As the iron and steel sector is responsible for around 7% of global emissions, it is essential to create the conditions to stimulate investment in technologies leading to significant emissions reduction that are not yet commercially viable. This requires the deployment of enabling conditions covering a wide array of dimensions, such as policies, regulations, infrastructure and human capital, as well as financial instruments to mitigate the risks and improve the financing conditions of projects. This chapter presents the results of a scenario analysis describing how financial levers can affect the profitability of selected low-carbon technologies based on the economic assessment presented in Chapter 2. Furthermore, the chapter dives into key challenges to implementing the selected low-carbon technologies. Lastly, the chapter lists a series of market and commercial solutions, policies and regulations to improve enabling conditions and financial solutions that can help overcome these barriers.
Implementing the OECD Framework for Industry’s Net‑Zero Transition in South Africa
Abstract
This chapter highlights the key challenges that need to be overcome to unlock and mobilise capital to decarbonise the South African steel sector and lists potential solutions to address these barriers. The economic assessment of low-carbon technologies in the iron and steel sector highlights that there is a major competitiveness gap for low-carbon options compared to conventional reference technologies. While some technologies can already be profitable or close to profitability, such as scrap pre-heating for electric arc furnaces, decarbonising the ironmaking step of the value chain is economically more challenging. Under the conditions considered for South Africa, carbon capture and hydrogen-based steelmaking have respectively 26% and 42% higher production costs than a conventional fossil fuel-based steel production route. Considering the urgency to decarbonise the steel sector and realise investment in low-emissions technologies, it is vital to create a conducive environment for investors through various measures, including policies, regulations, economic incentives and financial support.
The methodology adopted in this chapter to identify policy and financial solutions to support the decarbonisation of the iron and steel sector follows a three-step approach:
1. Using the economic tool developed for this analysis, a selection of financial levers that directly impact the economic viability of low-carbon technologies have been tested to provide an illustrative quantitative estimate of their impact.
a. For BF-(CCU)-BOF and H2-DRI-EAF, the levers considered in this analysis are capital expenditures (CAPEX) subsidy, Concessional debt rate, Concessional debt share, Support through green premium, Hydrogen price subsidy and Reduced tax rate (see Figure 3.1). Following this, scenarios combining various levers have been designed to illustrate what would be needed to make the selected low-carbon technologies competitive with the conventional ones.
b. For scrap-based EAF, no levers have been applied in this section, as the economic assessment and sensitivity analysis in Chapter 2 already highlights conditions under which these options are already economically viable.
2. Additional considerations related to key challenges to implement the selected low-carbon options in South Africa are described, building on OECD expertise across a wide range of policy areas and the consultative approach of the Framework.
3. Using frameworks, toolkits and mappings developed by the OECD and the Climate Club (OECD/Climate Club, 2025[1]; Cordonnier and Saygin, 2023[2]; IEA, 2025[3]), a structured list of potential solutions tailored to the specific challenges of investing in decarbonisation projects in the iron and steel sector in South Africa is presented and complemented with examples from international experience. The solutions are classified in two broad categories:
a. Enabling conditions, referring to the conditions that create a conducive environment to invest in low-carbon technologies for industry decarbonisation. They include, for instance, policy instruments, capacity development, or access to infrastructure.
b. Financial solutions, referring to economic, risk mitigation and financing instruments.1
Note: During the third TAC meeting, participants were asked to rank the relevance of financial levers for improving the economic viability of the selected low-carbon options. The values on top of each bar show the average score of each lever.
The quantitative assessment of a range of financial levers on the profitability of low-carbon technologies in the iron and steel sector in South Africa provides several key insights:
The modelled levers can all improve the profitability of selected technologies but have different types of impact. CAPEX subsidy and Concessional debt (rate and share) are instruments that help to optimise the investment costs for the technologies. The support through green premiums helps to improve the total revenues of the project without affecting its cost structure. The hydrogen price subsidy reduces the operational costs of the project over time2 Reduced corporate income tax rate has been modelled but is not presented when the Profit Before Tax of low-carbon projects is negative, as in this case there is no measurable impact.3
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.
Developing financial instruments would likely not suffice to attract investment and would also require policy measures and regulations to improve the enabling conditions. Indeed, even when combining instruments to showcase slightly profitable business models, the required financial assumptions are optimistic compared to the current levels of levers, such as carbon pricing and green premiums. Therefore, it is likely that without a strong policy push, investors would prioritise other projects to optimise the risk-return profile of their portfolio.
Figure 3.2 displays the evolution of the NPV of BF-(CCU)-BOF and H2-DRI-EAF compared to the benchmark BF-BOF for a selection of levers, that play on various parameters. The ranges selected for the analysis are based on a combination of literature review, market information and expert consultations. The main findings of this analysis are the following:
Panel A (CAPEX subsidy) and Panel B (Concessional debt rate and share): Significant support is needed for these instruments to have a significant impact. Indeed, while the CAPEX subsidy can help reduce the cost gap as the selected low-carbon options are extremely capital intensive, the improvement of the NPV remains limited in the extreme case (where 40% of the equity share of the investment is subsidised, i.e., 12–16% of the total investment). Similarly, the use of concessional debt only shows a limited impact: in the extreme case considered, where 50% of the debt provided is concessional and 5% below market rate, less than 20% of the NPV gap compared to the benchmark is filled.
Panel C (Support through green premium on steel sales): Green premium seems to be a powerful instrument to improve the competitiveness of the low-carbon option.
Panel D (Hydrogen price subsidy): The hydrogen subsidy (equivalent, in the case of BF-(CCU)-BOF, to a green premium on methanol) seems to be an interesting instrument for both cases and improves the economics of the low-carbon technologies over time. However, a similar subsidy for both low-carbon options may favour BF-(CCU)-BOF over H2-DRI-EAF, which may be questionable as the latter as a higher emissions mitigation potential. It may therefore have to be adapted to each technology.
Note: the NPV of BF-(CCU)-BOF and H2-DRI-EAF is shown here relatively to the benchmark BF-BOF, which corresponds to the horizontal axis; the CAPEX subsidy is calculated as a percentage of the equity share of the total investment, this means for instance that the 40% CAPEX subsidy corresponds to a subsidy for only 12-16% of the total investment costs; the concessional debt is calculated as a percentage of the debt share of the total investment.
The sensitivity analysis shows that the variation of each instrument is not sufficient to bridge the competitiveness gap between the low-carbon option and the benchmark BF-BOF, except in the case of a hydrogen price subsidy for BF-(CCU)-BOF. Moreover, a combination of solutions is often more efficient than siloed support or policies to drive climate change. Therefore, scenarios have been built to provide an illustration of how the use of several levers could enable low-carbon options to become profitable (or more attractive than continuing to operate the benchmark BF-BOF).
Examples of how several instruments could be implemented complementarily to reach a positive NPV relative to the benchmark BF-BOF highlight the importance of green premiums, carbon pricing and securing a low hydrogen price. Figure 3.3 and Figure 3.4 show examples of such scenarios, while aiming to keep each instrument under a realistic range, for instance by avoiding a too high CAPEX subsidy. The scenarios have been built based on the levers selected in the model and are therefore only illustrative: for instance, the impact of guarantees to reduce the cost of capital is not modelled here, although these instruments could play a pivotal role in practice. The illustrative scenarios built for BF-(CCU)-BOF highlight the potential key impact of developing hydrogen subsidies. The illustrative scenarios build for H2-DRI-EAF underscore the importance of carbon pricing to improve the economic viability of this production pathway. The scenarios for the two production routes show the importance of developing lead markets with premiums for low-emissions steel.
Note: the CAPEX subsidy is calculated as a percentage of the equity share of the total investment, this means for instance that the 30% CAPEX subsidy corresponds to a subsidy for only 9-12% of the total investment costs; the tax rate in scenario 1.b. amounts to 15%, compared to 27% in the base case.
Note: the alternative carbon pricing scenario is described in Table 2.1.
3.3.1. Overview of key challenges
While the technological pathways to decarbonise the iron and steel sector are well identified, the deployment of low-carbon solutions remains limited. This section analyses a series of challenges that prevent steelmakers from making investment decisions in carbon, capture and use, renewable hydrogen and energy efficiency. The key challenges are summarised in Table 3.1 and classified under six categories:
Policy framework: Steelmakers require plans, policies and regulations that create incentives for businesses to invest in low-carbon technologies.
Steel market conditions: The low profitability of iron and steel companies hinders the ability to invest in low-carbon options, especially in the context of fierce international competition and uncertain demand for green steel.
Production inputs: Access to affordable raw materials and energy is critical to ensure competitiveness during the operational phase of the projects, as low-carbon technologies would otherwise face higher OPEX.
Infrastructure: The reliability of energy and logistics infrastructure affects the operations of steel companies and adds to the uncertainty of the business cases of low-carbon projects.
Technological and human capacity: An ecosystem of technology providers and engineering and construction companies facilitate the integration of low-carbon technologies in steel plants. Moreover, the workforce should be equipped with the skills required to build and operate steel plants where these technologies are implemented.
Financing: Many low-carbon steel technologies have high upfront costs and are capital-intensive. The cost of capital for projects increases due to barriers to establish a sound business model, in particular for options with high technology risks and a limited track record. The risk-return profile of projects and the limited availability of concessional funding sources remain barriers to access capital at the required scale.
Note: BF-(CCU)-BOF: revamping of an existing blast furnace with carbon capture and use to produce methanol; H2-DRI-EAF: renewable hydrogen-based Direct Reduced Iron coupled with an electric arc furnace; S-B EAF: improvement of an existing scrap-based electric arc furnace; EPC: Engineering, Procurement and Construction.
3.3.2. Policy Framework
Lack of a long-term sectoral roadmap for the iron and steel sector
The Steel Master Plan and its Implementation Plan outline a series of measures, but they do not provide targets nor milestones on production capacity, demand outlook or emissions trajectory integrated with other national plans, such as the Nationally Determined Contribution or the South African Renewable Energy Masterplan (SAREM).4 The absence of a long-term roadmap for decarbonisation in South Africa’s iron and steel sector that covers all these dimensions creates uncertainty for investment, planning and technology choices.
The Steel Master Plan, established in June 2021, outlines a series of priority actions for the 2021–2024 period. The process to design the Steel Master Plan brought together government, business and labour associations. A Steel Oversight Council was established to oversee the implementation of the Master Plan, focusing on the first three years. However, only fragmented policies have been implemented and the decision-making process has been questioned (Steel and Engineering Industries Federation of South Africa, 2025[4]). Despite some progress, the South African steel market has stagnated and new plant closures were announced in early 2025.
3.3.3. Steel market conditions
Excess capacity, intense (international) competition and trade dynamics
The OECD expects global excess steel capacity to increase to 721 Mt by 2027. Substantial increases in steelmaking capacity, of up to 6.7% (165 million metric tonnes) are planned between 2025 and 2027 worldwide (OECD, 2025[5]). Asian economies are expected to account for 58% of the new capacity, led by substantial increases in China and India (OECD, 2025[5]). With demand growth not expected to keep up, this increase in steelmaking capacity would put enormous pressure on even highly competitive steelmakers. Capacity utilisation could decline towards 70%, and steel prices have already declined from their 2021 peak to historically low levels. The combination of excess capacity, oversupply and price pressures is eroding steel companies’ profit margins globally. Steel industry profitability margins have declined noticeably over the last few years and are currently close to historic lows (OECD, 2025[5]). In this context, cost remains a key differentiator in the steel market to gain or maintain market shares. Decarbonisation may increase production costs, potentially reducing competitiveness against producers in jurisdictions with lax climate policies or national subsidies.
