Will fossil-free steel production become a success for Sweden, and should investments in such plants and technologies be publicly subsidised? The public debate on these issues is ongoing – and it cuts right through Mistra Electrification. Professor Filip Johnsson, Programme Director of Mistra Electrification, outlines his reflections on this issue.
– There is a true demand for fossil-free steel from different industries, boosted by the belief that fossil-free steel will increase the value of their products. Furthermore, Sweden’s competitive mining and steel industries and favourable conditions for fossil-free electricity production, together with higher prices for emissions allowances and the phasing out of the free allocation, are all factors that suggest that Swedish fossil-free steel production has a potential of being profitable, argues Filip Johnsson, Programme Director of Mistra Electrification and leader of Work Package 2.
His programme colleague Bengt Kriström, who is leader of Work Package 5, has a different view. In his paper titled Paying a Premium for ‘Green Steel’: Paying for an Illusion? Bengt Kriström has looked at the economics of producing fossil-free steel using hydrogen in northern Sweden. The paper questions whether making steel production fossil-free in Sweden will lower the total emissions in the EU, due to the EU Emissions Trading System, the EU ETS. Moreover, Bengt Kriström argues that if total emissions are not reduced, customer demand for the Swedish fossil-free steel might vanish.
– Bengt Kriström’s paper demonstrates the strength of this programme. The interdisciplinary approach enables the electrification to be analysed through different lenses, which is desirable and healthy for the analysis of going forward, increasing the relevance and impact of the programme, says Filip Johnsson.
On the other hand, in the paper Electrification of the energy-intensive basic materials industry – Implications for the European electricity system submitted for journal publication by PhD student Alla Toktarova, it is shown how fossil-free steel production and electrification of other industries in northern Europe can contribute with important flexibility to the electricity system, thereby facilitating the integration of wind and solar power.
In the public debate, the public subsidies for fossil-free steel have been questioned. Filip Johnsson acknowledges this criticism as important but believes that more analysis is required to understand the relevant levels of continued subsidies for the further scaling up of fossil-free steel, the associated lead times, and how costs relate to the development of the EU-ETS allowance prices, as well as the extent to which steel customers will value fossil-free steel.
– An important topic for discussion is to what extent authorities should invest in a new technology. In light of the massive subsidies granted to industries in the USA through the Inflationary Reduction Act (IRA), how should European governments act? It is important that Swedish subsidies to produce fossil-free steel are thoroughly evaluated. Moreover, there may be problems if the USA and the EU start to compete in the area of governmental subsidies, says Filip Johnsson.