Context
South Africa is the second largest steel producer in Africa after Egypt. The sector is strategically important in supplying materials to key domestic and export markets including automotive, construction and mining, and at the same is vital for local employment. The country’s steel industry however faces significant hurdles, including heavy reliance on coal and infrastructure bottlenecks, impeding its growth and competitiveness. The steel sector is the country’s 2nd largest emitter of GHG-emissions after the energy sector. With carbon intensity double the EU average, a substantial transition to low-carbon production is crucial.
South Africa’s 2021 updated NDC commits the country to a 31% reduction in greenhouse gas emissions and to reach net zero emissions by 2050. The Just Energy Transition Investment Plan sees the country move towards renewable energy uptake. Efforts have begun in the industrial sector, with the 2023 Renewable Energy Masterplan focusing on driving industrial development and creating inclusive jobs.
Goals and approach to transformational change
The project aims to build a hydrogen-based direct reduced iron (H2-DRI) plant to pilot a novel technology, install solar PVs to increase supply of clean power for steel production, and scale hydrogen production to enable subsidised and reliable green hydrogen to steelmakers. The project aims to address critical barriers to the adoption of green steel technology in South Africa. The project expects to reduce steel industry emissions to meet NDC’s and net-zero targets, increase export competitiveness, participate in global trade (comply with CBAM and other ETF’s), and create new low carbon products for end-user industries like automotives. Moreover, co-benefits are clear, highlighting the country’s potential to increase export and position South Africa in the global steel market, creating wider impact on the country’s economy and green job creation. The project will consider gender equality and social inclusion aspects during the transition process.
Components and support mechanisms
The Financial Cooperation (FC) component involves a combination of several financial instruments, blending private and public funding sources. One of these include CAPEX grants to reduce investment costs and accelerate private investment in a H2-DRI pilot plant and a H2 plant. The FC component with variety of tailored instruments is under preparation to meet the financing needs of the local steel sector.
The Technical Cooperation (TC) component will be focusing on policy framework enhancement, building on the framework for industry’s net-zero transition in South Africa, including developing policies such as sustainable public procurement, quotas, labels, and recycling standards for steel. The project will also undertake capacity building and awareness raising activities for stakeholders regarding low-carbon steel. The project will aim to facilitate a technology transfer by promoting the adoption of electric arc furnaces (EAF) for secondary steelmaking as a sustainable alternative. The project will strive to create a gender responsive environment and promote equal participation of women.
Long-term impact
The project aims to directly mitigate 539,419 tCO2e emissions during its implementation phase. This mitigation impact is projected to scale further post-completion, with an additional 1,702,739 tCO2e expected within the first 10 years after the project ends, and a total of 3,000,000 tCO2e over the technology’s lifetime. Consequently, the project’s cost-effectiveness would be 14.7 EUR/tCO2e.
Explore the project’s latest factsheet (as of October 2025): Factsheet South Africa Steel project – Mitigation Action Facility.
