Hydrogen Supply for Steelmaking's Energy Transition

Abstract

In the pursuit of low-carbon technologies and sustainable alternatives to fossil fuels essential to hand on to future generations a safe and livable planet, hydrogen has attracted engineering interest as a promising vector for storing and carrying clean energy that would help decarbonize society. Scientific research and technological trends indicate that heavy industries, especially steelmaking, might represent an excellent opportunity to consistently integrate the consumption of hydrogen into the manufacturing processes. This is likely to deliver substantial emissions savings as the steel industry, widely recognized to be a hard-to-abate sector, accounts for a large portion of the global pollution every year.
Besides the heated debate on the technical and financial challenges related to deployment constraints and cost increases, the geopolitical risk of energy crises impacting the economic output of industries in energy-importing countries is neglected in the decision-making considerations, overlooking the critical implications of energy diversification on long-term planning.

The aim of this study is thus to investigate the competition between hydrogen and natural gas for high-temperature heat generation in steel manufacturing while considering the potential impact of energy shocks on fuel expenditures. Addressing these dynamics would have significant consequences for the interplay between policymaking and industrial energy transition as it uncovers the relevance of sustainable energy resiliency to energy crises induced by geopolitical disruptions. \
To achieve the objectives of the project, an Integrated Assessment Model-based study has been conducted using the WITCH model, which required several improvements in the framework.
The steel industry module was conceptualized and developed to describe the technology sets, the financial and technical constraints, the future projections of the steel market and the energy supply structure. Moreover, even though a prior version of the hydrogen supply was already in the model, the equations of the related module were modified to account for the consumption of hydrogen as a fuel in steel mills and to ensure compatibility with the expansion to the industrial sector. To allow for accurate integration of energy shocks in the model algorithm, the existing dynamics that describe the trajectories of fuel costs were then expanded and used to account for different shocks' intensities, time periods and the degree of energy dependency of the affected region. Finally, a scenario architecture suitable to capture the main variables of the analysis was designed to prepare a sensitivity analysis focused on the magnitude of the shock, the year of occurrence and the level of environmental commitment implemented.

The outcome of the simulations shows that most of the production of steel will be located in energy-dependent countries, where energy shocks impact fuel expenditures on a national scale. The financial damages perceived by steelmakers are exacerbated by large magnitudes of the increase in price and by early shocks, which would strike the industry before the development of alternative sourcing of fuels. The regulatory push to support sustainable technologies has the potential to effectively dampen the impact of shocks and decarbonize the energy mix in steelmaking by accelerating investment cycles and promoting the deployment of low-carbon hydrogen. Further explorations of the correlation between preventive investments in hydrogen and perceived disruptions in industrial production have proven how large-scale investments for alternative and secure supply of hydrogen yield long-lasting resiliency to energy crises, while lagging intervention exposes the industry to the risk of wide costs of inaction.

The results of the research have practical significance for both industrial and political decision-making. Risk-averse managers of steelmaking facilities might decide to allocate financial resources for early conversion from natural gas to hydrogen to guard against the possibility of energy shock backlash. Policymakers can produce long-term plans to stimulate the transition to green hydrogen with tailored carbon pricing, which would result in an expense transfer from the potential costs of the backlash of energy shock to the proactive development of secure and resilient hydrogen production. Besides the contribution to national environmental goals, this transformation would yield stabilization and permanent immunization of the industrial energy supply against the reoccurrence of shocks.
This can safeguard not only the manufacturing sector but also the national economy overall, as the increased expenditures endured by steelmakers would translate into rising costs for infrastructural development in the country.