Green Steel Economics – Brazil Factsheet
The global steel industry accounted for over 7% of global greenhouse gas (GHG) emissions and over 11% of global CO2 emissions. The Hydrogen Direct Reduced Iron (H2-DRI) process utilizing green hydrogen made with renewable/no-carbon electricity promises significant emission reductions and a transition to greener steel production in the sector. The adoption of green H2-DRI-EAF steelmaking involves financial considerations varying by country, influenced by hydrogen costs and carbon pricing mechanisms. This study assesses the costs of green H2-DRI-EAF steelmaking compared to traditional Blast Furnace-Basic Oxygen Furnace (BF-BOF) and Natural Gas Direct Reduced Iron-Electric Arc Furnace (NG-DRI-EAF) routes across seven major steel-producing countries.
Green Steel Premium across H2 Prices and the Impact of Carbon Prices in Brazil
In Brazil, without carbon pricing, the LCOS of green H2-DRI-EAF steelmaking is competitive at $476 per ton with H2 priced at $1.0/kg, undercutting both the traditional BF-BOF method at $504 and NG-DRI-EAF at $557. As carbon pricing is implemented, green H2-DRI-EAF becomes more cost-effective. At a carbon price of $15 per ton of CO2, the cost-parity with BF-BOF is achieved at $1.9/kg H2. This economic benefit is further amplified at higher carbon prices. For example, at $30 and $50 per ton of CO2, the cost-parity point is at H2 prices of $2.2/kg H2 and $2.7/kg H2, respectively.
Brazil is rapidly emerging as a major player in the green H2 sector, with a framework outlined in its National H2 Program (PNH2) launched in 2021. The PNH2 prioritizes six key areas, including research and development (R&D). A significant development is the recently approved Green H2 Bill, which establishes a legal framework for low-carbon H2 production. This framework includes the creation of the Low-Carbon H2 Development Program (PHBC) that will offer economic incentives for producers through competitive bidding processes. Recognizing the potential for domestic applications, the bill also encourages the use of green H2 in various sectors, particularly as an energy source and for agricultural fertilizer production. To further stimulate innovation, Brazil promotes “regulatory sandboxes” for the development of green H2 production facilities and services.
Impact of green steel premium on car prices
The automotive industry accounts for 12% of global steel demand. The additional cost attributed to using green H2-DRI-EAF steel in passenger vehicles—known as the green premium— is aligned with studies that estimated automotive sector as a likely first mover for green steel procurement and demonstrates minimal impact on overall vehicle pricing. For example, in Brazil, when the price of H2 is at $5/kg, the green premium for steel produced via green H2-DRI-EAF, compared to the traditional BF-BOF methods, stands at approximately $219 per ton steel. Assuming on average 0.9 ton of steel used in a passenger car, this translates to an additional cost of about $197 per passenger car, which represents a less than 1% price increase on an average price of passenger car in Brazil ($22,000), maintaining affordability and market stability. Future projections suggest that with H2 costs potentially reducing to $1.4/kg, the green premium could effectively disappear, making green H2-DRI-EAF steel economically comparable to conventionally produced steel. With the introduction of carbon price/credit, the green premium for H2-DRI-EAF steel can substantially drop even further.
Impact of green steel premium on building construction cost
The construction industry (building and infrastructure) accounts for 52% of global steel demand. In the context of building construction in Brazil, the economic effect of adopting green steel produced by H2-DRI-EAF route can be considered minimal when compared to conventional BF-BOF steelmaking route. Using the green H2-DRI-EAF route, the additional cost of steel at a H2 price of $5/kg is approximately $219 per ton of steel, translating into an added expense of about $548 for a 50 m2 residential building unit (assuming 50 kg steel per m2 used for low to mid-rise residential building). This represents a small fraction of the total cost of a residential building. In addition, with future reductions in H2 cost or the introduction of carbon pricing, the green premium could diminish or even disappear, making green H2-DRI-EAF an economically viable alternative for building construction in Brazil.
Impact of green steel premium on shipbuilding cost
The top three shipbuilding nations, China, South Korea, and Japan, account for over 90% of global shipbuilding. Incorporating green H2-DRI-EAF steel into shipbuilding shows a small cost increase for ship building. While there are many types of ships in the global market. This study focused on bulk carrier ships which are built in large numbers every year around the world. For example, to build an average 40,000 DWT (Deadweight tonnage) bulk ship, approximately 13,200 tons of steel are needed. If green H2-DRI-EAF at $5/kg H2 is used in Brazil to build this ship, the additional cost would be about$2.9 million per ship in Brazil. ConsideringBrazil. Considering the average cost of a new 40,000 DWT bulk ship is over $30 million, this represents less than 10% increase in the ship’s price for Brazil.
The reason for this relatively higher green steel premium as a share of total cost for shipbuilding compared to cars and buildings is higher share of steel cost in the shipbuilding cost. Over 95% of a ship consists of steel. Anticipated reductions in H2 costs in the future could nullify this green premium, aligning the costs of green H2-DRI-EAF steel with those of traditional BF-BOF steelmaking. Moreover, the introduction of carbon pricing could further reduce the green premium costs, enhancing the financial attractiveness of adopting green H2-DRI-EAF steel in the maritime sector.
Financing the transition to H2-DRI steelmaking requires both public and private investments to mitigate financial risks. Our recommendations for stakeholders include:
Government:
- Enact tax rebates and other incentives for green H2 production to make it more economically viable.
- Invest in R&D and infrastructure to drive down the costs of green hydrogen production.
- Implement public procurement policies that prioritize green steel in publicly funded projects to boost market demand.
- Provide enabling policy support to develop a renewable energy infrastructure needed for green H2 production.
Steel Companies:
- Transition from traditional BF-BOF routes to green H2-DRI by forming partnerships for a reliable hydrogen supply.
- Engage in industrial-scale pilot projects to demonstrate the feasibility and benefits of green H2-DRI.
- Secure market demand through long-term supply agreements with major end-use sectors and share the costs of the green premium.
Automotive and Construction Companies:
- Integrate green steel into procurement strategies to stimulate demand and help cover the green premium.
- Enhance market positioning by promoting the climate, environmental, and health benefits of green steel.
- Cater to climate-conscious clients by engaging in green private procurement practices.
Shipbuilding and Shipping Companies:
- Utilize both public and private procurement strategies to boost the adoption of green steel in the industry.
- Establish robust supply chains with green H2-DRI steel manufacturers to ensure a steady demand for green steel.
- Promote broader industry adoption through government policies and commercial agreements to reduce the green premium.
