Paying a Premium for "Green Steel": Paying for an Illusion?

Kriström, BengtSwedish University of Agricultural Sciences,Sveriges lantbruksuniversitet,Institutionen för skogsekonomi,Department of Forest Economics (författare)

LIBRIS-ID:oai:slubar.slu.se:119909
https://res.slu.se/id/publ/119909URI
https://doi.org/10.1017/bca.2022.20DOI
https://research.hhs.se/esploro/outputs/journalArticle/Paying-a-Premium-for-Green-Steel/991001493498806056URI

http://creativecommons.org/licenses/by/4.0/
The iron and steel industry generates around 10 % of global greenhouse gas emissions. The bulk of the emissions originates from the iron ore reduction. In this reduction, coal is used as a reagent. Steelmakers could switch to hydrogen-based direct reduction using hydrogen instead of coal as a reagent to reduce iron ore to pig iron. This would eliminate the CO2 emissions from the equivalent process in a traditional blast furnace. However, the process requires massive amounts of electricity. This paper looks at the economics of such a switch to "green steel." We assess a marginal increase in the production of a hypothetical green steelmaker. We also undertake an investment appraisal of a green plant, based on an ongoing installation in Northern Sweden, but also briefly consider a possible/planned investment in the US. This appraisal is complemented by computing the survival function for the net present value in a systematic sensitivity analysis. It seems highly unlikely that a green steel plant can be socially profitable. If the green plant displaces conventional steel produced within the European Union's cap-and-trade system for greenhouse gases, total emissions remain more or less unaffected; permits and emissions are simply reshuffled. Hence, if end-users of green steel pay a premium, they might pay for an illusion.

Johansson, Per-OlovStockholm School of Economics,Handelshögskolan i Stockholm(Swepub:hhs)203@hhs.se (författare)
Sveriges lantbruksuniversitetInstitutionen för skogsekonomi (creator_code:org_t)
Sveriges lantbruksuniversitet

Ingår i:Journal of Benefit-Cost Analysis: Cambridge University Press (CUP)13, s. 383-3932152-28122194-5888

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