilding is an order-based industry, steelmakers, shipbuilders, and shipowners could share the premium by project, while in the public sector ships built with low-carbon steel could receive export finance and guarantee benefits.

The emissions trading scheme must also offer predictability to induce new capital investments. There are 41 emissions trading systems worldwide, and Japan, India, and Vietnam have launched national schemes this year. If the domestic carbon price is excessively low or highly volatile, long-term investments such as hydrogen-based direct reduction are impossible. The government needs to actively provide a price signal for allowances to reduce investment uncertainty. New support measures should be linked to actual reductions and investment outcomes. Policy should prime the pump so that companies can secure initial output and lower costs through learning and economies of scale.

When every steelmaker is talking about decarbonization, the real issue is who pays and how risks are shared. The government must create the initial market, and steelmakers must reduce costs through process innovation. Internationally accepted certification standards and a predictable carbon price must underpin this.

A market for low-carbon steel will not appear merely because technologies are developed. Only when buyers pay will a market take shape. In the current structure, where everyone says they will make it and says they want it but no one is willing to pay, both the decarbonization of K-steel and the aim of seizing the global market are nothing but empty slogans.