Competition in the steel industry suffers from a lack of a level playing field, notably due to the massive recourse to subsidies (see Box 3.1), that led to significant shifts in steel trade flows. According to the OECD Steel Outlook 2025, steel subsidies have become increasingly prominent in regions where steelmaking capacity is growing the fastest, particularly in China, but also in the Middle East and North Africa (MENA) and ASEAN regions (OECD, 2025[5]). Chinese steel net exports have reached around 110 Mt in 2024. The trade-related challenges of excess capacity go beyond the direct effects of displacing domestic steel production in importing markets, and can result in harmful indirect effects. For example, exports from China surge to third markets, some of which are also grappling with local excess capacity, such as Northern Africa, the Middle East and Southeast Asia, which in turn increase their exports because their own domestic markets are saturated with surplus steel. These trade disruptions lead to increased trade measures to limit these harmful implications (OECD, 2025[5]).
The global push for decarbonisation may reshape the iron and steel value chain. Primary steel production is currently dominated by integrated plants including blast furnaces to produce iron and basic oxygen furnaces to produce steel. However, there is a rise of announcements of hydrogen-based ironmaking and melting DRI with scrap in electric arc furnaces (Agora Industry, Wuppertal Institute and Lund University, 2021[6]). This hydrogen-based DRI production route relies on high-grade iron ores, which are unevenly distributed, and low-cost renewable energy, where the potential varies greatly depending on national circumstances. As a result, ironmaking could potentially shift increasingly to regions that have both an abundant supply of high-grade ore and low-cost renewable energy, while electric arc furnaces could remain close to the main consumption centres. The decoupling of ironmaking and steelmaking steps of the value chain may increase the trade of DRI.5
Subsidies to the steel industry
Subsidies and government support to steel firms are a pervasive aspect of many industrial policies around the world. National context shapes the extent of the support, the transparency of the instruments used and, potentially, their effects on global steel markets. Subsidies provided to steel firms most often aim to (i) extend capacity, support new investment, or support capital equipment (40%); (ii) support R&D, including R&D related to green technologies (28%); and (iii) the environment (13%).
Cash grants tend to be of smaller amounts than subsidised loans, equity infusions and debt-to-equity swaps, and to be much more dispersed across both recipients and programmes. The data show fewer subsidies provided through lower input and energy costs, despite anecdotal evidence suggesting that such subsidies can be significant. Tax credits, tax rebates and tax refunds recorded seem on an overall upward trend in both OECD countries and partner economies. During the 2014–2020 period, subsidised loans, equity infusions and debt-to-equity swaps do not seem to have increased in OECD countries but increased in partner economies compared to the 2008–2013 period.
The propensity to subsidise steel firms and the transparency surrounding subsidies benefiting steel firms depend strongly on the national context, which varies markedly across economies. Economies with production targets such as the People’s Republic of China seem more likely to subsidise their steel sector. Governments set targets that can differ across firms depending on steel plants’ location and characteristics, and those targets change over time due to changing overarcpterching priorities. National context and domestic policymakers’ priorities can prove very impervious to the context of global steel markets and international pressures, like the Iranian steel industry which benefited from continuous large government support once it was singled out as a national priority, in spite of simultaneous efforts to privatise the economy.
Raw material export restrictions, the securing of raw material sources and demand-side instruments such as procurement rules that favour domestic steel firms are also often used to increase domestic steel firms’ profit margins,support the domestic steel industry and (increasingly) drive their decarbonisation.
The quantitative impacts of subsidies on steel firms
With the quantification of industrial subsidies being relatively new, there has been limited empirical work to date to estimate the effects of that government support on trade and competition due to a lack of data and difficulties in establishing causal inferences. One difficulty with analysing the effects of government support on trade is that subsidies do not necessarily affect competitors directly but can instead do so indirectly through global price channels. The OECD has built the firm-level Manufacturing Groups and Industrial Corporations (MAGIC) database to allow the tracking and monitoring of government support over time and across industrial sectors, geographical regions and policy instruments. Despite representing a relatively small percentage of total consolidated sales on average, subsidies are generally larger relative to firms’ investment in fixed tangible assets and can still have decisive impacts on individual transactions and investment decisions. Overall, the OECD MAGIC database finds steel to be the fifth most subsidised sector as a percentage of firms’ revenue across the 15 industrial sectors covered by the database.
Two identical subsidies in terms of instrument and amount can have very different impacts on recipient firms’ financial performance and capacity expansion even when controlling for a firm’s individual characteristics and broad economic conditions. This is possibly due to different subsidisation programme frameworks and different degrees of enforceability of subsidy use. Some subsidies happen to be more distortive in some context than in others and thus more prone to contribute to global excess capacity. Those results emphasise the need for dialogues and exchanges on best practices concerning the frameworks in which subsidies are provided.
Subsidies received per unit value of a steel firm’s assets, or per crude steel producing capacity (henceforth, “subsidisation intensity”) from cash grants and from below market borrowings (BMB) are at least three times higher in partner economies than in OECD member countries for the whole study period (2005 to 2021). A typical Chinese steel firm receives 10 times more than a steel firm located in an OECD member country.
For partner economies, any USD 1 million in additional grants is associated with capacity increases of about 7 000 to 11 000 metric tonnes, contrary to OECD Member countries where grant increases have no statistically significant impact on capacity.
In partner economies, higher BMB are associated with significantly higher increases in the indebtedness of the recipient steel firm: a +1 (absolute) percentage point (pp) increase in the BMB-to-asset ratio is linked to a +3.5 pp increase of the firm’s debt-to-asset ratio. This suggests that lending from government or government-related entities which is obtained at below market cost does not crowd out or replace other types of lending but rather increases debt levels relative to assets in larger amounts than what market forces would have permitted.
Grants are correlated with profitability ratios for steel firms in OECD Member countries: an absolute +0.1 pp increase in the grants-to-asset ratio is associated with an (absolute) +1.3 pp increase in a firm’s return on assets (holding all other known factors constant). There are no such statistically significant links in partner economies.
The OECD Competitive Neutrality Toolkit provides a set of good practices based on examples from international experience to support public officials in identifying and reducing distortions to competition due to state intervention (OECD, 2024[7]).
The effects of trade policies and in particular tariffs on steel industry growth are complex and far-reaching. Trade liberalisation has profoundly impacted the steel industry by increasing global competition, expanding market access and improving supply chain efficiency. Policymakers and industry need to balance local industry growth with open trade while tackling overcapacity, ensuring environmental sustainability and accelerating technology innovation.
Trade policies and in particular tariffs influence steel industry growth in multiple ways:
Prices: Although tariffs may offer temporary support to domestic producers, they can lead to higher prices for consumers and frequently result in market distortions or countermeasures. Tariffs also typically increase the cost of imported steel, which tends to have ripple effects throughout the supply chain.
Investment patterns: trade policies shape investment in the steel sector. Uncertainty may deter investors, while open and stable policies tend to attract FDI.
Innovation, efficiency and market consolidation: open markets encourage innovation and operational efficiency, while putting less competitive firms under pressure. They can also drive consolidation as firms pursue economies of scale to stay competitive.
Domestic production: protectionist policies can boost domestic steel production. However, if the demand cannot be met by domestic plants, fuelled in part by the country’s rapid growth and its oversized construction sector, but also by generous government support benefitting China’s largely state-owned steelmakers, which delayed the exit of inefficient producers and supported others’ expansion.
Production shifts: trade dynamics have shifted production geographically. For example, China’s share of global steel output rose from 15% in 2000 to over 50% in 2020, fuelled in part by the country’s rapid growth and its oversized construction sector, but also by generous government support benefitting China’s largely state-owned steelmakers.
Trade and environment: following trade protection measures, production may shift to countries that are producing less through renewable energy sources, leading to more environmental challenges.
Limited demand for low-emissions steel
The market for low-emissions steel remains nascent. While global interest is growing, price sensitivity constrains demand. South Africa does not have green public procurement standards or regulatory incentives to stimulate demand and the domestic private steel consumers has not taken any firm commitments so far. The lack of long-term offtake contracts creates uncertainty on the revenue flows of decarbonisation projects that often rely on the ability to sell steel with a green premium.
The steel production cost gap between low-carbon options and conventional steel production routes is expected to decline in the coming years. A green premium of around 25-50% is expected for the first tonnes of low-emissions steel produced globally by the end of 2025 (World Economic Forum, 2022[15]). This gap can be bridged either by lowering the cost of low-emissions steel, increasing the cost of conventional steel or using public funding to cover the premium. Low-emissions steel costs are expected to decline in the coming years, mainly driven by a decrease in the cost of renewable hydrogen and renewable energy, reducing the costs of both DRI production and EAF processes cheaper (IEA, n.d.[16]). The cost of conventional steel may increase due to policy interventions to more accurately reflect its environmental cost. These include carbon pricing, carbon border adjustment mechanisms and the removal of (inefficient) support measures for fossil fuels. The fiscal cost of support measures for fossil fuels in South Africa was estimated at ZAR 70 billion (USD 4 billion) in 2022 (OECD, 2023[17]). The Mission Possible Partnership finds that up to 1 Gt of annual CO2 emissions from the steel sector could be avoided in 2030 (a 33% reduction relative to 2020) if carbon pricing globally were to reach around 52 USD (Mission Possible Partnership, 2022[18]).
The environmental credibility some low-carbon options may affect their ability to obtain green premiums. In particular, the use of CCU for the steel sector only leads to partial emissions reduction and could fail to sell steel or methanol with a premium, compared to other solutions such as renewable hydrogen-based steel. In June 2025, ArcelorMittal Belgium announced that they could shut down their Steelanol plant6 because European regulations limit the recognition of Steelanol products as biofuels or secondary fuels, preventing them to be sold at a premium. Thus, low-carbon options that are not “near-zero” emissions may not fully mitigate the stranded asset risk.
It is important to note that the price premium to end-consumers of steel products is expected to be significantly lower than the price premium on low-emissions steel, at around 1% (World Economic Forum, 2022[15]). Given the competitiveness, low profit margins and international exposure of the steel industry, however, steel producers must be able to pass the premium on to end consumers. This may not always be possible, depending on the industry context and local socio-economic conditions. Therefore, identifying the market segments and buyer that are able and willing to absorb the green premium is key. In October 2023, the Boston Consulting Group surveyed 2 524 consumers of automotive and white goods in the US, the UK, Germany, France, Poland, Japan and China, where 88% of respondents stated they are willing to pay at green premium for net zero production of passenger vehicles and appliances, with variation across countries and products (Voigt et al., 2023[19]).
3.3.4. Production inputs
Iron ore, scrap and energy determine steel production costs. However, the cost structure of conventional production routes and low-carbon options can differ. For instance, the RE-H2-DRI route presents much higher operational costs compared to the blast furnace route, driven by high renewable energy and hydrogen-related costs.
Need for high-grade iron ore for Direct Reduced Iron (DRI)
While blast furnaces can accept a relatively wide range of grades of iron ore, iron ore for direct reduction needs to meet specific quality requirements, such as high iron content (ideally above 67%), a low content of acid gangue (ideally below 2%), and low phosphorus content (ideally below 0.015%) (Barrington, 2022[20]). Suitable quality currently represents less than 5% of the seaborne iron ore market, unevenly distributed globally. Securing access to high-grade iron ore is a critical challenge to decarbonise the steel industry through the DRI route (Simon Nicholas, 2022[21]).
As DRI-suitable iron ore can be sold with a premium, mining companies are developing new projects for high-grade iron ore, such as Simandou in Guinea, or investing in beneficiation facilities at their mine sites to achieve a suitable quality. However, the share of seaborne iron ore with a sufficiently high iron content is likely to remain limited until at least 2030 (Kuykendall, 2022[22]). Furthermore, iron ore trade is mostly limited to four major players (Vale, Rio Tinto, BHP and FMG), which could place the mining companies in a strong position to negotiate with steelmakers and in turn further increase the premium for higher-grade iron ore pellets (The Oxford Institute for Energy Studies, 2024[23]).
