Brazil's steel sector will require Real 180 billion investments to attain net-zero by 2050: AçoBrasil

Brazil's steel sector will need decarbonization investments of Real 180 billion ($29.19 billion) to reach carbon-neutral status by 2050, the year by which Brazil has pledged to reach net-zero, directors of Brazilian Steel Institute AçoBrasil said.

The estimate is from a "high-level" consultant's report prepared for AçoBrasil, institute executive president Marco Polo de Mello Lopes told reporters in a press conference on Dec. 16.

The required investments are particularly steep as state aid for the sector's decarbonization is not currently available, in contrast to the situation in the European Union, which is pioneering steel industry decarbonization worldwide with state support, de Mello Lopes said.

"We're not going to take on targets we can't meet," de Mello Lopes said. "The sector is growing but so are the worries."

The Brazilian steel sector is already making investments of some Real 12 billion annually, he added.

AçoBrasil's institutional affairs director Cristina Yuan said heavy investments are required because many mills need to change technologies to use direct-reduced iron-based production, eventually fueled by green hydrogen.

Brazil's steelmakers - with emissions of 1.7 metric tons of carbon per mt of crude steel production - emit relatively less than those in many other nations, because the country's electrical energy network is based more than 90% on renewable sources, and mills also make use of biomass and low-carbon pig iron.

However, their emissions are higher than the average 0.8 mt CO2 per mt of steel produced in the US, where production is based mainly on scrap-based electric arc furnaces, and incentives available under the Inflation Reduction Act should further reduce emissions intensity. In Turkey, where output is also EAF-based, emissions are 0.9 mt CO2 per mt of steel produced, and in the European Union, where many decarbonization programs are underway, emissions are 1.3 mt CO2 per mt of steel produced.

Countries with heavier emissions from steelmaking include Japan, with emissions of 1.9 mt CO2 per mt of steel production; China, with emissions of 2 mt CO2 per mt of steel produced; and India, with emissions of 2.2 mt CO2 per mt of steel produced, according to data from sources including the World Steel Association.

Worldwide, steel production accounts for around 7% of greenhouse gas emissions, while in Brazil this accounts for 4%, noted Yuan.

Brazil has set its country-wide net-zero target for 2050, China's target is 2060 and India's 2070.

"But all three countries have social challenges which need growth," de Mello Lopes said.

Brazil's steel consumption per capita is still very low compared with other nations, at an expected 120/kg per year this year, he noted.

"To advance with the energy transition, we need more scrap, which comes from economic growth, and natural gas at competitive prices, which we don't have, due to [state oil and gas company] Petrobras' monopoly," the AçoBrasil executive said.

Mills to enter emissions trading system

In addition, the Brazilian government's just-approved carbon-markets regulation will impose the extra costs of an emissions trading system on steelmakers and other heavy industrial producers by 2030, obliging them to purchase carbon credits, the AçoBrasil directors noted.

"The carbon market legislation focuses primarily on industry, including steel, cement and others which together account for 10% of Brazil's total emissions," de Mello Lopes said. "Industry will bear the brunt of decarbonization and energy transition costs, while agriculture and land usage causing deforestation and burning of vegetation - causing some 65% of Brazil's emissions - haven't been included in the legislation and aren't paying their way."

Introduction of emissions trading for steel mills will make sense only if the government also limits imports into Brazil of steel products with greater carbon footprints than those produced domestically, via a carbon border adjustment mechanism such as the one being introduced in the EU, Yuan said.

"Otherwise, the domestic steel industry will be destroyed," she said.

AçoBrasil data shows import penetration in Brazil's rolled steel market has grown from 9.3% in 2020 to 19.5% this year, when 92% of imports came from China.

Despite import controls introduced on June 1, Brazil's total 2024 steel product imports are set to rise 24% on year to a record 6.23 million mt, compared with overall crude steel output of 33.7 million mt, up 5.5% on the year.