The Organization for Economic Co-operation and Development (OECD) has stated that South Africa’s iron and steel industry requires $25-30 billion in investments by 2050 to reduce greenhouse gas (GHG) emissions by up to 85 percent.
The findings, published in the OECD’s Implementing the Framework for Industry’s Net-Zero Transition in South Africa report, identify the steel industry as one of the country’s largest industrial carbon emitters, responsible for 2.5 metric tons of carbon dioxide per metric ton of crude steel, well above the global average.
Three-phase decarbonisation pathway
The OECD outlines a three-phase transformation roadmap for South Africa’s steel sector:
- Short term (2025-2030): improve energy efficiency and begin switching fuel to lower-carbon sources.
- Medium term (2030-2035): introduce hydrogen-based direct reduced iron (DRI) and electric arc furnaces (EAFs) to replace traditional blast furnaces.
- Long term (after 2035): deploy green hydrogen and carbon capture, utilization, and storage (CCUS) technologies at scale.
If fully implemented, these measures could cut steel-related carbon emissions by 85 percent by 2050, transforming the industry into a low-carbon producer within the global supply chain.
Structural reform and technology shift needed
The OECD emphasizes that deep decarbonisation depends on a structural shift away from the blast furnace-basic oxygen furnace (BF-BOF) route, which dominates South African steelmaking and relies heavily on domestic coking coal and iron ore.
The report calls for diversifying production through DRI-EAF systems powered by green hydrogen and scrap, supported by modern recycling and logistics infrastructure.
South Africa’s high-grade iron ore and growing scrap availability create an opportunity for hybrid production models that blend primary and secondary steelmaking.
Energy system decarbonisation as critical enabler
According to the OECD, over 80 percent of South Africa’s electricity is generated from coal, making energy sector reform essential for industrial decarbonisation.
The report urges coordinated planning between energy and industrial ministries to secure reliable, affordable renewable electricity for the steel industry.
The OECD estimates that hydrogen demand from the steel sector could reach 2-3 million mt per year by 2050, requiring 40-50 GW of new solar and wind capacity dedicated to hydrogen production.
Locating renewable projects near industrial clusters and ports (e.g., Vanderbijlpark and Saldanha) is recommended to minimize transport costs and build export infrastructure.
Policy and fiscal reforms: carbon tax and CBAM alignment
South Africa’s carbon tax, introduced in 2019, is described as a key tool but remains too low, around $1-2/tCO₂, to influence investment.
The OECD calls for:
- Gradual increases in carbon tax rates
- Removal of transitional exemptions for large emitters
- Fiscal incentives (e.g., accelerated depreciation, green loans)
- Alignment with international mechanisms such as the EU’s Carbon Border Adjustment Mechanism (CBAM) to prevent carbon leakage
The report stresses that harmonized emissions accounting and verification will be critical to integrating with global low-carbon trade systems.
Financing and international support mechanisms
The OECD estimates that domestic funding alone cannot meet the required $30 billion investment.
It highlights the Just Energy Transition Partnership (JETP) as a model framework for mobilizing concessional finance from development partners including the EU, US, UK, France, and Germany.
Key financial instruments include:
- Climate funds (Green Climate Fund, Climate Investment Funds)
- Multilateral development banks
- Export credit agencies for de-risking projects
- Low-interest loans and guarantees for hydrogen and renewable energy projects
Funding priority should go to hydrogen-based DRI, renewable expansion, and industrial port upgrades supporting the steel export value chain.