Limited scrap availability
The quantity of scrap in the South African market is a concern. Estimates in The South African Steel and Metal Fabrication Master Plan 1.0 suggested that there could be an absolute shortage of as much as 1 million tonnes of scrap per year by 2021 (Department of Trade, Industry and Competition, 2021[24]). Scrap can also be accessed through international trade. It is estimated that in 2022 nearly 100 Mt of external scrap consumed globally (22% of total external scrap consumption) was traded across borders (OECD, 2024[25]). South Africa is still a net exporter of ferrous scrap, though the Export Duty on Scrap Metals and the Price Preference System aim to provide domestic foundries and mills with better access to higher quality and more affordable scrap (World Steel Association, 2024[26]; South African Revenue Service, n.d.[27]).
Though steel is infinitely recyclable in theory, there are practical and economic recovery limitations. The amount of recoverable scrap varies by sector. For example, a steel pipe that is cemented in place in oil and gas wells is not recoverable (OECD, 2024[25]). The OECD estimates a 50% non-recoverable rate in the oil and gas sector, 40% for construction and 5–10% for all other sectors (OECD, 2024[25]). In addition, the accumulation of impurities impacts the quality of secondary steel. This is the case for example with copper, which, in elevated levels, can lead to a loss of ductility and surface defects (World Steel Association, n.d.[28]). Scrap is therefore sold on the market in a number of grades (qualities), with varying composition and priced accordingly. This is one of the reasons steel scrap recycling cannot fully replace primary steel production, as many applications (such as infrastructure and certain automotive components), currently require virgin steel to meet stricter metallurgical requirements. In South Africa, technological upgrades could increase the effectiveness of scrap treatment and recycling. For example, mini mills in South Africa have historically focused on lower-grade commodity products but could be upgraded to produce higher quality steel products if investments are made in scrap sorting or moving to DRI technology (Trade & Industrial Policy Strategies, 2024[29]). The sorting can also be eased by making steel products easier to take apart and sort once they become obsolete.
Scrap is an essential, but limited, resource for decarbonising the steel sector. Around 650 Mt of scrap is consumed each year for steel production presently (approximately 30% of total metallic input to steel production), used both in the primary and secondary steel production routes. Global net zero scenarios for the steel sector forecast a share of scrap input in steel manufacturing between 45–50% in 2050 to meet the Paris Agreement goals.
Scrap is categorised into two types:
Home scrap: generated during steel production and is consumed by the steel mill without entering the scrap market.
External scrap: this includes both prompt scrap (generated as steel is used in manufacturing or construction) and obsolete scrap (recovered from the recycling of steel products at the end of their lives).
The amount of scrap that is potentially recoverable domestically each year as obsolete scrap is based on the life span of steel products that are consumed. The average lifespan of a steel product is 40 years, though there is a wide range, from a few weeks for steel packaging to approximately 10 years for appliances, 15 years for cars, and from 30 to 100 years for buildings and infrastructure. This means that there is often a significant delay between the steel being produced and becoming available for recycling.
Insufficient supply of renewable electricity and hydrogen
Low-emissions steel production requires large-scale access to renewable electricity and, for the H2-DRI route, hydrogen. Through the H2-DRI route, it takes approximately 50–55 kWh of renewable energy to produce 1 kg of renewable hydrogen, and 50 kg of hydrogen are required to produce 1 tonne of steel (European Parliament, 2020[30]). Renewable energy is also needed to power secondary steel production using scrap-based Electric Arc Furnaces, with a demand of around 500 kWh per tonne of steel. As a result, the electricity needed for a H2-DRI and EAF plant with 2 Mtpa capacity would reach around 8 TWh, i.e., around one third of the total renewable power generation in South Africa in 2022 (Pistorius, 2024[31]). Moreover, the generation of solar and wind power is intermittent and a fully renewable solution would require electricity and hydrogen storage to maintain a constant supply to the steel plant.
Despite South Africa’s renewable energy potential and the launch of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), which led to 6.2 GW of installed capacity, some challenges remain. Significant delays in the schedule of renewable auction rounds brought uncertainty for investors and developers, slowing the expansion of renewable projects. Moreover, the inability to procure several solar and wind projects due to stringent local content rules and grid limitations weakened the market confidence in South Africa’s utility-scale renewable deployment.
The generation cost of renewable electricity has decreased in South Africa, following global trends, despite an increase between 2021 and 2023. For instance, the price of solar PV in the REIPPPP increased from ZAR 431/MWh (USD 24/MWh) in 2021 to ZAR 502/MWh (USD 27/MWh) in 2022.7 While these levels are attractive, the cost of firming up power supply by combining renewables and battery storage remains high. Indeed, in 2022, the Risk Mitigation Independent Power Producers Procurement Programme (RMIPPPP), which requires a consistent electricity supply, announced successful bidders who utilise renewable energy combined with battery energy storage at prices ranging from ZAR 1 550/MWh (USD 87/MWh) to ZAR 1 884/MWh (USD 150/MWh). This can create a competitiveness challenge for low-emissions steel as steel plants require a dispatchable supply of electricity, and a high capacity factor is essential for electrolysers to economically produce hydrogen.
Despite a pipeline of 13 renewable hydrogen projects, only one small-scale project led by Anglo-American (3.5 MW electrolyser) is currently operational (IEA, n.d.[32]). Large-scale power-to-X projects announced in the country are still at the feasibility stage, despite initially targeting a commissioning between 2024 and 2026. Power-to-X projects are just starting to scale across the globe, and some risks faced by renewable hydrogen project developers are particularly salient in emerging economies, including offtake risk, political and regulatory risks or insufficient enabling infrastructure (OECD/The World Bank, 2024[33]). Moreover, the steel sector competes with other uses for the supply of renewable hydrogen. For instance, hydrogen can be used in other industrial subsectors, e.g. for the production of e-fuels. Co-ordination and prioritisation of projects and demand-side applications will be essential to achieve South Africa’s economic and social objectives.
Underdeveloped sustainable biomass sourcing
The potential for dedicated bioenergy crops in South Africa is limited by land use constraints limitations, notably to avoid food-fuel conflicts, protect conservation areas and ensure agroecological suitability. The highest potential for biomass feedstock in the country is urban organic waste and lignocellulose waste, comprising a mix of harvested invasive alien plants (close to 15 Mt per year) and some residues from agricultural and forestry activities (Stafford, 2023[34]).
However, the pricing of Invasive Alien Plants (IAP) and other sources of biomass could have a too high price, e.g. because of inefficient equipment to harvest, extract and transport the biomass. Other challenges include:
Low Calorific Value: Biomass generally offers lower energy output per unit compared to fossil fuels like coal or gas. Therefore, more material is needed to produce the same amount of energy and some transformation may be necessary.
Seasonal Availability: Many types of biomasses are tied to harvest cycles, resulting in inconsistent supply throughout the year.
Transportation and Logistics: The bulkiness and low energy density of biomass create logistical challenges. Transporting large volumes from remote farms or plantations to consumption centres significantly increases costs and emissions. Biomass plants must be built close to available biomass resources in order to reduce greenhouse gas (GHG) emissions from long-distance transportation, and to cut costs and prices (Rawat, Singh and Tekleyohannes, 2024[35]).
The use of biomass should be limited to sources managed through recognised environmental standards and certifications and arbitrated with other uses of this resource. Definitions of sustainable biomass generally indicate that it must be sourced in a way that either maintains or enhances carbon stocks (i.e., it is carbon neutral), while also ensuring that its production and harvesting do not harm natural ecosystems or compete with food production. Agricultural residues that would otherwise be wasted are considered the most sustainable source of biomass, however, there are likely to be major supply challenges for agricultural residue if its use is scaled up. Existing certifications for sustainable biomass include Better Biomass, the Green Gold Label, the International Sustainability and Carbon Certification, the Netherlands Programme Sustainable Biomass, the Responsible Biomass Program, the Roundtable on Sustainable Biomaterials (Carbon Direct, 2023[36]).
3.3.5. Infrastructure availability
Low reliability of power supply
Power supply reliability is a significant obstacle in South Africa. This has worsened significantly since 2019, with record levels of load shedding and unserved energy in 2022 and 2023 (see Chapter 1). Unreliable power supply has profound effects on the steel sector, with impacts ranging from unplanned production halts to damaged equipment and increased operational costs. A survey of 206 South African Metals and Engineering sector companies highlights that energy supply issues have resulted in job losses, shorter shifts and cancelled investments (Steel and Engineering Industries Federation of South Africa, 2024[37]).
One urgent action to increasing power supply reliability in South Africa is expanding and modernising transmission grids, as sets out in the Transmission Development Plan (see (Government of South Africa, 2025[38]). It also is paramount to the large-scale roll-out of renewable energy, as highlighted in the South African Renewable Energy Masterplan (SAREM). Grid investments can also accelerate the clean energy transition and have positive impacts on broader energy access, resilience, efficiency and security goals (OECD, Forthcoming[39]).
However, financing the power grid is a challenge. Financially stretched utilities – and, depending on the context, transmission system operators (TSOs) or governments – often cannot accelerate investment in power grids to keep up with the necessary transition. In South Africa, an estimated USD 21 billion investment is needed to finance transmission lines, but Eskom has so far only secured USD 4 billion (OECD, 2025[40]). This requires identifying new financing models, including with the support from the private sector.
Three provinces are launching the first ever independent transmission project (ITP) auctions in the country. In the Northern Cape, North-West and Gauteng, this public private partnership scheme is expected to deliver over 1 000 km of new transmission lines, with a prequalification phase taking place in July 2025 and requests for proposals to follow in a second phase. The scheme is expected to be a late-stage procurement, with land and permitting secured with public support ahead of the auction. The National Transmission Company of South Africa would pay a stable, long-term fee to the preferred bidders under a transmission service agreement. The contract would take the form of a build-operate-own-transfer or build-operate-transfer model. A guarantee scheme to lower credit risk and increase competition is being considered (OECD, Forthcoming[39]).
Common challenges, across power grid financing models, include ensuring that revenues are sufficient to cover investment and operating costs, land acquisition right-of-way and permitting wait times. If the model is meant to mobilise private sector investment, the underlying business model must be clear and credible enough to attract interest and foster competition and must be supported by stable governance and dispute resolution mechanisms. A World Bank analysis of 182 utilities in emerging markets and developing economies (EMDEs) estimates that 60% of them do not collect enough revenues to cover their operating and debt service costs and would need to reduce costs or increase tariffs (World Bank, 2024[41]). Private investment solutions such as an ITP scheme can help reaching the necessary amount of financing to achieve government development goals while spreading costs over time.
Lack of necessary hydrogen and Carbon Capture, Utilisation, and Storage infrastructure
Significant infrastructure investments will be needed to enable the deployment of low-emissions steel in South Africa. This ranges from production, storage, transportation and end-use infrastructure for hydrogen to capture, compression, transportation, utilisation and storage infrastructure for CCUS.
Hydrogen infrastructure is still at an early stage in South Africa: electrolysers, pipelines and storage systems required for industrial hydrogen use are largely absent. Since renewable hydrogen will be available in limited quantities in the short-term, hydrogen infrastructure should be built in a way to enable its use in priority applications, such as the steel industry. The future hydrogen grid is therefore likely to have different production centres and serve different end users to today’s gas grid (E3G, 2021[42]).
Establishing green industrial parks that integrate steel plants with renewable energy and hydrogen production facilities can improve efficiency, reduce emissions and reduce costs. For example, producing renewable hydrogen in close proximity to renewable energy generation offers the potential to reduce the amount of hydrogen infrastructure needed by up to 60% (Artelys, 2020[43]).
