A Market Mechanism for the Creation of a Climate-differentiated Market in the Steel Industry
September 22, 2024
The heavy industry sector, a significant contributor to global CO2 emissions, is at a critical juncture. Accounting for 25% of total CO2 emissions annually, this sector is poised to see an increased demand for materials through 2050, particularly from developing countries focused on infrastructure expansion and transitions toward net-zero emissions. However, the sector’s dependency on high-emission technologies, notably in steelmaking, underlines the pressing need for a swift and decisive shift to low-emission alternatives.
This report introduces a twofold market mechanism specifically designed to enable the transition from traditional Blast Furnace-Basic Oxygen Furnace steelmaking methods to more sustainable Electric Arc Furnace-Direct Reduced Iron technologies. It proposes the implementation of a Green Steel Certificate (GSC), bundled with a Virtual Offtake Agreement for Steel (VOAS), creating a mechanism that aims to overcome the prevalent challenge of additionality – ensuring that emissions reductions are genuine, substantive, and wouldn’t occur without the intervention of this market mechanism.
Traditional market mechanisms have struggled to guarantee that the environmental benefits they claim directly contribute to creating new, additional capacity for low-emission production. Our mechanism is designed to fill this gap by absorbing the green premium of near-zero emissions steel production, making green steel more competitive and viable, and creating a climate-differentiated market for it.
This is a publication under the COMET initiative.