Carbon Capture in the Global Steel Industry: A Strategic Imperative for Decarbonization and Growth

The global steel industry stands at a crossroads. As the world's largest industrial emitter of carbon dioxide, steelmaking accounts for nearly 8% of global CO₂ emissions. With decarbonization mandates tightening and green steel demand surging, carbon capture, utilization, and storage (CCUS) has emerged as a critical tool for industrial giants to align with climate goals while maintaining competitiveness. This article evaluates the investment potential of CCUS partnerships led by BHP, ArcelorMittal, and China Baowu, analyzing their strategic approaches, financial commitments, and the risks and opportunities shaping this high-stakes sector.

The CCUS Landscape in Steel: A High-Stakes Transition

CCUS is not a silver bullet for decarbonization, but it remains one of the few viable pathways for retrofitting existing blast furnace-based steelmaking infrastructure. For companies like BHP, ArcelorMittal, and China Baowu, CCUS is a strategic bridge between legacy operations and net-zero ambitions.

BHP, for instance, has allocated $420 million from FY2020 to FY2029 to decarbonize its steelmaking value chain, with CCUS as a cornerstone. Its partnership with ArcelorMittal and Mitsubishi Heavy Industries at the Ghent steelworks in Belgium is a 12–18-month pilot testing CCUS in blast furnace operations. This project, though small in scale, is pivotal for proving the feasibility of capturing emissions from high-temperature, low-purity gas streams—a technical hurdle that has plagued CCUS projects globally.

China Baowu, the world's largest steelmaker, is taking a more aggressive approach. Its $35 million collaboration with BHP includes hydrogen injection trials and CCUS deployment at its blast furnaces, supported by a $7 billion national investment in hydrogen-based steelmaking. Meanwhile, ArcelorMittal's recent pause on European decarbonization projects—despite securing billions in subsidies—highlights the volatility of policy and economic risks in this sector.

Financial Commitments and Technological Realities

The financial stakes are immense. BHP's $420 million investment is part of a broader industry trend: global CCUS spending is projected to reach $12.9 billion by 2030, with North America leading due to robust policy incentives like the U.S. Inflation Reduction Act. However, the technical challenges of CCUS remain daunting. The UAE's Al Reyadah project, the only commercial-scale CCUS operation in steel, captured just 26.6% of emissions in 2023, underscoring the gap between pilot success and scalable deployment.

For investors, the key question is whether these partnerships can overcome cost and efficiency barriers. BHP's focus on “multi-point capture” in blast furnaces—capturing emissions at multiple stages of the process—offers a potential solution, but it requires significant capital and operational complexity. China Baowu's integration of hydrogen with CCUS, meanwhile, hints at a hybrid approach that could mitigate some of these risks.

Policy and Market Dynamics: Catalysts or Constraints?

Government policies are the linchpin of CCUS viability. The U.S. EPA's 2023–2024 regulations, mandating 90% emission reductions for coal and gas plants by 2032–2035, have created a regulatory tailwind for CCUS adoption. Similarly, the EU's Innovation Fund and the Netherlands' $7.3 billion Aramis project are accelerating infrastructure development.

However, policy uncertainty remains a wildcard. ArcelorMittal's 2024 project delays, attributed to “economic and geopolitical headwinds,” illustrate how shifting priorities or funding cuts could derail progress. In China, the suspension of new coal-based steel projects in 2024 has forced Baowu to pivot toward EAF and DRI technologies, which may reduce reliance on CCUS in the long term.

Investment Risks and Opportunities

CCUS in steel is a high-risk, high-reward proposition. The primary risks include:
1. High Capital Costs: CCUS projects require upfront investments of $100–$300 per ton of CO₂ captured, far exceeding the cost of hydrogen-based alternatives in some regions.
2. Technical Uncertainty: Low capture rates and the need for secure storage sites remain unresolved challenges.
3. Market Volatility: The absence of a robust carbon pricing mechanism or green steel premium could limit profitability.

Yet, the opportunities are equally compelling. BHP's Climate Investment Program, for example, is designed to leverage partnerships and co-investments, potentially amplifying returns. China Baowu's alignment with national decarbonization targets positions it to benefit from state-backed subsidies and infrastructure. Meanwhile, ArcelorMittal's pivot to hydrogen-based DRI—once its CCUS projects resume—could position it as a leader in Europe's green steel market.

Strategic Recommendations for Investors

1. Prioritize Partnerships with Strong Policy Backing: Companies like BHP and China Baowu, which are embedded in regions with clear regulatory frameworks (e.g., the U.S. IRA, China's 14th Five-Year Plan), offer more predictable returns.
2. Diversify Exposure: CCUS should be viewed as part of a broader decarbonization portfolio, including hydrogen and electrification. ArcelorMittal's hybrid approach, though delayed, exemplifies this strategy.
3. Monitor Cost Trends: Technological advancements and economies of scale could reduce CCUS costs by 30–50% by 2030, making it more competitive. Investors should track R&D progress and pilot outcomes.
4. Assess Market Readiness: The success of CCUS-enabled steel will depend on consumer willingness to pay a green premium. Early movers like Baowu may capture first-mover advantages in emerging markets.

Conclusion

The global steel industry's transition to net-zero hinges on CCUS, but its success will depend on overcoming technical, financial, and policy hurdles. BHP, ArcelorMittal, and China Baowu are at the forefront of this transformation, each navigating distinct challenges and opportunities. For investors, the key is to balance optimism with caution—recognizing CCUS as a strategic imperative while hedging against its inherent risks. As the world races to meet climate targets, the companies that master CCUS will not only reduce emissions but also secure a dominant position in the green industrial economy.