The Industrial Development Zone (IDZ) and Special Economic Zones (SEZ) programmes in South Africa are good examples of an industrial cluster approach. The IDZs are defined as a purpose-built industrial estate that leverages domestic and foreign direct investment in value-added and export-oriented manufacturing industries and services (Department of Trade, Industry and Competition, 2025[44]). Saldanha Bay is an example of SEZ that has significant potential for steel sector revitalisation, as it already hosts a (currently idled) DRI plant8 and a free port and the region has land available to deploy renewable energy.
To enable the deployment of CCUS in South Africa, major infrastructure adaptations would be needed (Sanedi, 2024[45]). This includes developing capture infrastructure, compression facilities, utilisation and storage infrastructure. There are currently no CCUS projects in South Africa and only a few worldwide (IEA, 2023[46]). A World Bank programme to support capacity and knowledge building around CCUS identified specific challenges related to CCS deployment in South Africa, including the complex governance framework and diverse land ownership (PtX Hub, 2024[47]). This is currently being followed up with a demonstration project in Eastern Mpumalanga province, where regional hydrogeological mapping exercises were concluded in 2024, providing insight into regional groundwater dynamics (Council for Geoscience, 2024[48]).
If CCUS is going to be pursues as a viable decarbonisation pathway for the South African steel sector, policy efforts must guide infrastructure investments. Policy efforts should provide clear regulatory frameworks, financial incentives and long-term certainty to de-risk and accelerate private sector investment into CCUS technologies. These must ensure safe and permanent CO2 storage in deep geological formations, the protection of the environment and public health, clarify the rights and responsibilities of stakeholders and provide a legal foundation for the long-term management of CO2 storage resources (IEA, 2022[49]). The IEA Legal and Regulatory Frameworks for CCUS Handbook provides a resource for policymakers and regulators to establish and update their national CCUS frameworks (IEA, 2022[50]).
Ensuring adequate hydrogen and CCUS infrastructure availability therefore requires a mix of public funding, private investment and innovative financial instruments to overcome high upfront capital costs and long payback periods. Indeed, in the absence of high carbon prices, financing both hydrogen and CCUS infrastructure tends to be perceived as being high risk and having low returns (H2Global, 2024[51]; The CCUS Hub, 2024[52]). To enable investments in hydrogen infrastructure, innovative financial support instruments, such as CAPEX support, fixed premiums, contracts for difference and anchor capacity bookings have been identifies as promising instruments to enable investments (H2Global, 2024[51]). For CCUS, new business models are emerging, shifting away from the full-chain business model and allowing risk to be distributed across the value chain (IEA, 2023[46]).
The overall interrelationship between global water stress and global hydrogen trade is expected to be minor. Projected global freshwater withdrawals for hydrogen production and cooling processes will potentially amount to only a few percent of the whole energy sector’s freshwater withdrawals and to less than 1% of current freshwater consumption (World Bank, n.d.[53]; IRENA and Bluerisk, 2023[54]).
However, the local impact of water stress in highly affected countries could potentially limit these countries’ hydrogen export potential. Such regions face heightened risks of operational disruptions due to water unavailability and regulatory uncertainties, possibly deterring potential investors. Since hydrogen production could become especially cost-effective in regions with high solar PV potential, which tends to be rather dry. Consequently, careful consideration of local water availability is paramount when planning electrolyser plants. Several projects in water-stressed regions are defining a water supply strategy at an early phase of the project development, relying on existing or future desalination plants, or developing new approaches such as common use infrastructure that could provide water to other end-use or projects in the future (OECD, 2024[55]).
In addition, desalinating seawater for electrolysis or using seawater for once-through cooling systems must be carefully managed to minimise environmental impacts. Key concerns include thermal pollution (seawater used and returned to the sea could alter coastal ecosystems’ water temperature) and the discharge of brine (highly saline water could alter coastal ecosystems’ salinity level). Since both could significantly disrupt water ecosystems, clear guidelines and enforcement mechanisms may be needed to mitigate these effects (IRENA and Bluerisk, 2023[54]).
Countries could increase the resilience of their hydrogen exports to water stress by focusing on renewable, rather than fossil energy-based hydrogen production pathways. This is because electrolysis is – even though it uses water as its main input – actually the most water-efficient pathway amongst all clean hydrogen production methods, as Figure 3.5 shows (IRENA, 2022[56]; IRENA and Bluerisk, 2023[54]). Trade in clean hydrogen is thus less susceptible to water stress-induced export disruptions than trade in hydrogen produced with fossil energy.
Freshwater-stressed coastal countries could increase their export security by incentivising the use of (desalinated) seawater for hydrogen production and cooling. Leveraging seawater for these purposes not only mitigates risks associated with potential export disruptions but also alleviates pressure on local freshwater supplies. In regions where fresh water is severely limited but access to the ocean is abundant, seawater may represent the most viable option for cooling needs (IRENA and Bluerisk, 2023[54]). These approaches would need to be accompanied by measures mitigating the negative environmental consequences of desalination, such as brine and thermal pollution.
Note: Freshwater withdrawals for hydrogen production and cooling are estimated to reach 7.3 billion m3 by 2040 and 12.1 billion m3 by 2050, taking into account technological advancements (IRENA and Bluerisk, 2023[54]). Tap water (or sources with similar water quality) is (are) used or assumed to be the water source(s) behind these data points. For fossil hydrogen with CCUS, the cooling requirements for CCUS systems are included. For PEM and ATR, available data points are limited since these technologies are relatively new – thus the much smaller ranges of values. ATR = autothermal reforming; CCUS = carbon capture, utilisation and storage; kg = kilogramme; L = litre; PEM = proton exchange membrane; SMR = steam methane reforming.
Source: (IRENA and Bluerisk, 2023[57])
Lack of reliable logistics infrastructure
Railways and ports are essential infrastructure for the supply of raw materials and the offtake of final products, given the need to transport large volumes of bulk materials across long distances. Well-developed infrastructure connecting steel plants with mines, scrap yards, international ports and large customers’ facilities can reduce transport costs and minimise delivery times. Conversely, deficient train and port services can have significant impacts and, in a worst-case scenario, lead to the disruption of the steel plant operations.
The South African Steel and Metal Fabrication Master Plan 1.0 identifies several rail and port inefficiencies for the South African steel industry, notably (Department of Trade, Industry and Competition, 2021[24]): the high cost of rail and port tariffs; the limited availability of wagons and low flexibility of bookings; disruption of rail services due to unreliable infrastructure and cable theft; and under-optimised utilisation of current port facilities and congestions.
Investment in rail networks and port capacity will benefit the economy and the industry directly and indirectly, by facilitating logistics and by generating activity for the industry. However, Transnet, the state-owned enterprise for rail and port, has financial limitations, as the company has registered a net profit only once over the last 5 years and a net debt over EBITDA ratio above 5 (Transnet, n.d.[58]).
3.3.6. Technology, construction and operations
Limited number of companies to implement low-carbon technologies
High technology risks are inherent to nascent sectors such as renewable hydrogen or carbon capture due to a lack of track record. While various companies are developing carbon capture or electrolysers, there are only two providers of DRI globally, Midrex and Tenova/Danieli, which may lack capacity to develop all the announced H2-DRI projects on time. Moreover, selecting a technology for a large-scale project (such as carbon capture or >100 MW electrolyser) can be challenging when they have not been implemented at scale yet. In addition, the feasibility phase for a pioneer project can last several years and requires in-depth studies, especially as technical performance risk may become more important if a first-of-a-kind projects fail.
On the construction side, the lack of track record for carbon capture and renewable hydrogen projects leads to two main issues. First, only a few companies would be able to coordinate and integrate complex projects, such as a carbon capture system on a blast furnace connected to a methanol plant. Moreover, international engineering, procurement and construction companies (EPC) are exploring projects worldwide and may lack availability. Second, there is an increased risk of delays in start-ups or cost overruns to execute the project.
Lastly, operational and maintenance risks are higher for untested technologies. To date, there is no large-scale project worldwide integrating variable renewable electricity, electricity storage, hydrogen production, DRI plant and EAF plant. Such complex projects with multiple assets and stringent operational requirements have a higher risk to underperform as a result of unplanned events and disruptions.
Skills gap within the workforce to support decarbonisation efforts
The transition towards a net-zero economy will have profound impacts on labour markets and the demand for skills. While, overall, the net effects of the net-zero transition on total employment are likely to be negligible, labour markets will be reshaped with new opportunities for some workers and a higher risk of job displacement for others. Moreover, changes in employment—both positive and negative—are expected to be concentrated in specific geographic areas (OECD, 2024[59]). The steel sector has particularly high spillovers, with an employment multiplier9 of 6, the closure or the development of a steel plant (Steel and Engineering Industries Federation of South Africa, n.d.[60]).
To facilitate the transition and protect vulnerable workers, there is a need to anticipate the labour market mismatches arising from net-zero policies. Climate policies thus need to be accompanied by strong investments in skills policies to reallocate brown job workers to green jobs, including through re-skilling and need to increase the workforce equipped with the necessarily skills, particularly in STEM,10 construction and production. A bottom-up and collaborative approach with industry, labour and civil society is vital, as there is a risk of social resistance if transitions are not inclusive and capability gaps could delay the transition.
In 2016, the Partnership for Action on Green Economy launched the Green Skills Programme, which involved conducting various qualitative assessments of the learning needs and opportunities related to the green economy (Partnership for Action on Green Economy, 2016[61]). In 2021, the Steel Master Plan listed a series of proposals to increase professionalism, skill and expertise for the steel sector. Despite these efforts, there is no comprehensive or coherent national strategy for skills development for the steel industry or more generally for hard-to-abate industries in South Africa.
The decarbonisation of the steel sector is a transformation that has costs and opportunities, that if well managed can be leveraged to reduce inequalities and improve socio-economic outcomes. The basic iron and steel sectors accounted for around 22 000 jobs in South Africa in 2024, representing half of the employment in the metals industry. As the industry shifts towards sustainable and low-carbon production methods, new green job opportunities will be created.
The number of jobs created will depend on the chosen decarbonisation pathway. For example, while retrofitting existing BF-BOF facilities with CCUS is likely to create a limited number of temporary new jobs, greenfield renewable energy and hydrogen-based DRI projects have the potential to generate substantial employment across the renewable energy installation and steel plant construction and generation/production phases. The renewable energy generation stage is particularly job-intensive: approximately 3.8 jobs are created per MW of installed solar PV and 1.3 jobs per MW of installed wind energy globally. Compared to coal-based steelmaking, a hydrogen-based DRI EAF is estimated to require comparable levels of direct employment for mining, iron and steelmaking.
Globally, decarbonising the steel industry is projected to transition the 1.3 million existing jobs in the steel industry to future-proof green jobs, while creating 240 000 new green jobs in emerging economies. This impact would be significantly amplified by indirect employment, with an estimated 8.1 indirect jobs created for every direct job in the steel sector. In South Africa, an estimated 400 000-600 000 jobs will be needed to deliver on the energy transition more broadly, with significant demand for semi- to highly-skilled jobs (around 21 000 artisans, 25 000 engineers and 25 000 technicians).
While the transition to a low-emissions steel sector will offer significant employment opportunities, some regions, workers and households are likely to be negatively affected relative to business-as-usual. The OECD finds that, across 14 OECD countries, workers that lose jobs in high-emissions industrial sectors face greater earnings losses, averaging a 36% decrease over 5-6 years after job loss, compared to 29% in other sectors.
To ensure a just transition, policies to support incomes and facilitate job transitions to green jobs, such as job search assistance, skills training and occupational reorientation programmes are therefore essential. This is particularly important for workers in low-skilled positions, for whom the transition tends to be more challenging. Initiatives such as the South African Just Transition Framework are important starting points to inform policy efforts.
