How Japan can clean up steelmaking

24 March 2023

Japanese version: 1 February 2023

Tomohiko Sato
Management Innovation Division


  • Greening the steel industry will be a gradual process
  • Expanding use of domestic scrap is key
  • Products that contribute to carbon neutrality should trade at premium prices

Japan's steel industry rushes to become greener

Steelmaking is in urgent need of a green up: it's manufacturing's biggest CO2 emitter.

The blast furnace–basic oxygen steelmaking (BF–BOF) process* used to produce just over 70 percent of Japan's crude steel necessitates the use of fossil fuels, such as coal and gas, to generate the massive amount of heat required throughout the process, as well as the use of coke to remove oxygen during ore smelting.

For this reason, more and more steelmakers, especially in Europe, are turning to processes that entail lower CO2 emissions—ones using scrap as feedstock or hydrogen in direct reduction (DR) .

There is no easy way for Japan to transition to direct hydrogen reduction as the country is ill-positioned for the procurement of green hydrogen and the capture and sequestration of CO2 (CSS)§ required in blue hydrogen production. Japan's steelmaking industry is therefore taking a gradual approach to greening itself designed to ultimately achieve carbon neutrality through multiple routes.
[Figure] Diagram of typical steelmaking processes
Diagram of typical steelmaking processes
Source: Mitsubishi Research Institute, Inc.

*Coke and iron ore are the principal feedstocks for blast furnaces; iron scrap is that for electric arc furnaces (EAFs)

Fueling direct reduction with hydrogen instead of the conventionally used natural gas

Producing hydrogen without generating any CO2, by using electricity generated with renewables to reform hydrogen from water

§The process of separating out, capturing, and storing CO2 deep underground

Hydrogen considered carbon neutral because the CO2 resulting when it is produced from a fossil fuel, is separated out and fixed

Several routes, none hurdle-free

Green steel, the first route, achieves low carbon status via mass-balance methodology, where company-wide CO2 reductions are converged on specific products to enable them to be considered carbon neutral. Products are already available under Kobe Steel's Kobenable Steel- and Nippon Steel's NSCarbolex Neutral-brands.

The second route is to use steel produced through the COURSE50 method, which foresees deploying hydrogen in BF–BOF processes. It has high potential for implementation because it uses by-product hydrogen generated within steelworks. The Super COURSE50 concept takes this further by adding hydrogen from external sources for use in blast furnaces to reduce CO2 emissions in the BF–BOF process.

The third route—a promising option for Japan—is the manufacture of high-grade steels using scrap-based methods and hydrogen-based direct reduction (H2 DRI) methods. Deployment of H2 DRI, though, entails two major hurdles. The first is that, if the reduction of oxygenated iron is to be done entirely with hydrogen, it will require even more than Super COURSE50 would offer, which would heavily impact procurement costs. The second is that currently, the principal feedstock, DR-grade pellets*, are not readily available in Japan and even if supplies could be found, securing stable flows is uncertain given that the principal sources are in Russia and South America. This situation makes greater use of domestic scrap the more realistic route for Japan to pursue.

*Pellets are made by adding water and a binder to iron ore fines and baked into small spheres. They come in two grades, one for use in DR and the other, in BFs. The DR grade is harder and higher in iron content

For greater circulation of scrap metals

In light of these circumstances, Japan should focus on expanding its use of scrap-based steel production. For that to happen, though, we need to refine how metal scrap is circulated throughout the market. This ranges from establishing means to separate and circulate scrap of varying quality to developing technologies to recycle end-of-life scrap that includes bronze and tin.

At present, Japan is a major scrap exporter; but a shift from BF–BOF processes to scrap-based steelmaking would use up any scrap that would have previously been exported and could even lead to shortages of it. And if a worldwide shift to scrap-driven steelmaking emerges, countries might hoard their supplies, encumbering Japan's ability to cover its needs with imports.

Thus it is essential for Japan to increase the recovery rate of end-of-life scrap in the domestic market, which currently comprises only 1.7 percent of the overall stock.

To increase recovery of such scrap, Japan needs to establish business models oriented to a circular economy and develop technologies for recycling old scrap. But despite the numerous challenges, tapping the resources in Japan's own urban mines is also hugely significant for the country's economic security.

Products contributing to decarbonization deserve a price premium

Aluminum leads the way when it comes to using scrap to green an industry. Aluminum makers have commercialized low CO2 recycled aluminum realized by increasing the volume of scrap used in manufacturing, and it is being used in products from cars to cans for the same price as traditional aluminum.

To advance uptake of carbon neutral products, those that really contribute to achieving carbon neutrality, they ought to have an appropriate premium built into their pricing. And some sort of transitional measure will be necessary until the market attaches a premium to them with the implementation of carbon pricing*. When beverage makers began using recycled plastic bottles procured at a premium price, some of them booked the higher bottle costs as advertising or marketing-and-promotion expenses.

Attaching a premium to green steel would give a needed fillip to the industry's greening, prompting greater use of scrap and uptake of H2 DRI processes, helping ultimately achieve carbon neutrality.

* Taxes on carbon levied commensurate to CO2 emissions and schemes capping company's carbon emissions but permitting them to trade unused carbon allowances