The advent of clean steel means greater scrutiny of iron, steel’s key building block. Standalone iron production (in the form of Hot Briquetted Iron which is already globally traded) is projected to increase amidst rising potential for green iron exports, as well as growing appetite from electric arc furnaces (mini-mills) and end-use customers further downstream who are looking to directly support high-impact interventions in the steel supply chain.

For a cleaner iron market to scale, a high-ambition iron-level emissions threshold will be critical in guiding investment, trade, and purchasing toward deeply decarbonized ironmaking solutions.

Existing buyer ambition and high-quality production standards for clean steel can be leveraged to advance a near-zero emissions iron threshold and the supportive market infrastructure to accelerate and scale climate-aligned iron-level purchasing today.

Why is iron important?

Clean iron is key to decarbonizing the steel sector. This is because production of iron accounts for over 80percent of emissions in the steel supply chain. Due to the limitation of global scrap availability, iron (produced from ore) will still make up approximately 54 percent (down from >70 percent today) of steelmaking in 2050.

Currently, the vast majority of iron destined for steelmaking is produced in a coal-fired blast furnace (BF), with only ~10 percent produced via direct reduction (DRI). While gas-based direct reduction technology is cleaner than its coal-based counterpart, full substitution of natural gas with renewably-produced hydrogen is the only demonstrated commercial-scale pathway to near-zero emissions (NZE) ironmaking today.

Based on projects in the pipeline, deployment of direct reduced iron (DRI) production technology is growing five times faster than blast furnace-based production. Much of this capacity is emerging from the Middle East and North African region, where gas is cheap and abundant. Actively developing hydrogen-based DRI capacity, however, pales in comparison to fossil fuel-based DRI facilities under construction today, which have nearly three times the capacity in the pipeline (Exhibit 1). About 40 percent of hydrogen-based capacity is expected to come from existing fossil fuel-based DRI facilities, most of which do not currently have clearly defined timelines to transition to green hydrogen. Only about a quarter (or 2.5Mt) have defined plans to use 100 percent renewably produced hydrogen as the sole reductant.

Exhibit 1: Existing and future share of global DRI capacity

Steel purchasers, financers, and policy makers alike are eager to stimulate the development and capture the benefits of near-zero emission iron supply. Policy makers are increasingly recognizing the role of clean iron in structuring domestic strategies for hydrogen development, with several MOUs, pre-feasibility studies, and pilot projects emerging across the Middle East, North Africa, Brazil, and Western Australia — regions with iron ore and renewable energy capacity.

Purchasers looking for near-term procurement opportunities have gone a step further by participating in joint procurement initiatives and establishing large-volume forward-looking offtake agreements (in some cases building on their prior equity investments) which help to support the investment case for new ironmaking facilities to develop. These offtakes have provided the confidence for financial institutions to invest the necessary capital to bring these projects to fruition while also helping align their portfolios to climate goals.

Despite rising public and private interest in stimulating the market for clean iron, no common definition at the iron product level currently exists. While low-carbon or near-zero emissions definitions do exist for more finished steel products downstream and upstream fuels and feedstocks like hydrogen, “green steel” offerings on the shelf today are based on a variety of decarbonization strategies with varying levels of impact, and employ various accounting methodologies to back these claims. This makes it difficult to guide investment and other sources of funding towards high-impact iron projects and related technologies.

Key use cases of a near-zero iron threshold

A robust and transparent clean iron production definition will be critical to kickstart the market for climate-differentiated steel. Four key use cases for an iron-level definition are emerging to streamline and scale financing, procurement, and trade of near-zero emissions iron products.

1. Mini-mill product decarbonization: Electric arc furnaces are looking to decarbonize and expand their product offerings to a growing customer base. An iron production definition would support these mills in sourcing and verification of clean iron suppliers and help develop a wider range of products with lower carbon footprints for delivery to final customers.
2. Transition finance: Using climate-aligned measurement and disclosure frameworks such as the Sustainable Steel Principles, banks are regularly disclosing the climate alignment of their steel industry lending portfolios in efforts to help facilitate net zero transition in the steel sector. While guidance for measurement and disclosure under the SSP captures the full crude steelmaking value chain, an independent iron-level production standard could complement such frameworks by providing a clear definition for clean iron and cradle-to-gate measurement. This would further support banks in targeting investment toward high impact standalone ironmaking facilities and to properly account for these projects against their lending criteria and targets.
3. Corporate procurement: Driven by corporate Scope 3 emissions targets, buyers with exposure to steel in their supply chain are seeking out ironmaking interventions to tackle emissions hotspots in their inventories. An iron production definition can help identify and provide certainty to buyers on the highest-impact abatement projects, as well as facilitate the transfer of high-quality emissions data necessary to credibly realize the benefits from these linked purchases.
4. Trade: Globally traded iron is forecasted to increase thirteen-fold by 2050. As countries increasingly look to align trade regulations with climate goals (such as the EU’s Carbon Border Adjustment Mechanism), clarity on iron product emissions can aid export markets, helping to facilitate strategic clean iron trade partnerships in service of meeting Nationally Determined Contributions and sectoral climate targets.

What is near-zero-emissions iron?

While a near-zero emission performance benchmark does not exist at the iron product level, developing this benchmark does not call for a completely new standard. Instead, it can be derived from existing high-quality steel emissions performance definitions put forward by ResponsibleSteel, IEA, First Movers Coalition, SteelZero and others. By using a scrap-variable approach, these definitions already help to distinguish between technology changes and scrap inputs. However, with projected growth in standalone iron investment globally, benchmarking at the iron product level would further validate and integrate deeply decarbonized supply chains.

