It is easy to overlook how pervasive iron and steel are in our lives. As one of the most reliable and versatile building materials, these metals are used in everything from buildings and bridges to power transmission towers, airplanes, vehicles, ships, and numerous household appliances.
But steel is also one of the largest GHG emitting industries and one of the hardest industries to decarbonize due to the inherent nature of steel production as well as other industry factors. To reach net zero carbon emission without stemming global economic growth must find scalable emissions-free ways to produce steel. We are excited to announce our recent investment in Electra, a company focused on producing low-temperature iron without a green premium using zero-carbon intermittent electricity.
The factors that make the steel industry such a necessary and difficult one to tackle from an emissions perspective are its ubiquitousness and its production processes. Steel is a trillion-dollar commodity and a key building block of the industrial world. About 2 billion tons of steel are produced each year as part of a $2.5 trillion market. Iron and steel production will play a key role in ensuring that billions of people can improve their quality of life over the next decade as they are essential components to economic expansion in emerging economies.
These materials are also crucial ingredients for the energy transition since renewable energy sources such as wind turbines are almost entirely made of steel, and solar panels, electric vehicles, and geothermal plants also depend on iron and steel products. Demand for iron and steel has increased more than threefold since 1970 and makes up 95 percent of all metal produced annually with demand only projected to grow with increased infrastructural developments. According to some estimates, global demand for steel will double by 2050.
Iron's Grip on the Carbon Dilemma
In terms of production, the process of making steel today is immensely carbon-intensive. Steel is a type of iron alloy. In nature, iron atoms bind tightly with oxygen atoms and are very difficult to pull apart. This is why the production of iron for human use was such a revolution and ushered in a new phase of human development known as the Iron Age. Sometime around 2000 BCE, it was discovered that iron ore becomes malleable when it is heated over a charcoal fire because at high enough temperatures iron atoms loosen their grip on oxygen and the oxygen binds to the carbon in the charcoal. This process known as reduction then releases the oxygen and carbon as CO2 and what is left is purified iron. A few hundred years ago the blast furnace was invented which enabled steelworkers to increase the temperatures of their coal fires to around 1,600 degrees Celsius, and instead of charcoal, a processed form of coal is used called coke. The iron that comes out of this process is infused with carbon and can easily be turned into steel.
Because of this process, the iron and steel industry is the largest coal consumer and the most intensive industry when it comes to GHG emissions. Almost 2 tons of carbon are emitted for every ton of steel produced. As a result, the steel industry consumes 7 percent of global energy and releases somewhere from 8 to 11 percent of annual global CO2 emissions, or more than 3 billion tons of CO2 annually. The iron and steel industry is also difficult to decarbonize due to the decades-long lifespans of iron and steel plants and the high capital intensity nature of the industry as well as low-profit margins and price volatility.
Despite the difficulties, it is clearly imperative that we find innovative ways to decarbonize the iron and steel sector. Two recent emissions scenarios to limit warming below 2 degrees Celsius proposed that the CO2 budget of iron and steel emissions be capped at 50 Gt between now and 2050. But if the status quo continues the total emission budget of the sector by 2050 will exceed this limit by a factor of two. On a positive note, governments and the industry are mobilizing to try to change this trajectory.
During the G20 meeting last October, President Biden announced that the US and EU will be dropping their steel and aluminum tariffs and instead will embrace the world’s first carbon-based sectoral arrangement to drive investment in green steel production, to go into effect in 2024. Then at COP26, more than 40 world leaders announced the Glasgow Breakthroughs, a commitment to decarbonize five high carbon sectors, namely steel, transport, agriculture, hydrogen, and electricity. On the financial front, major lenders in the steel sector came together last year to create the Steel Climate Aligned Finance Working Group with the goal of defining common standards to drive decarbonization in the steel sector. And the steel sector itself is rising to the occasion with steel companies and regional steel associations accounting for about one-third of global steel production setting targets to achieve net zero emissions by 2050 or earlier.
Cleaner, Greener Steel
But massive innovation will be needed to meet these commitments and objectives which is where Electra comes in. The company’s mission is to electrify and decarbonize steelmaking using renewable energy with zero carbon dioxide emissions while lowering the energy intensity and cost. The company has developed a novel process to electrochemically refine iron ore into pure iron at 60 degrees Celsius using renewable electricity and then convert the iron to steel using the existing infrastructure of electricity-powered arc furnaces. The process leverages electrochemical and hydrometallurgical methods to rapidly achieve industrial scale with minimal technical and scaling risks.
This not only will help the steel industry overcome the decarbonization challenge but it will also address the iron ore challenge. Hydrogen or natural gas-based steelmaking requires ore with the highest iron content at 67 percent or above which is projected to be in short supply by the early 2030s. Electra’s process can use low-grade ores that cannot be used in steelmaking today. This capacity to use iron ore inputs with high impurity levels reduces the overall cost of steelmaking as well as the upstream carbon and ESG footprint, and creates new sources of economic value for iron ore producers.
With $85 million in initial funding, Electra will complete the build-out of a green iron refining pilot plant in 2023 at its headquarters in Boulder, CO, and plans to have a commercial scale demonstration plant qualified by the second half of this decade. The 50-person company recently opened a new office in Boston to help expand its roster of engineers, scientists, and professional support staff.
Electra is hoping to forge additional partnerships across the entire steel value chain and encourages iron ore companies, steel companies, and any company that relies on steel to collaborate with them. We are excited to be working with Electra to accelerate the transition to green steel and produce materials that are affordable, abundant, and crucial for the future of sustainable development.