Regional and local governments can play a central role in managing the transition to a low-emissions steel sector and to climate neutrality more broadly. At a global level, regional and local governments oversee on average 63% of climate-related public expenditure and 69% of climate-related public investment and tend to have broader powers over skills, housing, transport, waste, water, energy and land use.
In South Africa, immediate hotspots for increased labour opportunities are projected to be Gauteng and the northern Free State, while job growth in the Northern, Western and Eastern Cape is projected to be closer to 2030. A place-based approach, that is coordinated with national policy priorities, is therefore vital to effectively deliver on the transformation of the South African green transition, as well as of the steel sector specifically.
Source: (Townsend, 2020[62]; IRENA, 2025[63]; IRENA, 2024[64]; Agora Industry, Wuppertal Institute and Lund University, 2021[6]; World Steel Association, 2022[65]; Statistics South Africa, 2021[66]; Masterson et al., 2025[67]; OECD, 2024[59]; OECD, n.d.[68]; National Business Initiative, n.d.[69]) (Steel and Engineering Industries Federation of South Africa, 2025[70])
3.3.7. Finance
High upfront investment requirements, coupled with high capital costs
Multi-billion projects may require complex project preparation, risk sharing and financing structure with multiple actors involved. High upfront costs associated with most low-carbon projects can act as a significant deterrent. For instance, the total CAPEX of a greenfield H2-DRI-EAF project, including the renewable power and storage assets, would amount to around USD 10 bn. While upfront cost is not necessarily a barrier if risk is under control and long-term cash flow is predictable, large-scale projects will typically need a credit rating for international investors to support them. The high upfront costs may also deter international companies to invest in EMDEs, especially in the steel sector that faces global competition coupled with low or volatile margins. For complex projects, upfront costs to finance pre-feasibility and feasibility studies can also require large investments, which won’t be recovered if the project is eventually not developed (OECD/The World Bank, 2024[33]).
Cost of capital is another factor that adds to challenges related to high upfront costs. Cost of capital depends on various factors such as regulatory risk, political risk or uncertainty on the overall investment environment. These risks are particularly salient in emerging and developing economies, resulting in a higher cost of capital than in advanced economies and in turn, relatively higher production costs. For instance, for the production of methanol from renewable hydrogen and captured CO2, increasing the cost of capital from 5% to 15% leads to a production price increase of more than 50% over the project’s lifetime.
Limited access to finance for decarbonisation projects
Access to finance is a major issue that may affect all actors in emerging and developing economies, particularly SMEs. This can be due to the lower creditworthiness of SMEs compared to large companies, which increases the counterparty risk for the lenders. Therefore, investments are postponed, cancelled, or only a limited share is actually implemented. In the steel sector, new players or smaller actors (such as EAF operators) may struggle to access finance. The repeated losses of the basic iron and steel companies in South Africa create an additional barrier to financing. Since 2010, the sector has only shown profits in 2013 and 2019, which may prevent financial institutions to provide debt financing (Trade & Industrial Policy Strategies, 2025[71]; Trade & Industrial Policy Strategies, n.d.[72]).
The characteristics of decarbonisation technologies may further deter private investors. Indeed, decarbonisation investments can yield returns over decades, conflicting with investor expectations for shorter-term gains. Furthermore, the perceived policy risks and the uncertainty around carbon pricing, electricity availability and regulatory stability increases investor caution.
Over the last years, the OECD has developed several toolboxes, toolkits and frameworks focusing on or including considerations for the industrial sector, such as the Framework for Industry’s net-zero transition, the working paper Financing solutions to foster industrial decarbonisation in emerging and developing economies, the Climate Club Financial Toolkit, Policy Toolbox for Industrial Decarbonisation (prepared by the IEA) and steel policy mapping (see Box 3.6), as well as the climate actions and policies measurement framework (CAPMF) (OECD, 2022[73]; Cordonnier and Saygin, 2023[2]; OECD/Climate Club, 2025[1]; IEA, 2025[3]; Nachtigall et al., 2022[74]).
Reaching net-zero in the steel industry requires efforts from both industry and policymakers. For industry to move forward in reducing emissions, governments must put in place a policy framework to both incentivise and safeguard the transition towards a low-carbon economy, ensuring the adoption of emerging low-carbon technologies and the transformation or scaling down of emissions-intensive processes as well as a just transition for workers.
A recent report from the Climate Club aims to systematically map policy action in the steel sector across 15 jurisdictions, covering 88% of the global steel production. The review covers 232 policies and points to the following main findings:
All major steel-producing economies have introduced steel decarbonisation policies. Most of these policies currently in force were implemented around 2020 and 2021 (35%), with a jump in the number of industrial decarbonisation strategies and policy support for renewable hydrogen.
There is a notable focus on implementing supply-side policies (78%), which focus on reducing emissions in the production of steel. In some cases, this increase in lower-carbon steel production appears to be additive, increasing overall steel capacity. Only a few jurisdictions have implemented demand-side policies to incentivise a market for low-emissions steel through green public procurement programmes.
The most common policy objective relates to the support of low-carbon technologies (33%), particularly at low levels of technological readiness such as in carbon capture utilisation and storage (CCUS) and hydrogen-based direct reduced ironmaking (H2 DRI). Policies that aim primarily to support steel circularity are uncommon and many take either a broad or a downstream approach as well as a more demand side focus.
Policies are mostly non-binding, focusing on carrots and not sticks. Governments are opting to incentivise and finance the transition rather than achieve this through regulation and pricing.
The most used policy instruments are the provision of public funding (34%) and non-binding targets (22%) with regulations, standards/guidelines (15%), taxes (4%) and other instruments used to a lesser extent comparatively.
Jurisdictions are opting for a horizontal policy approach (63%), which targets multiple sectors, or the industry sector as a whole. Policies are more likely to be steel-specific when they target challenges unique to this industry sector such as production overcapacity.
The characteristics of the policy mix implemented by countries vary widely, for instance in their steel-specificity (granularity), binding nature, objectives and the use of policy instruments to achieve these, highlighting the heterogeneity of steel-decarbonisation pathways.
Note: The jurisdictions covered in this report include the top ten global steel producers, excluding Russia and Iran and five other Climate Club members with a significant steel sector. They are, in alphabetical order: Australia, Brazil, Canada, China, the European Union, India, Indonesia, Japan, Korea, Türkiye, the United Kingdom and the United States.
Source: (Climate Club, 2025[75])
Based on this breadth of work, two types of solutions are presented and tested against the key challenges identified in the previous section:
Enabling conditions refer to the conditions that create a conducive environment to invest in low-carbon technologies for industry decarbonisation. They cover a wide array of dimensions, notably: institutions and governance; policies and regulations; infrastructure; and human capital (World Economic Forum, 2022[76]). For instance, an industrial company may select the location for a new plant using a low-carbon technology based on the availability of infrastructures to support the project integration, or on the stringency of policy measures fostering clean technologies such as carbon pricing. The public sector, and in particular policymakers, have a key role to play in lowering the risks of and thus the barriers to private capital investment in decarbonisation projects by establishing a supportive policy environment (Swiss Re Institute, 2022[77]). The increased policy interest in “green” industrial policies targeted at specific sectors or technologies often driven by strategic competitiveness and climate-related concerns.
Financial solutions:11
Economic instruments are defined as “a means by which decisions or actions of the government affect the behavior of producers and consumers by causing changes in the prices to be paid for these activities”.
Risk mitigation instruments help investors reduce or manage investment and project risks, typically in exchange for a fee and thus, improve the perceived risk-reward profile of an investment.
Financing instruments, such as debt or equity financing, help to fund business activities, making purchases, or investments.
The solutions presented in Table 3.2 only represent a subset of all the potential solutions to support the decarbonisation of the industry. They have been selected based on the OECD expert judgement, bilateral exchanges with national and international stakeholders and meetings of the project’s Technical Advisory Committee (TAC) between 2023 and 2025. The main criteria are the suitability to address the key challenges of the previous section and their impact to help unlock and mobilise investment for the selected low-carbon options.
Note: (Carbon) Contracts for Difference can also be seen as a financing instrument.
In the next paragraphs, each potential solution is detailed with (i) a general definition of the solution, (ii) its suitability in the context of South Africa and (iii) when possible, inspirational examples of how the solution has been applied in other countries. It is worth noting that a few potential solutions may be challenging to replicate or implement in South Africa, given the importance to alleviate pressure from the public sector. This also corresponds to the observation that while advanced economies tend to rely on direct financial grants, state loans and other state aid, EMDEs opt for import tariffs, state loans and tax relief and in general more trade restrictions on imports and exports, i.e., policies which do not depend on direct expenditures from the government budget (Evenett et al., 2024[78]).
3.4.1. Enabling conditions
Roadmaps, plans and targets
Roadmaps, plans and targets set out the objectives that a government wants to achieve and indicate the direction that all other policies will follow. Roadmaps typically include long-term objectives, whereas detailed plans focus on nearer-term objectives and targets may be either short- or long-term. These policy instruments can target different levels, such as the industry sector overall, specific subsectors (e.g. steel), certain enabling conditions such as infrastructure (e.g. hydrogen; carbon capture, utilisation and storage; low-emissions electricity), or specific aspects of the industrial decarbonisation process (e.g. just transition plans, financing plans). For many countries, their Nationally Determined Contributions (NDCs) under the 2015 Paris Agreement set the long-term decarbonisation goals for their economies. The NDC revision process in 2025 (also known as NDCs 3.0) provides an opportunity to include industrial decarbonisation targets and plans (IEA, 2025[3]).
India has published in March 2025 a Greening the Steel Sector in India: Roadmap and Action Plan (Ministry of Steel, 2024[79]). The plan provides a holistic series of actions relying on three key pillars: the incentivisation and ecosystem development for low-emissions steel (including e.g. green steel definition and demand generation), levers to enable decarbonisation (e.g. green hydrogen, CCU, energy efficiency and renewable energy) and avenues to support the transition (e.g. finance, international focus and skill development). It has been developed through a strong consultative process launched in April 2023, where the Indian Ministry of Steel constituted 14 task forces that cover the pertinent aspects of decarbonisation of the steel industry. This process is already yielding key outputs: in December 2024, the government reaffirmed its 2030 production target and announced a “Green Steel Mission” funded with USD 2 billion to decarbonise the steel sector as well as a production-linked incentive to boost domestic manufacturing (Ministry of Steel, 2024[79]).
Standards, definitions and certification for low-emissions steel
Standards, definitions, certifications and labelling for low-emissions materials production allow for the differentiation of low-carbon and of higher emitting production techniques. These instruments are a basis for government to apply targeted policies, such as measures to restrict production above certain emissions levels or incentivise low-emissions products. In addition, they enable producers to better market low-emissions materials to potential buyers (IEA, 2025[3]).
To date, there is no single standard, definition or certification for low-emissions steel. Given the prominence of trade on the global steel market, it is essential to ensure that standards, definitions, certifications and labelling that may be developed in South Africa align with the international methodologies and criteria in order to facilitate interoperability or alignment.
India is the first country to release a green steel taxonomy, at the end of 2024 (Ministry of Steel, 2024[79]). Furthermore, industry coalition and associations such as GSCC, WV Stahl and the First Movers Coalition (see Box 3.7), as well as international organisations (IEA, 2024[80]; WV Stahl, 2022[81]), have proposed or issued definitions and standards (Global Steel Climate Council, n.d.[82]).
Quotas and mandates
A near-zero emissions material production mandate or quota sets a growing minimum market share for near-zero emissions steel, thereby establishing a lead market through regulation. It can apply either on the production side, requiring producers to sell a growing share of near-zero emissions production, or on the consumption side, requiring product manufacturers in key demand sectors (e.g. automobiles, construction) to purchase a growing share of near-zero emissions production. Applying such regulations on the consumption side should enable product manufacturers to more easily pass through the cost to end-users; however, the policy may be more administratively complex due to larger number of actors involved emissions accountability along the value chain (IEA, 2025[3]).
