Green primary iron could help South Africa offset decline in coal export earnings – study

The production of carbon-free primary iron in South Africa using Green Hydrogen Direct Reduced Iron (GHDRI) technology could create a new globally competitive green export industry that could help offset the losses associated with the eventual decline in coal exports, such as a new one study shows.

Such exports would also lower the cost of decarbonizing global steel production due to the relative cost advantages of producing renewable energy in South Africa, and hence green hydrogen. The production of GHDRI involves a type of furnace that uses hydrogen for the direct reduction of the iron ore, as opposed to the traditional way that uses coke.

The paper entitled “How green primary iron production in South Africa could help global decarbonization” was co-authored by Hilton Trolip, Bryce Mcalcountry Chris Battle and was released earlier this month.

It concludes that South Africa could competitively export near-zero greenhouse gas primary iron to steelmakers in leading decarbonisation markets such as the European Union (EU), while increasing value from local iron ore and solar energy resources.

Excluding pelleting costs, the study estimates that GHDRI could be manufactured in South Africa in 2030 at a cost of $395/t using hydrogen produced from low-cost solar photovoltaic power. These costs would decrease in the future as electrolyser costs decrease and the South African power grid decarbonizes over time.

The exports would help steelmakers in other areas lower the cost of their overall decarbonization and increase the competitiveness of manufacturing steel products. “Taking the EU as an example, steelmakers could use imported green primary iron to increase electric arc furnace utilization while reducing overall EU demand for clean electricity (i.e. hydrogen for mitigation needs), thereby lowering the total system cost of decarbonization.”

This new South African export would also not be vulnerable to trade measures such as a looming EU carbon border adjustment mechanism and could thus help offset revenue losses if global demand for coal, a key South African export earner, falls.

The authors estimate that a GHDRI plant capable of producing one million tons annually could generate export earnings of between US$300 million and US$500 million per year.

“Coal exports of about 70 million tonnes per year (mtpa) bring in about $5 billion per year.

“Therefore, each 1 mtpa GHDRI plant could replace lost export revenue of 7 Mt of coal.

“Using these assumptions, it would take 10 such power plants to replace the entire value of the lost coal export earnings and related tax revenues,” the study said.

It would also support the decarbonization of the domestic steel industry, which accounts for 12.5% ​​of exports and 50,000 jobs, and supports a steel value chain that contributed about 5% to gross domestic product in 2019.

“This industrial complex faces an existential threat from reduced local demand, divestment and relatively cheap imports.

“In the medium to longer term, green primary iron offers the first step on a sustainable and potentially prosperous path for primary iron and steel production in South Africa away from its current decline.”

The authors conclude that three conditions will be necessary to unlock new global business models that involve locating green primary iron production in renewable energy-rich South Africa, including:

  • a steelmaker with access to hydrogen reduction technology suitable for South African ores and also willing to invest in a GHDRI plant;
  • Access to a bankable lead market for the production of this asset; and
  • international trade rules and emissions accounting related to the carbon content of raw materials, enabling the redesign of supply chains to reduce global decarbonization costs.

The authors conclude that GHDRI’s demonstration in South Africa could pave the way for a collaborative, global industrial sector decarbonization with broader economic benefits, supporting a just transition at national and international levels, while promoting competitive, innovative solutions that include global value chains.

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