Building America's Steel Advantage: How Direct Reduced Iron Will Strengthen the Steel Industry
Policy action supporting the growth of domestic DRI production can strengthen the U.S. iron and steel industry.
ArcelorMittal's hot briquetted iron (a form of DRI) facility located near Corpus Christi, Texas.
Imago/Xinhua via Alamy
Most steel in the United States is produced by combining recycled steel scrap with some amount of virgin iron in electric arc furnaces (EAFs). The process of EAF steelmaking—a cleaner and more efficient production method than traditional blast furnace–based steelmaking at integrated mills—has grown significantly over the last few decades in the United States, making the country the fourth-largest steelmaker in the world, despite the simultaneous decline in blast furnace steelmaking. However, the growth in EAFs and the development of an advanced steel recycling supply chain have masked a significant vulnerability in the EAF supply chain: the need for imported iron. This reliance on imported iron leaves the industry exposed to volatile markets and constrains long-term competitiveness.
Building a more self-sufficient and resilient industry will require investing in domestic capacity to produce these iron units. NRDC’s report Building America’s Steel Advantage finds that expanding domestic production of direct reduced iron (DRI) can fill this gap and build a resilient, competitive, and cleaner U.S. steel industry with the support of targeted policy interventions.
Learn More
Why is domestic iron production important for the steel industry?
In traditional, integrated steel mills, iron is produced in blast furnaces and then made into steel in co-located basic oxygen furnaces. In the EAF process, scrap steel is recycled into new steel, but iron must be added to dilute any contaminants found in scrap. The iron that’s fed into EAFs can be of two forms: pig iron (typically imported) from blast furnaces or direct reduced iron.
Currently, there is not enough iron produced domestically to meet the needs of EAFs in the United States, so the EAF fleet imports about half of the iron that it needs. Seventy percent of these imports come from just two countries: Brazil and Trinidad and Tobago. The domestic EAF steel industry is therefore exposed to geopolitical shocks, such as when pig iron import prices increased by 46 percent at the onset of the Russia-Ukraine war.
Increasing domestic iron production can therefore improve the supply chain resilience of EAF steelmaking, the dominant steelmaking pathway in the United States.
What makes DRI competitive?
While blast furnace ironmaking is a major source of air and climate pollution, the DRI pathway has emerged as a viable, cleaner way of producing iron. In the United States, DRI production outperforms blast furnace ironmaking on three key competitiveness markers: operating costs, flexibility, and environmental performance.
Today, the operating costs of steelmaking via the natural gas–based DRI-EAF pathway are cheaper than via the coal-based blast furnace pathway. In the future, the potential for abundant access to low-cost clean electricity and improved economics for hydrogen production could also reduce costs for hydrogen-based DRI-EAF.
DRI plants can accept a variable mix of natural gas and hydrogen (up to 100 percent hydrogen), whereas blast furnaces need coal-derived coke that cannot be significantly substituted. Separately, DRI plants are easier to idle and restart than blast furnaces. These two key flexibility advantages of DRI production allow DRI operations to be more resilient and responsive to changes in market conditions and policies, including those that incentivize lower amounts of pollution.
DRI production—even with natural gas—emits significantly less air and climate pollution than iron production from blast furnaces, and the benefits multiply with hydrogen DRI. Transitioning to DRI can therefore help protect the health of fenceline communities and reduce climate warming emissions. Additionally, DRI is better suited for markets that prioritize or mandate cleaner goods. For example, the European Union’s Carbon Border Adjustment Mechanism puts tariffs on goods imported into the E.U. that emit carbon dioxide above a threshold. Investing in DRI now and transitioning to 100 percent hydrogen DRI in the future will keep U.S. steel products competitive in these new markets.
Policy recommendations for investing in DRI
Despite the economic, operational, and environmental advantages of DRI production, increasing DRI capacity in the United States still faces some barriers—namely, high capital costs, supply chain limitations, and low demand for clean steel. Targeted and finite policy action is therefore needed to accelerate the transition toward a cleaner, more competitive iron and steel industry. Policies should advance three main objectives:
Policies can reduce the capital cost barrier of building new facilities and support the build-out of the DRI supply chain.
- Grant and loan programs can offset the initial capital costs of new DRI plants.
- Public dollars can expand and modernize iron ore pellet operations and should be paired with appropriate pollution regulations.
- The 45V clean hydrogen production tax credit should be extended to build a domestic clean hydrogen industry that will support cheaper, cleaner DRI production.
Policies can create a strong demand signal for cleaner steel products made with DRI to encourage domestic DRI expansion.
- Improving data collection on steel production emissions and setting common definitions of clean steel through emissions benchmarks will lay the groundwork for future policies (e.g., procurement) that focus on increasing the demand for clean steel.
- Placing tariffs on iron and steel imports that are made with high levels of pollution can protect and encourage domestic DRI production.
Policies must ensure DRI expansion also protects the steel workforce.
- Promoting good labor practices that prioritize family-sustaining wages, stable employment, workforce training, and worker safety will support the workforce that a strong steel industry needs.
Supporting DRI is a no-regrets investment in the future of American steelmaking
Expanding domestic DRI production will secure the supply of iron that is critical to making high-quality steel products in the United States and preparing the steel industry to better compete in global markets. Policymakers must take action to support DRI production today—doing so is one of the clearest opportunities to enhance U.S. steel competitiveness while building a more resilient and cleaner industrial base.
Related Resources
The Carbon Removal Market Can Work—If We Build It Right
The Global AI Buildout Needs Energy Transition Guardrails