While there are no green steel quotas and mandates so far, the European Union’s Renewable Energy Directive has introduced an obligation for the industry to procure at least 42% of its hydrogen from renewable fuels of non-biological origin (RFNBOS) by 2030 (European Commission, n.d.[83]). Echoing this approach, a group of 14 European industrial companies and associations called for progressive quotas for green steel in a letter sent to several EU Commissioners in November 2024 (France Hydrogene, 2024[84]).
Green public procurement
Green Public Procurement (GPP) is a process whereby public authorities seek to procure goods, services and works with a reduced environmental impact throughout their life cycle when compared to goods, services and works with the same primary function that would otherwise be procured (European Union, 2008[85]). The adoption of GPP requirements typically means the adoption of regulations that establish minimum environmental criteria (e.g. lifecycle emission thresholds for a given good or a specified percentage of recycled content) for either all or specific procurement categories. Institutional co-ordination between environmental and green public procurement policies through interministerial working group can be beneficial (OECD, 2024[86]).
In November 2024, the governments of Canada, Germany, United Arab Emirates, United Kingdom and the United States have pledged to adopt timebound commitments for procurement of low emission steel, cement and concrete, and/or to set emissions reduction thresholds for whole project life cycle assessments, to achieve net zero emissions in public buildings and/or built infrastructure (Industrial Energy Accelerator, 2024[87]). For instance, in 2020, the Government of Canada has committed to reducing the embodied carbon of major federal construction projects by 30% starting in 2025, using recycled and lower-carbon materials, through its Greening Government Strategy (Government of Canada, n.d.[88]).
Long term supply contract and/or captive assets for renewable electricity, hydrogen and iron ore supply
Securing long-term supply contracts or owning captive assets for critical inputs such as renewable electricity, renewable hydrogen or iron ore is crucial for decarbonising steel production. Such arrangements provide supply certainty and price visibility. Coupled with long-term offtake contracts for green iron or green steel, this enables to lock-in the spreads and underpin project bankability by offering predictable cash flows and shielding steel producers from market volatility.
For the selected low-carbon options, three contracts are essential:
A reliable, low-cost renewable electricity supply for hydrogen production and for the electric arc furnace. Captive renewable power generation facilities and batteries or long-term power purchase agreements (PPAs) may be necessary where grid renewables capacity is limited.
A steady hydrogen feedstock (in case of third-party supply)12 for H2-DRI-EAF and for methanol production. This approach can support the scaling of renewable hydrogen demand, where the offtake uncertainty is perceived as the main risk by investors (OECD/The World Bank, 2024[33]).
Iron ore delivery for high-grade DRI pellets.
Stegra (formerly H2GreenSteel), a company currently building a greenfield H2-DRI-EAF plant in Sweden, is already deploying a robust contractual strategy (OECD, 2024[89]). The company has already secured supply of iron ore pellets from Vale in Brazil and Anglo American mines in Brazil and South Africa, as well as electricity for hydrogen production and their Electric Arc Furnace through long-term agreements with Statkraft, Fortum, Axpo and Uniper (Stegra, 2023[90]; Stegra, 2023[91]; Stegra, 2022[92]; Stegra, 2023[93]; Stegra, 2024[94]; Stegra, 2025[95]). Another example the definitive agreements signed in November 2024 between Rio Tinto and GravitHy, an early-stage industrial company, to help accelerate GravitHy’s steel decarbonisation project in the south of France. As part of this collaboration, Rio Tinto will supply high-grade direct reduction iron ore pellets from its Canadian operations to GravitHy’s planned facility, as well as manage the sales and marketing of ultra-low carbon Hot Briquetted Iron (HBI) produced by GravitHy (Rio Tinto, 2024[96]).
Facilitation to connect financing and funding needs
Governments can facilitate the development of platforms to connect project developers and financial institutions. Such platforms can also provide advisory services to help projects improve their business cases and bankability. This is particularly critical to accelerate the transition as it is challenging to make many decarbonisation projects attractive to financiers and at the same time, many financial institutions are willing to finance decarbonisation projects but struggling to identify and assess them (IEA, 2025[3]).
In November 2024, Türkiye launched an industrial decarbonisation platform called TIDIP (European Bank of Reconstruction and Development, 2024[97]). The platform is backed by the EBRD, with the ambition to deploy USD 5 billion in investment by 2030. TIDIP focusses on the steel, aluminium, cement and fertiliser sectors. Its objectives are aligned with sectoral low-carbon pathways developed by the EBRD and the Ministry of Industry and Technology, which aim to facilitate impactful investment pipelines for private- and public-sector involvement.
Sustainable investment schemes, taxonomies or roadmaps
Sustainable taxonomies indicate which investments and activities can be considered environmentally sustainable and/or consistent with a pathway towards government objectives for net zero emissions. These taxonomies could be incorporated into regulatory frameworks to set the principles, rules and procedures that investors should follow to invest in or raise capital for a project focused on environmental sustainability (OECD, 2024[98]). Taxonomies can be used by investors to justify that their investment is making a positive contribution to decarbonisation efforts. Therefore, they facilitate the mobilisation and reallocation of financial capital towards those green and sustainable investments, thereby improving market integrity. In some cases, they may include a focus on transition finance (OECD, 2022[99]).
Around 70 countries have established climate-related finance guidelines, which can include taxonomies. Interoperability between sustainable finance taxonomies is essential to facilitate seamless cross-border flows of climate finance, helping countries mobilise the resources needed to achieve the net-zero targets. In 2025, the Climate Policy Initiative conducted work to evaluate the alignment of the South African Green Finance Taxonomy (SA GFT) with international standards (Meattle et al., 2025[100]).
In October 2021, Japan published a Technology Roadmap for Transition Finance in Iron and Steel Sector (Ministry of Economy, Trade and Industry (METI), 2021[101]). This Roadmap serves as a reference for iron and steel companies in Japan when using transition finance, based on the country’s Basic Guidelines on Climate Transition Finance and aligned with the country’s NDC (Ministry of Economy, Trade and Industry (METI), 2021[102]). It is intended to help banks, securities companies and investors to assess the eligibility of the iron and steel company’s strategies and approaches.
Co-ordinated planning and public financing for required supporting infrastructure
Co-ordinated government planning and public financing are fundamental to the development of infrastructure that underpins industrial decarbonisation, such as CO₂ transport and storage, or renewable energy and hydrogen production. This co-ordinating approach can imply full construction of the infrastructure or focus on establishing a legal and regulatory framework to enable its development. The government’s role can also be related to developing long-term infrastructure plans, setting permitting rules, establishing concessions for the projects, or enabling public private partnerships (PPPs) (IEA, 2025[3]). New governance and partnership approaches may be needed, such as public-private partnerships of industrial clusters (Cordonnier and Saygin, 2023[2]).
The risks of major infrastructure investments can be better distributed between private and public investors, but also among several private investors. For instance, rail and port infrastructure can be used by multiple actors and promote the development of other economic activities in the area. Moreover, in particular in South Africa, a Just Transition approach to infrastructure development may be essential. For instance, electricity and desalinated seawater plants developed for a large-scale steel project can be used to supply the needs of local communities (Stamm et al., 2023[103]).
An illustrative example is the Netherlands’ National Climate Agreement, which explicitly coordinates industrial clusters, hydrogen infrastructure and carbon capture and storage development with regional governments and private stakeholders (Netherlands Enterprise Agency (RVO), 2020[104]). This co-ordinated approach helps ensure that investments in hydrogen pipelines and CO₂ transport are aligned with the hard-to-abate industries decarbonisation needs, providing certainty and lowering overall costs.
In Brazil, several hubs are being developed to develop renewable, hydrogen and iron and steel production, such as Ceará Green Hydrogen Hub, potentially including incentives linked to special export processing zones (EPZ) regulations, or hubs developed around the facilities of the mining company Vale (Climate Investment Funds, 2025[105]; OECD, 2024[106]; Vale, 2025[107]).
Export restriction
Export restrictions are state-imposed measures that aim to limit the export of certain critical products. Waste and scrap products had the highest incidence of export restrictions and the latter is particularly relevant to steel decarbonisation (OECD, 2025[108]). The strategic importance of scrap as a key input to the steel production processes, in particular in the electric arc furnaces and for the decarbonisation of steel industry, is the main reason for the introduction of scrap exports restrictions. This has resulted in a number of countries introducing measures to control exports. In 2022, 72 export measures affecting 3.3 million tonnes of exports (5% of the total scrap exports) were in effect globally. Export taxes and licensing requirements were the most common policies, followed closely by export quotas (OECD, 2025[5]).
In 2020, South Africa introduced an export duty on scrap metals under the Customs and Excise Act of 1964. The primary objective of this duty is to provide local foundries and mills with better access to higher quality and more affordable scrap (South African Revenue Service, n.d.[27]). By doing so, the policy aims to enhance the competitiveness of the South African steel industry. Since the implementation of the duty, South Africa experienced an estimated 38% decline in its scrap metal exports (Ngwenya, 2024[109]). Complementing the export duty, the Price Preference System (PPS) requires scrap metal producers to offer their scrap to local consumers at a discounted price before considering export. This system aims to promote local steel manufacturing by giving local industries priority access. The PPS has been extended until 2027, with the aim to set regular market prices based on international benchmarks. It has been updated regularly since July 2022 (International Trade Administration Commission of South Africa, 2025[110]).
Participation in international climate and industry initiatives
International cooperation plays a pivotal role in addressing the global and interconnected challenges of steel sector development and decarbonisation. Participation in multilateral climate initiatives and coalitions fosters knowledge sharing, technology transfer and the harmonisation of standards and policies. For instance, since 2016, the OECD facilitates the Global Forum on Steel Excess Capacity (GFSEC) to consider collective solutions to the challenge of excess capacity and ensure a level playing field in the steel sector. South Africa is one of the 28 members of the GFSEC, which gathers many of the largest steel-producing economies in the world (GFSEC, 2025[111]). This global dimension is critical given the steel sector’s export-import dynamics and the importance of coordinated policy signals for effective industrial transformation.
These collaborative frameworks can promote collective action towards common environmental and social goals. For instance, investment treaties can be designed to encourage cross-border investments in low-emissions steel and technology partnerships can stimulate the joint development and deployment of breakthrough innovations, leveraging the strengths of diverse countries and companies to accelerate decarbonisation.
International cooperation and exchanges can also help identify best practices in critical area for South Africa, such as capacity-building. For instance, in Sweden, the Talent 25 000 Council (T25) is a platform comprising industry representatives from the biggest employers in the battery and steel industry in Norrland, a technical university and a recruitment and relocation company. The Swedish Public Employment Service co-operates with T25 and other stakeholders (employers, regions and municipalities) and as a result has one of the most diverse range of policies and initiatives to tackle the employment needs of the region. Their success is in large part related to the diversity of actors that collaborate to increase employment and skills for the green transition (OECD, 2023[112]).
3.4.2. Financial solutions
Carbon pricing
Carbon pricing – implemented either via taxes or quantity regulation via emissions trading systems (ETS) – is a cornerstone climate policy in many countries and provides incentives to reduce emissions by the least costly means possible. In 2024, there were about 75 carbon pricing initiatives including 39 carbon taxes and 36 emission trading schemes, with rates ranging from USD 2 to USD 150 per tonne of CO2 equivalent (World Bank, 2024[113]). The tax is typically levied on emissions of covered sectors in the form of a fixed price per unit of emissions. Also known as a cap-and-trade system, an emissions trading system (ETS) is a market-based mechanism which works by placing a quantitative limit (a cap) on the amount of GHG emissions in one or more sectors of the economy, while allowing allowances (or permits) trading. Each allowance represents each unit of emissions. The cap decreases annually in line, with an emission reduction target. The cap is expressed via emission allowances which can be sold and traded via auctions. Companies may receive a certain number of free allowances that decline over time according to benchmarks tailored to specific sectors and products and can sell excess credits to other companies. Polluters with more emissions than their quota must purchase the right to emit more from emitters with fewer emissions (OECD/Climate Club, 2025[1]).
