Regional uptake of direct reduction iron production using hydrogen under climate policy

Abstract

The need to reduce CO₂ emissions to zero by 2050 has meant an increasing focus on high emitting industrial sectors such as steel. However, significant uncertainties remain as to the rate of technology diffusion across steel production pathways in different regions, and how this might impact on climate ambition. Informed by empirical analysis of historical transitions, this paper presents modelling on the regional deployment of Direction Reduction Iron using hydrogen (DRI-H2). We find that DRI-H2 can play a leading role in the decarbonisation of the sector, leading to near-zero emissions by 2070. Regional spillovers from early to late adopting regions can speed up the rate of deployment of DRI-H2, leading to lower cumulative emissions and system costs. Without such effects, cumulative emissions are 13% higher than if spillovers are assumed and approximately 15% and 20% higher in China and India respectively. Given the estimates of DRI-H2 cost-effectiveness relative to other primary production technologies, we also find that costs increase in the absence of regional spillovers. However, other factors can also have impacts on deployment, emission reductions, and costs, including the composition of the early adopter group, material efficiency improvements and scrap recycling rates. For the sector to achieve decarbonisation, key regions will need to continue to invest in low carbon steel projects, recognising their broader global benefit, and look to develop and strengthen policy coordination on technologies such as DRI-H2.