Japan’s Green Steel Revolution: How Low-Carbon Pathways Will Shape the Future of Steel Industry (2025)

Bold idea: Japan’s steel sector must embrace every low-carbon route to hit its 2050 net-zero target, or the climate plan and the economy both risk stalling. A new BloombergNEF analysis commissioned by Tokyo Steel Manufacturing Co. argues that no single technology will suffice; a mix of methods—especially expanding scrap-based electric arc furnaces (EAFs) powered by renewables—will be essential to decarbonize this hard-to-change industry that currently accounts for roughly 13% of Japan’s emissions amid falling domestic demand and rising global competition.

Policy levers like incentives and carbon pricing could accelerate the diffusion of low-emission steel technologies. In the current landscape, Japan’s cheapest steel production pathway remains blast furnace-basic oxygen furnace (BF-BOF) using existing and fully depreciated assets, unless a carbon price alters the cost calculus. By 2030, however, EAFs fed by scrap and powered by renewable energy could produce steel at about $720 per ton (real 2024), making them only about 18% more expensive than BF-BOF while delivering zero direct emissions. In contrast, approaches relying on hydrogen or carbon capture and storage (CCS) linger above $1,000 per ton in 2030 and do not become cost-competitive before the 2050 net-zero deadline.

Despite many low-emission pathways still maturing, the report highlights one near-term win: maximizing output from existing scrap-fed EAF capacity. BNEF’s findings show this route is currently among the most economical for low-emission steel in Japan. The government could further help by steering exported scrap toward domestic steel production. For example, Japan exported about 6.9 million tons of scrap in 2023; if redirected, it could feed roughly 5.8 million tons of lower-carbon EAF-based steel, assuming 1.2 tons of scrap yields one ton of steel. That shift could cut nearly 9.8 million tons of direct CO₂ emissions—about 7% of Japan’s Scope 1 and 2 steel-sector emissions in 2024—plus an additional 13.9 million tons of CO₂ reductions by powering the scrap-EAF process with clean electricity. In total, potential emissions reductions could reach 23.7 million tons of CO₂.

To steer decarbonization effectively, a standard for low-emissions steel would send a clear signal to domestic manufacturers about the standards they must meet. Establishing an industry-wide definition of green steel would unify criteria across producers and prevent fragmentation.