Regional Supply Chains for Decarbonising Steel: Energy Efficiency and Green Premium Mitigation

Decarbonised steel, enabled by green hydrogen-based iron ore reduction and renewable electricity-based steel making, will disrupt the traditional supply chain. Focusing on the energetic and techno-economic assessment of potential green supply chains, this study investigates the direct reduced iron-electric arc furnace production route enabled by renewable energy and deployed in regional settings. The hypothesis, that co-locating manufacturing processes with renewable energy resources would offer highest energy efficiency and cost reduction, is tested through an Australia-Japan case study. The binational partnership is structured to meet Japanese steel demand (for domestic use and regional exports) and source both energy and iron ore from the Pilbara region of Western Australia. A total of 12 unique supply chains differentiated by spatial configuration, timeline and energy carrier were simulated, which validated the hypothesis: direct energy and ore exports to remote steel producers (i.e. Japan-based production), as opposed to co-locating iron and steel production with abundant ore and renewable energy resources (i.e. Australia-based production), increased energy consumption and the levelised cost of steel by 45% and 32%, respectively, when averaged across 2030 and 2050. Two decades of technological development and economies of scale realisation would be crucial; 2030 supply chains were on average 12% more energy-intense and 23% more expensive than 2050 equivalents. On energy vectors, liquefied hydrogen was more efficient than ammonia for export-dominant supply chains due to the pairing of its process flexibility and the intermittent solar energy profile, as well as the avoidance of the need for ammonia cracking prior to direct reduction. To mitigate the green premium, a carbon tax in the range of A$66–192/t CO2 would be required in 2030 and A$0–70/t CO2 in 2050; the diminished carbon tax requirement in the latter is achievable only by wholly Australia-based production. Further, the modelled system scale was immense; producing 40 Mtpa of decarbonised steel will require 74–129% of Australia’s current electricity output and A$137–328 billion in capital investment for solar power, production, and shipping vessel infrastructure. These results call for strategic planning of regional resource pairing to drive energy and cost efficiencies which accelerate the global decarbonisation of steel.