Implementing the OECD Framework for Industry’s Net‑Zero Transition in South Africa

Executive summary

The iron and steel sector is vital to South Africa’s economy but must transition to reduce its emissions

The iron and steel sector plays a pivotal role in South Africa’s industrial base, representing 1.5% of the country’s Gross Domestic Product (GDP) and accounting for around 200 000 jobs. As a key supplier to critical downstream sectors such as construction, automotive manufacturing and mining, its viability is essential for the country’s broader economic resilience. However, the direct and indirect emissions of South Africa’s manufacturing industry make up one third of the country’s energy-related CO₂ emissions, and the iron and steel sector is responsible for one third of the manufacturing industry’s emissions.

Maintaining the competitiveness of South Africa’s iron and steel sector will require a transition towards low-carbon production. There is growing momentum for steel sector decarbonisation globally, as over 90% of steelmaking capacity is located in countries committed to net-zero targets. Furthermore, border carbon adjustment such as the European Union’s Carbon Border Adjustment Mechanism (CBAM) seek to impose on imports the same costs of carbon born by domestic producers, notably for iron and steel products. Without proactive decarbonisation, South African producers could face reduced market access, diminishing revenue and stranded assets.

Decarbonisation requires economic support

An economic assessment of decarbonisation options in South Africa’s iron and steel sector has confirmed the economic viability of incremental upgrades of electric arc furnace (EAF) technologies, but highlighted that transformative shifts such as renewable hydrogen-based direct reduced iron (DRI) or carbon capture are more expensive than conventional iron and steel production routes. The base case scenario of this report estimates that the production costs of these transformative technologies would be 26–42% higher than the conventional coal-based Blast Furnace-Basic Oxygen Furnace (BF-BOF) route. This viability gap is mainly due to high capital costs, insufficient access to low-cost renewable electricity, a lack of market incentives for low-emissions steel and low carbon prices.

A combination of instruments would be necessary to make the selected technologies bankable considering the current market and economic conditions. No single lever is sufficient, considering realistic values for each lever in the next five years. For instance, a carbon price of USD 100–150/t CO₂ would be needed to bring transformative technologies production costs at par with BF-BOF. Developing financial instruments would likely not suffice to attract investment. As a result, the deployment of low-carbon options is unlikely to materialise at the necessary pace and scale without the implementation of policy measures and regulations to improve the enabling conditions, alongside economic, risk mitigation and financing instruments.

Stronger enabling conditions are needed to accelerate industry action and attract investment

Achieving deep decarbonisation in the South African iron and steel sector will require a coordinated policy framework underpinned by a sectoral roadmap, robust standards and supportive infrastructure investment. A comprehensive National Roadmap, building on the Steel Master Plan and aligned with broader national strategies, can provide long-term certainty to investors and facilitate alignment across government, industry and civil society. Meanwhile, the absence of common definitions and standards for low-emissions steel constrains market differentiation and weakens signals to consumers and financiers alike. Active participation in international initiatives to develop these standards, coupled with domestic implementation via the South African Green Finance Taxonomy, can help unlock sustainable finance and drive innovation.

Targeted measures such as green public procurement, quotas and mandates can create initial demand for low-emissions steel, and long-term supply contracts for renewable electricity, renewable hydrogen and iron ore will be essential to mitigate investment risks. Coordinated planning and public financing for supporting infrastructure, including the power grid and industrial hubs, is essential to reduce first-mover costs and improve project bankability. To facilitate uptake, government can also play a key role in connecting funding sources with investment needs through platforms such as the JET Funding Platform.

Engagement with industry, workers and communities will be crucial in ensuring fairness and public acceptability of measures, particularly in the context of strengthened carbon pricing or green premium schemes. Capacity-building programmes, social dialogue and technology partnerships can help build trust, reduce resistance, and support the sector’s transformation. Engagement with international industry initiatives can further ensure that South Africa’s steel sector remains resilient in the context of intense international competition and trade.

South Africa has the potential to be a key player in green iron and steel production

South Africa has already taken important steps towards creating the institutional and technical foundations for a low-carbon industrial future. These include the preparation of several roadmaps, plans and policies relevant to South Africa’s industry decarbonisation, such as the release of the Steel Master Plan in 2021, the establishment of the Just Energy Transition Partnership (JETP) at COP26 in 2021, and the launch of the Just Energy Transition Investment Plan (JET IP) in 2022. Furthermore, South Africa has a strong base of firms, research institutions and public agencies that could take forward decarbonisation initiatives.

Building on this foundation, South Africa is well positioned to become a regional leader in low-emissions iron and steel. The country has access to key resources such as abundant solar and wind potential and strategic mineral reserves, including high-quality iron ore. With the right mix of policy ambition, financial innovation and stakeholder alignment, South Africa can not only meet its own decarbonisation goals but also become a hub for low-emissions iron and steel production serving both domestic and international markets, in particular building on the development of a renewable hydrogen economy. This would support industrial revitalisation, position the country competitively in global value chains and reinforce its role in shaping a low-carbon future for the African continent.

Figure 1. Overview of the main recommendations to unlock and mobilise finance in the South African iron and steel sector and suggested institutions to take them forward

Note: DBSA: Development Bank of Southern Africa; DEE: Department of Electricity and Energy; DFFE: Department of Forestry, Fisheries and the Environment; IDC: Industrial Development Corporation of South Africa; JET FP: Just Energy Transition Funding Platform; the dtic: Department of Trade, Industry and Competition.