Q&A with Next Group on the future of steel decarbonisation in Korea
Saerok Jeong, Senior Research Associate at Next Group, a Korean think tank working to accelerate Asia’s transition to net-zero economies.
How do you see the state of play on steel decarbonisation in Korea?
We believe that the Korean steel industry is now at an inflexion point with the introduction of the European CBAM. A social consensus has been made that the Korean steel sector should make more efforts to reduce its carbon emissions in order to be competitive with the global markets. However, steelmakers are a little hesitant to make instant changes due to financial reasons and their focus is more on establishing a long-term roadmap for hydrogen-based steelmaking. In the long run, we believe it is necessary to support R&D and build infrastructure at the national level so that hydrogen-based steel-making technology can be introduced in a timely manner. In the short run, not only the related sectors but also governments and citizens must be asked to be more active in making and consuming low-carbon steel.
What do you see as the key challenges to decarbonising the sector?
Korea doesn’t have enough raw materials and resources for the manufacturing of low-carbon steel, such as renewable energy, hydrogen pellets and scrap. In the short term, in order to produce low-carbon steel products in the existing steel process it is necessary to purchase raw materials and energy from abroad at an expensive price. Meanwhile, 60 per cent of steel is being sold in Korea, and the remaining 40 per cent is being exported. Of the 40 per cent of steel exported, 75 per cent is being sold to Asian countries where the green premium is not yet being discussed. So, Korean steelmakers are worrying about whether their low-carbon steel can be sold at an appropriate price.
And what do you see as the opportunities for steel decarbonisation?
In Korea, we have some companies with global competitiveness in the automobile and shipbuilding sectors which are major demand sectors for high-end steel products. It is necessary to encourage them to consume green steel for their brand reputation and to strengthen themselves against related regulations. We believe it would be quite similar to the distribution route of electric vehicles. However, the buyers for automobiles and ships manufactured in Korea are spread all around the world, so we think international cooperation is needed to promote the expansion of green steel consumption.
What actions are needed from the government and private sector to ensure steel decarbonisation?
We believe that there are many roles and actions that the government and private sector can play. But here are just a few things worth mentioning. First, the government must make appropriate use of carrot and stick against carbon emissions. It must make appropriate carbon pricing schemes so that the cost of carbon emissions can be internalised. At the same time, it is necessary to support with financial resources, with the money collected from carbon pricing, so that companies can invest in low-carbon facilities. Support for investment in low-carbon facilities can be done using a variety of policy measures, such as carbon contracts for difference, tax credits and subsidies.
The private sector can be divided into those sectors that manufacture steel and those that consume steel. In the early stages of new technology, close partnership and cooperation between the two parties is very important. In the early stage of the spread of new technologies we often face the dilemma of feeling like the consumer has no suppliers and the supplier has no consumers. The formation of close partnerships to help solve this dilemma is easy to see in our past history. This was due to the relationship between automakers and battery manufacturers in the electric vehicle markets. In the low-carbon steel product markets, the relationship between steel and automobile companies and between steel and shipbuilders needs to benchmark these kinds of partnerships.
What role could the government’s green steel roadmap play in driving steel decarbonisation? And what more is needed?
The Korean government recently released a roadmap for the decarbonisation of the steel sector which can be said to serve as a milestone in the direction of the Korean steel sector. In particular, we think it serves to inform not only steel companies but also other industries and other stakeholders in the value chain related to steel. However, since the authority to make final investment decisions regarding the actual transition and operation of low-carbon steel facilities ultimately rests with the company, it cannot be said that the roadmap and the future will be 100 per cent consistent. Therefore the government’s roadmap should not only list information about the technological transition but also include a plan for what policies the government will guide to ensure that these technological transitions take place at the appropriate time. This should include specific details such as how much money is supported in each policy measure. In addition, the steel sector is highly related to energy and raw materials. Therefore, an integrated strategy that relates to these fields is very much needed and the government can play an integral role in integrating and coordinating these parts so we think the roadmap should include this kind of information and strategy.
Based on the findings of Next Group’s green steel roadmap, what is needed to really put the country on a pathway to decarbonisation?
The bottom line of Next Group’s net-zero steel roadmap is, even considering the current blast furnace capacity in South Korea and the related resource endowments, following the International Energy Agency’s 1.5C pathway is possible, particularly the scenarios that were previously published for the Korean steel sector which rely heavily on DRI steel making, which requires long-term technology development. We think it is important to distinguish between short-term reduction levers that can be taken before 2035 and long-term reduction levers that can be applied after 2035. Our roadmap emphasises the need for responsible transition efforts from now. In order to actually track steel decarbonisation in Korea, we think a phase-out plan for each blast furnace must be established that takes into account the age of each one. Clear planning and practical transition to new low-carbon technologies must be carried out on the timeline of the closing of each blast furnace.
