TRANSIENCE: D4.4 – EU industrial pilot modules - ITOM - Steel

Model Overview

The Industry Transformation Optimisation Model for the steel industry (ITOM-Steel) is an implementation of the ITOM framework a mathematical linear optimization model —a method to find the best solution given a set of constraints—for investment decisions in production systems of basic industry sectors. ITOM-Steel model aims to calculate short- and long-term scenarios (ranging from immediate decisions to strategic planning over several decades) for the future of the European steel industry, depending on assumptions that influence future investments. These assumptions include market trends (e.g., future demand for steel products), policy changes (e.g., climate ambition), and technological advancements (e.g., hydrogen infrastructure).

Model purpose

The main purpose of ITOM-Steel is to create transformation pathways for the European steel production system and analyse their implications for individual steel production sites. The model primarily focuses on three key factors influencing future investment decisions in the European steel production system:

• Circular economy: Scrap availability and scrap use in steel production.
• Green energy economy: Regional differences in green electricity and hydrogen production costs.
• Global green iron trade: Development of a global green iron trade and imports of (green) Direct Reduced Iron (DRI) to Europe.

While the model is designed to analyse the effects of these three factors on the transformation pathway of the European steel production system, it can also evaluate the impact of other factors, such as policy-related factors (e.g., climate ambition, EU ETS price) and market-related factors (e.g., sufficiency, subsidies).

Model concept

ITOM-Steel is a linear optimization model that minimizes the total cost of the system over the entire time period, while explicitly considering spatially distributed production sites and their transport connections. This spatial consideration allows the model to account for regional differences in production costs and logistics. As a result, steel production sites compete to deliver the least-cost solution, enabling the analysis of the impact of policy- or market-related factors on their competitiveness, especially the impact of the Renewables Pull effect considering the regional differences in green hydrogen production costs.

As a bottom-up model, ITOM-Steel represents the value chain through raw materials, intermediate products, and final products, and features a rich technological basis for producing intermediate and final products from their precursors. The bottom-up modelling approach adds two important characteristics to the model: First, copper tolerance of final steel products limits the use of scrap in steel production for various final steel products, which enables the analysis of scrap use in steel production, a key aspect of circularity in steel production. Second, the separation of ironmaking technologies from steelmaking technologies enables the analysis of (intra-European) green iron trade flows, a key aspect of decarbonizing the primary steel production.

The model’s primary objective is to meet an externally defined demand for final steel products while accounting for changing external parameters, such as energy costs and CO2 prices, over time. These parameters influence the model’s investment and operational decisions, which are determined endogenously. Based on these inputs, the model determines where, by which technology, and using what kind of energy the various intermediate and final products are produced in each time period.

Key features

• Spatially explicit representation of steel production sites in EU 27+3
• Transport routes between steel production sites
• Model endogenous optimization of production networks across sites and steps in the value chain (ironmaking, steelmaking, steel finishing)
• Includes copper tolerance of final steel products to model scrap use in steel production
• Regional differences in green electricity, hydrogen production costs, as well as natural gas purchase costs
• Green iron import price through a merit-order mechanism
• Endogenous modelling of an intra-European green iron trade