Based on existing near-zero definitions of crude steel using a cradle-to-gate emissions boundary (Scope 1, Scope 2 and upstream material and transport-related Scope 3), we suggest a viable near-zero emissions iron threshold could be set at 350 kgCO2e/t iron, which would filter out coal-based iron production. Today, direct reduction technologies are the only viable, commercialized alternative to coal-based blast furnace ironmaking capable of achieving near-zero emissions.  Even with high-capture carbon capture and storage (CCS), a natural gas-based DRI could only meet this near-zero iron threshold by procuring low methane leakage natural gas combined with additional investments to decarbonize upstream processes (e.g., pelletizing). Given the high ambition of this threshold, it may also be useful to provide interim progress thresholds similar to the current ResponsibleSteel framework, and also adopted by the SteelZero demand side initiative.

With the current emissions profiles for these upstream processes, DRI technology has a more direct pathway to fall under a near-zero iron threshold when all natural gas for ironmaking is substituted with renewable hydrogen. Meeting these conditions in the near term will require policymakers and financers to prioritize investment in infrastructure for reliable supply of hydrogen and electricity. Further reductions below the threshold can be achieved with a combination of additional interventions, such as a high share of renewably sourced electricity, and fuel switching upstream (Exhibit 2).

Exhibit 2: Potential routes for ironmakers* to meet a near-zero emissions iron benchmark

Leveraging high-integrity, cradle-to-gate product-level emissions accounting guidance and certification standards (e.g., ResponsibleSteel with updated guidance to be published in early 2025) already established in the steel sector can enable all ironmaking technologies to be benchmarked against a near-zero emissions iron threshold and fairly compared with one another.

Transacting on near-zero iron today

Corporate end users of steel across construction, renewable energy, and manufacturing are eager to trial a near-zero iron threshold in forward-looking purchasing agreements, indicated through the SSBP. While an iron definition helps steel buyers identify high-impact financing and purchasing opportunities for clean iron, buyers do not readily transact on iron for the purposes of targeted procurement. Typically, buyers work with their direct suppliers to try to lower the embodied emissions in the steel products they purchase. Direct procurement models (e.g. physical segregation) provide purchasers with the highest degrees of traceability and assurance on emissions performance of the steel they purchase. However, in supply chains with many tiers between the buyer and iron producer, this approach becomes difficult and can result in the demand signal being diluted. Two indirect procurement models may prove useful to unlock support from premium-linked purchasing:

• Reconfigure supply networks by working around supply intermediaries: Buyers can establish new direct commercial relationships with clean producers upstream, and request their intermediate suppliers to use clean, already-procured material on their behalf.
• Purchase just the emissions attributes associated with the steel goods, where limited physical connection to producers exists (Exhibit 3). Known as “Book and Claim,” this market mechanism helps avoid supply coordination challenges and cost burdens associated with segregated processing.

Exhibit 3: Corporate iron procurement example for a developer

Virtual iron procurement broadens the pool of demand beyond direct procurers, helping to link additional sources of funding to clean iron technology providers and project developers.

Streamlining both direct and indirect iron-level procurement will require designing fit-for-purpose solutions to a host of barriers facing purchasers today:

1. Measuring exposure to iron material in vast and complex value chains.

Already, ambitious steel purchasers face challenges with identifying the various sources and quantities of steel in their supply chains, and most on-product disclosure systems do not currently require disclosing iron and scrap content. Requesting high-quality production-level data from suppliers will be a critical first step for steel purchasers to estimate the iron embedded in their final products. In tandem with these efforts, “secondary” industry averages for iron content in common end-use products should also be developed when primary data is not made readily available.

2. Identifying an emissions baseline from which to calculate the impact of specific interventions.

Purchasers will need further guidance on how to account for the impact of iron purchases in their emissions inventories. This includes the development of a standardized, regularly updated baseline emissions factor from which emissions reductions can be estimated.

3. Designing a book and claim for credible market transactions.

Building the market infrastructure for a book and claim system — including the certificate rules, tracking tools, and claims guidance — will aid high-ambition corporate and public procurers to reduce steel-related emissions in their supply chain, To ensure virtual transactions are impactful and credible, solution sets will need to be developed to overcome a host of accounting challenges, including emissions reporting alongside on-product carbon disclosures such as existing certifications (e.g., ResponsibleSteel) and environmental product declaration (EPDs), as well as emissions claiming across shared value chains.

To ease reporting burdens, accounting guidelines for iron-level purchasing and production-level emissions reporting must interoperate to the greatest extent possible with existing reporting standards and disclosure systems for steel.

Establishing credible market mechanisms - Where to next?

The wide variety of steel definitions and labels today are compromising decarbonization efforts across the sector by impeding demand signals, eroding credibility, and stalling climate-aligned investment. With global growth in iron trade and rising appetite for iron-level procurement, advancing a near-zero emission iron definition and market infrastructure is crucial to efficiently direct public and private resources toward solutions that can verifiably realize the greatest emissions reductions across the sector.

Building off our experiences in heavy transport (Sustainable Aviation Buyers Alliance, Maritime Book and Claim) and demand aggregation through the Sustainable Steel Buyers Platform, RMI will begin to design, test and launch a climate-credible book and claim system for iron and steel in 2025. Through this process we will evaluate the role of a clean iron definition and associated emissions accounting guidance to support buy-in across the industry. Consultation with steel value chain stakeholders will be critical to this process, if you are interested in participating, please email cgamage@rmi.org or lwright@rmi.org.