A well-designed carbon pricing system would encourage continuous emission reductions by increasing the cost competitiveness of low-carbon steel relative to conventional products. It also generates public revenues that can be recycled to support decarbonisation efforts for the sector, such as funding innovation or compensating vulnerable industries. Therefore, it can crowd in private sector investment and facilitate a just and economically efficient transition. The effectiveness of carbon pricing depends on adequate price levels and policy predictability to drive long-term investment decisions.
South Africa’s carbon tax was introduced in June 2019 in a phased approach to ease the transition to net zero. The carbon tax rate trajectory has also been set out in legislation up to 2030 to provide policy certainty to investors and guide future investment decisions. The official tax was initially set at a rate of ZAR 120/t CO2 (USD 7/t CO2) and increased gradually to reach ZAR 236/t CO2 (or about USD 13/t CO2) in 2025. However, the iron and steel sector benefits from a 60% to 95% tax-free allowances to cushion the potential adverse impacts of carbon pricing. The design of the carbon tax already builds in incentives through the tax-free allowances to reward companies for investments made to decarbonise their operations and reduce their carbon intensity. The carbon offset allowance has also been increased to further stimulate clean and green investments, from which sectors can benefit in terms of reduced emissions and access to additional carbon finance (National Treasury, 2025[114]).
The Mexico ETS, the first in Latin America, started its pilot phase in January 2020. It covers direct CO2 emissions from fixed sources in the energy and industry sectors emitting at least 100 000 t CO2 per year, representing around 40% of national GHG emissions. Its fully operational phase is expected to start in 2025, with a price expected to be below USD 5/t CO2 (Daniela Villanueva, 2024[115]). Carbon pollution pricing has been in place across all Canadian jurisdictions since 2019, under the pan-Canadian approach to pricing carbon pollution. The federal government sets minimum national stringency requirements for provincial and territorial systems and implements a backstop pricing system in provinces that request it or do not have a system that meets these requirements. The federal backstop for large industry is a regulatory trading system known as the Output-Based Pricing System (OBPS) (Government of Canada, 2025[116]; Government of Canada, 2025[117]). In jurisdictions where the federal OBPS applies, participation is mandatory for industrial facilities in specified emissions-intensive and trade-exposed sectors that emit greater than or equal to 50 000 t CO2e. The minimum national carbon price is CAD 95 (USD 69.38) in 2025 (International Carbon Action Partnership, 2019[118]). In March 2025, Environment and Climate Change Canada announced that nearly CAD 150 million (110 USD) from the Output-Based Pricing System Proceeds Fund is being used to benefit 38 projects through a Decarbonization Incentive Program.
Subsidies for clean technologies
The ambition of net zero objectives may lead some countries to opt for policies which transfer costs and risks of the transition from the private sector to the public sector. Targeting investment specifically, as most clean tax incentives and many subsidies do, can reduce emissions but also has limitations as a climate policy approach. It is essential to direct support towards clean technologies necessary to achieve net zero, as since 2000, government support has contributed to increased carbon emissions from steelmaking activities through an increase in production output and by shifting production to more emission intensive plants (Garsous, Smith and Bourny, 2023[119]). Grants and clean tax incentives can advance this climate objective by either displacing more emissions-intensive investment or simply boosting clean investment. However, investment-focused climate policies can reduce the cost-effectiveness of the policy mix. Data from OECD Climate Actions and Policies Measurement Framework (CAPMF) show that South Africa’s policy stringency, defined as the degree to which policies incentivise emissions reductions, is in the lower quartile among the 50 surveyed countries (OECD, n.d.[120]).
Grants are direct financial aid to achieve the deployment of a specific activity or project. They can be used at various stages of development, including for research and development, project preparation, or to support CAPEX and operational expenditures (OPEX) (OECD/Climate Club, 2025[1]). While these instruments are often favoured by industry actors due to their simplicity of implementation, they can exert pressure on the public budget, in particular for capital intensive technologies. For instance, as of November 2024, European countries had granted a total of around USD 15 billion for DRI-EAF, with the support for individual sites ranging from USD 62 million for a pilot H2-DRI plant in Hamburg, Germany, to USD 3.4 billion for the green transformation of a blast furnace plant in IJmuiden, in the Netherlands.
Tax credits are another instrument that governments can use to provide financial incentives to invest in low-carbon options and expand manufacturing capacities. Tax incentives can be important policy tools where there is a strong rationale, but they carry risks and costs. Empirical studies show that CIT affects investment and tax incentives can boost investment. However, if poorly designed or used in the absence of a sound rationale, they can deliver windfall gains without spurring additional investment, distort investment decisions in costly ways and lead to foregone tax revenue (Dressler and Warwick, 2025[121]). For instance, in March 2024, USD 500 million was allocated to diverse industrial decarbonisation projects in the United States, including ceramics, glass, iron and steel or pulp and paper, in the first round of the 48C Advanced Energy Project Tax Credit.
(Public) guarantee instruments
A public guarantee is a formal assurance that a public institution will respond economically in the name of the borrower in the case of default on a loan (typically from the private sector, though also possible for loans provided by other public or multilateral entities). In the context of steel decarbonisation, guarantees should aim to support projects for the early deployment and/or the long-term scale-up of low-carbon technologies.
The transaction costs associated with deploying guarantees and other risk mitigation instruments are often substantial, which can deter stakeholders from using them. Transaction costs can include fees for legal services, administrative expenses and the time and effort required to co-ordinate and negotiate among the multiple parties involved in the transaction. When it comes to guarantees and other risk mitigation instruments, these costs can be particularly high due to their complexity and the number of stakeholders involved (OECD, Forthcoming[122]).
Combining tailored risk mitigation instruments in comprehensive risk mitigation strategies is critical to create a pipeline of bankable projects. This requires tailoring the design of instruments to the specific risks faced by the steel sector in South Africa. Indeed, many (public) guarantee products exist, such as:
Political risk insurance protects against borrower failure to repay in case non-commercial risks materialise, such as expropriation, political violence, currency inconvertibility and transfer restrictions and breach of contract (MIGA, 2011[123]). If such an event occurs and repayments are disrupted, political risk insurance/ guarantees pay out all or a portion of the losses that arise due to the event (Shally Venugopal, 2012[124]).
Buyer credit guarantees, provided by a country’s export credit agency (ECA), is an instrument that covers most of the risk assumed by a commercial bank towards a foreign borrower or buyer of goods from the home country of the ECA. In other words, a commercial bank provides a loan to a foreign buyer and, rather than assuming credit risk on the foreign buyer, transfers this riskto an ECA. The Buyer Credit Guarantee covers both the commercial and political/sovereign risks (Cordonnier and Saygin, 2023[2]).
First loss credit risk guarantees are designed to mitigate the risks associated with lending and investment by having a third-party guarantor covering the first portion of losses incurred in the event of a default of a loan or investment (or a portfolio). This makes the remaining portion of the portfolio more attractive to other investors by reducing their risk exposure. This risk mitigation encourages financial institutions to participate in projects they might otherwise avoid. By providing a safety net for lenders and investors, first loss guarantee can have a significant risk mitigation and credit enhancement effect. Given their limitations, they should be used to support first-of-a-kind project, such as investment in new sectors or new, risky or untested business models. Once a sector or business model is more developed, pari passu guarantees can be more efficient instruments to mitigate remaining risks (OECD, Forthcoming[122]).
South Africa has experience in developing guarantee instruments in the power sector. The South African government launched the Energy Bounce Back (EBB) Loan Guarantee Scheme in 2023 to address the challenges of load shedding and unreliable power supply by promoting small-scale solar rooftop investments by households, SMEs and Energy Service Companies (ESCOs), with a focus on women-led entities. The National Treasury provided a sovereign guarantee to the South African Reserve Bank (SARB), which then lends to participating banks. The guarantee covers 20% of losses from loans on a first loss basis, thereby reducing the perceived risk and increasing capital availability for rooftop solar investments. This initiative complemented existing tax incentives for solar installations. In addition, the EBB scheme was part of a broader package of policy reforms to enhance energy security and promote a low-carbon transition. The South African government received policy-based lending support by the World Bank for implementing such package of reforms. This case study shows that combining sovereign guarantees with other policies and incentives, like tax rebates, can enhance the overall effectiveness of the initiative. Integrating such schemes into broader policy reforms aimed at energy security and low-carbon transitions can provide sustainable benefits.
An example of partial credit guarantees is the Partial Risk Sharing Facility for Energy Efficiency (PRSF) implemented by the Small Industries Development Bank of India (SIDBI). The Government of India, represented by the Bureau of Energy Efficiency and the World Bank designed the PRSF in 2015 to support India in achieving energy savings by unlocking commercial financing for the local ESCO market and to demonstrate innovative financing and implementation mechanisms. The PRSF, managed by the Small Industries Development Bank of India, consists of (i) a USD 37 million Partial Risk Sharing Facility for Energy Efficiency, providing partial credit guarantees to cover a share of the default risk faced by participating financing institutions when extending loans to eligible energy efficiency projects (with coverage up to 75% of the loan amount) and (ii) a Technical Assistance and Capacity Building component of USD 6 million, which also provides capacity building and operations support. The PRSF covers up to 75% of an energy efficiency loan, with a threshold of USD 3.6 million per project. The non-refundable annual guarantee fee amounts to 0.5–1%, depending on the guarantee loan amount or exposure and the grading of ESCO (Cordonnier and Saygin, 2023[2]).
(Carbon) Contracts for Difference
A contract-for-difference (CfD) is a subsidy model to pay out the supplier of a low-carbon product based on the difference between the market price and an agreed strike price. CfDs are usually symmetrical. For instance, in the case of a low-carbon product supplier, if the strike price is higher than the market price, the CfD provider must pay the difference; whereas if the market price is higher than the agreed strike price, the low-carbon product supplier must pay back the CfD provider the difference (OECD/Climate Club, 2025[1]). CfDs have been widely used in electricity markets, usually based on transparent and liquid indices. However, this approach cannot be directly replicated for clean hydrogen, where no clear price index nor liquid market exist. To address this, an arbitrary reference price can be set, or the natural gas or electricity market prices can be used as a reference (OECD/The World Bank, 2024[33]). For decarbonisation projects, Carbon Contracts for Difference (CCfDs) are being considered, that would use a carbon price level as a reference for emissions reductions below a benchmark baseline (German Institute for Economic Research, 2021[125]).
In March 2024, Germany has launched a first auction for its carbon contracts for difference funding programme. Eligible companies from energy-intensive industries have been invited to apply for 15 years of funding for their largest transition projects. In October 2024, 15 transformation projects have been awarded, for a total maximum funding of EUR 2.8 billion (USD 3.2 billion) and an estimated emission reduction of up to 17 billion tonnes of CO2 equivalents (Federal Ministry for Economic Affairs and Energy, 2024[126]). Although no iron and steel projects were awarded in this first round, the supported companies cover various industrial subsectors, including chemistry, metal production or glass and ceramics and several hydrogen and biomass-based projects.
