Technical versus environmental efficiency in steel production: A global perspective

Area of Science:

• Environmental Science
• Industrial Ecology
• Energy Economics

Background:

• Steel production is a major global CO2 emitter.
• Assessing plant-level efficiency and abatement costs is crucial for climate policy.
• Existing data often lacks plant-specific technical and environmental efficiency metrics.

Purpose of the Study:

• To conduct the first global, plant-level assessment of technical and environmental efficiency in steel production.
• To estimate the shadow price of CO2e emissions for steel plants worldwide.
• To analyze the relationship between plant inefficiency and marginal abatement costs.

Main Methods:

• Utilized a novel micro-dataset of 143 steel mills across 50 countries (2019-2023).
• Applied a Stochastic Directional Distance Function to estimate production frontier distances.
• Calculated the shadow price of carbon dioxide equivalent (CO2e) emissions.

Main Results:

• A negative correlation exists between inefficiency and marginal abatement cost.
• Efficient Electric Arc Furnace (EAF) mini-mills (North America) have low inefficiency (∼0.2) and high abatement costs (up to $13.4/ton).
• Inefficient integrated plants (developing countries) have high inefficiency (up to ∼0.8) but low abatement costs (∼$0.4/ton).

Conclusions:

• Global steel plants exhibit diverse efficiency and abatement cost profiles.
• Estimated shadow prices for CO2e are lower than market rates, suggesting under-valuation without regulation.
• Climate policies must consider plant-specific configurations, efficiency, and decarbonization capacities.