The electrification of US steel began long ago and had nothing to do with climate policies. It continued under Donald Trump’s presidency despite his efforts to save coal. The switch is driven by market forces.
Over 70pc of America’s steel output already comes from recycled scrap melted in EAF furnaces, at a third of the CO2 emissions. Such is the commercial logic of a mature economy with more scrap coming onto the market than it needs in fresh steel.
China is entering this phase. It has mothballed 265 blast furnaces. It aims to meet 20pc of its steel output with EAF furnaces by next year.
Need one add that the EU’s carbon border adjustment tax comes into force in 15 months. Thereafter, any steel made in a blast furnace will become progressively unsellable in Europe, and so will the car, aerospace, and machinery exports that use such steel. Half of the UK’s steel output is currently exported and 70pc of that goes to the EU. Clinging to the status quo would be insanity.
Britain will not lose its ability to make weapons-grade steel, as some imagine. Sheffield Forgemasters already makes steel for navy submarines and nuclear power plants. Liberty Steel in Rotherham supplies specialist steel for engines, helicopter rotors, and global aerospace. Both use EAF furnaces.
There was a time when electric arc furnaces could not make top-quality steel. The technology has moved on so far that it is now possible to remove “tramp elements” and impurities (copper, nitrogen, etc) from scrap at viable cost and energy use. The best companies can make high-strength tensile steel of 800 megapascals, the grade required for car panels, aircraft, and advanced weaponry. The line between virgin steel and recycled scrap is no longer clear.
If you want to cover all bases, you can sweeten the mix with premium green iron – hot briquetted iron – to be produced by the new generation of DRI plants (direct reduction iron) across Europe. These make clean iron with natural gas, to be replaced by green hydrogen as supply reaches scale.
“We can import DRI iron but global demand will be surging and everybody will need it for their own EAF furnaces,” said Gareth Stace, head of UK Steel. “There is a national security issue and we must go into this with our eyes open.”
Western Europe is making the full switch to decarbonised steel, pairing EAF furnaces with DRI plants. SSAB is already producing green steel in Sweden. Tata Steel is developing a DRI plant in the Netherlands. ArcelorMittal is building a DRI plant in Spain to be powered by solar arrays. France has committed €850m to help develop a paired-technology complex in Dunkirk. Emmanuel Macron beat us to the game.
A report last year by the Energy Transitions Commission mapped out how the UK could become a world leader in green steel with the same strategy provided that it moved fast and lowered power costs by £20 MWh for energy-intensive companies under the British Industry Supercharger. Eighteen months later little has happened.
“We’ve been crippled by high industrial electricity prices. We’re paying £66 MWh compared to £50 in Germany and £43 in France,” said Mr Stace.
“We get just 60pc compensation for network charges while they get 90pc. If the UK did the same it would close most of the gap. The Government could do that right now.”
This is not to say that Europe is in good shape. Italy’s Taranto steel works is in emergency administration. Axel Eggert, head of the EU steel lobby Eurofer, says the European steel industry is in existential danger, with a large part of capacity idled and at risk of permanent closure. “The situation has never been so dire. It’s explosive,” he said.
China’s property crash has killed steel demand and diverted even more of the country’s excess capacity on to the global market. Steel exports have risen 21pc to 71m tonnes so far this year, greater than the output of Western Europe. This has collided with a global manufacturing slump. It is almost a miracle that Port Talbot lasted this long.