Concessional and blended finance
Reaching the investment levels foreseen by net-zero pathways will require a larger contribution from private sources than today, particularly in emerging and developing economies. While public finance is important, it is constrained as the public budgets of countries face pressure and countries have limited resources and policy space to expand in view of the significant outstanding needs for other goals. Public finance should rather be strategically used for mobilising underutilised private capital through blended finance approaches (OECD, 2022[127]). Challenges faced by the public sector to mobilise private finance may arise when the project business model does not provide enough assurance to private investors. For example, in emerging and developing economies, industrial projects may face specific risks that deter private investment. These include political instability, regulatory uncertainty, such as unclear permitting and licensing processes, the low reliability of infrastructures, or weak financial institutions. However, blended finance volumes for industry decarbonisation remain very limited. The blended finance market increased from an average of USD 10.7 billion annual financing in 2011–2022 to USD 23.1 billion in 2023 and USD 18.3 billion in 2024. However, only 11% of these flows took place in the industry sector in 2022–2024 (Convergence Finance, 2022[128]; Convergence Finance, 2025[129]; Artelys, 2020[43]). An OECD survey estimated that in 2020, the blended finance vehicle investments for the industry sector reached around USD 4 billion, based on close to 200 responses from collective investment vehicles (Dembele et al., 2022[130]).
Used strategically and judiciously, international concessional funding is a crucial enabler for projects that might not otherwise attract private funding. Not all projects need this kind of support and it is not a substitute for policy actions or institutional reforms. But it can help move projects forward when they involve technologies that have yet to scale and are not yet cost-competitive in nascent markets, are in frontier markets with higher levels of country and political risk, or involve macroeconomic risks that raise project costs (IEA, 2024[131]).
The High Impact Programme for the Corporate Sector (HIP), approved in 2020 and running until 2029, promotes the uptake of low-carbon technologies in seven select countries: Armenia, Kazakhstan, Jordan, Morocco, Serbia, Tunisia and Uzbekistan. It is an industry-focused technical assistance and investment program co-financed by the Green Climate Fund (concessional) and the European Bank for Reconstruction and Development (market rate) (Climate Policy Initiative, 2024[132]). It consists of multiple components: (i) USD 5.42 million in grants to develop low-carbon strategies and prepare investments through the development of corporate low-carbon gender-responsive strategies; (ii) USD 1.01 billion investment programme for high climate impact projects in targeted industrial sectors including iron and steel, where loans rate have a discount if certain predefined milestones are met, with an interest rate floor of 1% and (iii) USD 1.45 million in grants to develop low-carbon sectorial roadmaps and knowledge sharing.
Long-term iron and steel offtake agreement and green premium
An offtake agreement is a contract between a buyer and a seller outlining the conditions under which a buyer will purchase a specified quantity of a commodity at a predetermined fixed or indexed price. In the case of low-emissions iron and steel, these agreements should include a green premium to cover the additional costs borne by the producer.13 In project finance, investors will typically require long-term offtake arrangements to be in place which provide for a predictable revenue stream based on a creditworthy offtake (Green Hydrogen Organisation, 2024[133]). These agreements can include diverse clauses to increase the investors’ confidence, such as take-or-pay arrangement.
Industrial customers face significant challenges in accepting green premiums for low-carbon products such as low-emissions iron and steel and e-methanol. The premium can be difficult to absorb in highly competitive, cost-sensitive markets. Many customers operate on thin margins, and even when cost pass-through is theoretically possible, it also depends on consumer demand for sustainable products and on buyers’ willingness to absorb higher prices (Cordonnier and Saygin, 2023[2]).
On the international markets, many companies have committed to procure net-zero steel, for instance through buyers’ clubs such as SteelZero or the First Movers Coalition (see Box 3.7) (Climate Group, n.d.[134]). There are several examples of offtake agreements globally, though none currently in South Africa. These agreements provide financial certainty for low-emissions steel projects. Examples include Volvo cars having signed a deal with SSAB to procure fossil-free steel, Ørsted and Dillinger having signed an agreement for lower-emission steel to be used in wind farms, or Blastr and Stegra announcing multiple steel offtake agreements for their future plants in Northern Europe (Volvo Cars, 2021[135]; Orsted, 2024[136]; Stegra, 2022[137]; Stegra, 2023[138]; Stegra, 2023[139]; Blastr, 2025[140]).
Building a stand-alone DRI/HBI production plants could also be an option, given the ongoing trend to try to decouple ironmaking (via the H2-DRI route) and steelmaking (electric arc furnaces) operations. This option can be attractive to lower the CAPEX and reduce the construction and operation complexity. Moreover, DRI/HBI is already a traded commodity. In November 2024, HyIron has signed an offtake deal with German firm Benteler for 200 kilotonnes per year of green iron from its Oshivela project in Namibia (Hydrogen Insight, 2024[141]). The official commissioning of the HyIron Oshivela pilot plant and the production of the first tonnes of iron using renewable hydrogen and off-grid solar power took place in 2025 (HyIron, n.d.[142]). Some volumes can also be sold to a risk-taking (public or private) intermediary. For instance, end of 2024, Rio Tinto signed a long-term agreement to manage the sales and marketing of low-carbon Hot Briquetted Iron (HBI) produced by the planned future DRI/HBI plant of GravitHy in the South of France (Rio Tinto, 2024[96]).
The First Movers Coalition (FMC) is a voluntary global initiative launched at COP26 in 2021. The Coalition advances critical, emerging climate technologies by leveraging its members’ collective purchasing power, respecting competition and antitrust laws and regulations. By translating member commitments into the world’s largest, credible demand signal, the FMC accelerates the adoption of emerging climate technologies needed for decarbonisation of heavy-emitting sectors.
FMC members include leading global firms in manufacturing, transportation and energy, ensuring broad industry participation. The coalition also has 13 governments joined the coalition as partners, supporting policy alignment and financing mechanisms. Since its establishment, the FMC has driven market readiness for clean industrial solutions, fostering commitments across aviation, shipping, trucking, aluminium, cement and concrete, steel and carbon dioxide removal.
Over 100 FMC corporate members have made close to 125 purchasing commitments across seven sectors, ensuring demand for near-zero technologies that can deliver 80% or more carbon abatement. By 2030, FMC commitments are estimated to represent an annual demand of about USD 16 billion, leading to an estimated 31 Mt of CO₂e emissions reductions.
The first suppliers who are on track to meet FMC thresholds are listed in the FMC First Suppliers Hub, launched during the World Economic Forum’s Annual Meeting in Davos in January 2024. This growing repository of near-zero emissions projects across the FMC’s materials and mobility sectors is an open-source tool available and open to all users around the globe.
FMC members pledged to have at least 10% (by volume) of all their steel purchased per year to be near-zero emissions by 2030, i.e., satisfying the following criteria:
Crude steel from breakthrough technology production facilities. Per IEA guidance, the steel should emit <0.4 (0% scrap inputs) to <0.05 t (100% scrap inputs) of CO2e per tonne of crude steel produced
The analytical boundary for emissions is cradle-to-gate, in alignment with IEA guidance in the report Achieving Net Zero Heavy Industry Sectors in G7 Members (IEA, 2022[143]).
To accelerate domestic supply chains for low-carbon industrial materials, FMC has hosted several in-country workshops in Brazil, India, South Africa and the United States convening industry leaders, policymakers and financial institutions to discuss policy levers, regulations and investment strategies for scaling clean technologies.
Note: The purchasing commitments made by the members of the First Movers Coalition are subject to the availability of material(s) supply. The FMC members acknowledge that procuring the material(s) needed to meet these commitments may come at a premium cost.
Financing mechanisms for energy efficiency
Financing industrial energy efficiency is a critical strategy for cost-effective decarbonisation. Despite potentially high returns on investment, many industrial firms underinvest in energy savings technologies due to capital constraints, limited internal expertise or a lack of knowledge and data about the benefits of energy efficiency improvements (European Commission, Directorate-General for Energy, Climate Strategy, COWI, d-fine, EEIP, EnergyPro, Fraunhofer ISI, ICCS-NTUA, Viegand Maagøe, 2022[145]).
ESCOs offer a model to deliver energy efficiency improvements without requiring upfront capital from industrial clients. ESCOs can mobilise private capital and technical expertise at scale. They design, implement and can secure the finance for projects, with compensation linked to the actual energy savings achieved. This structure can be performance-based through energy or efficiency services agreements in order to reduce financial risk for steel manufacturers.
Market confidence in energy performance contracting and the ESCO model can be strengthened by developing energy savings insurance, an innovative financial product that covers projected paybacks from capital-intensive energy-efficient technology investments. With such an insurance product, ESCOs can back their contractual guarantees for the performance of their products and MSME clients can be assured of compensation in case projected energy savings are not realised (OECD, 2022[146]).
The European Commission has initiated the European Energy Efficiency Financing Coalition, bringing together countries, financial institutions and relevant stakeholders to identify actions to improve private financing for energy efficiency. The work of this coalition can build on the De-risking Energy Efficiency Platform (DEEP), a pan-EU open-source database containing detailed information, evidence and analysis of over 20 000 energy efficiency projects. It incorporates performance track records and helps project developers, financiers and investors better assess the risks and benefits of energy efficiency investments. The Bureau of Energy Efficiency in India has developed a Small and Medium Enterprises Energy Efficiency and Knowledge Sharing (SAMEEKSHA), a collaborative platform that pools and shares the knowledge and experiences of stakeholders engaged in promoting energy efficiency in the Indian MSME sector. It includes a detailed mapping of energy consumption of MSMEs, a catalogue of energy efficiency solutions and detailed case studies of project implementation (Sameeeksha, n.d.[147]).
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← 1. The OECD defines economic instruments as “a means by which decisions or actions of the government affect the behaviour of producers and consumers by causing changes in the prices to be paid for these activities”. Risk mitigation instruments help investors reduce or manage investment and project risks, typically in exchange for a fee, and thus, improve the perceived risk-reward profile of an investment. Financing instruments, such as debt or equity financing, help to fund business activities, making purchases, or investments. This classification is not always strictly defined. For instance, contracts for differences are sometimes seen as a financing instrument and sometimes as a de-risking instrument.
← 2. Due to the modelling approach that is adopted for BF-(CCU)-BOF, the sales price of renewable methanol is adjusted to have a neutral impact on the NPV in the base case. The hydrogen subsidy modelled here has the same impact on NPV as a premium on methanol sale (USD 1/kg H2 subsidy corresponding to a green premium of USD 195/t methanol).
← 3. Indeed, as the economic assessment is made at project level, the corporate income tax is zero when the Profit Before Tax is negative. In the economic calculation, there are also no limitations on the carry-forward periods nor on the level of accumulated losses.
← 4. The alignment could also foster the use of locally sourced steel to develop other sectors. For instance, SAREM highlights that steel is a key input to develop the solar, wind and battery storage value chains (Government of South Africa, 2025[38]).
← 5. DRI is chemically reactive and therefore would normally be converted to Hot Briquetted Iron (HBI) if it is to be transported, in particular to reduce the risk of overheating, fire and explosion.
← 6. Steelanol is a CCU project that converts waste gases from a blast furnace into ethanol via a gas fermentation technology.
← 7. As none of the projects awarded in 2022 during the “Bidding Window 6” of the REIPPPP has reached financial close, the actual current prices for solar PV may actually be higher (Department of Electricity and Energy, n.d.[148]).
← 8. It differs from conventional DRI plants as it does not use reformed natural gas but purified “Corex gas” as reduction medium.
← 9. i.e. 6 jobs are created in total when a direct job is created in the steel sector.
← 10. Science, technology, engineering and mathematics.
← 11. This classification is not always strictly defined. For instance, contracts for differences are sometimes seen as a financing instrument and sometimes as a de-risking instrument.
← 12. If hydrogen production is integrated in the project, the renewable electricity contract to produce hydrogen would be sufficient.
← 13. A similar model of long-term offtake agreements can be followed for e-methanol produced from carbon capture and renewable hydrogen. Although there are no examples specific to the steel sector, several e-methanol offtake agreements have already been signed, for instance between European Energy and AP Moller Maersk (agreement signed in 2021, first deliveries took place in 2025), or between HIF Global and Mabanaft (Ship & Bunker News Team, 2025[149]; HIF, 2025[150]).