Building TZ-OSeMOSYS-STEEL: our methodology

Summary

The TZ-OSeMOSYS-STEEL open-source energy systems model was developed to explore and quantify credible decarbonisation pathways for Japanese steel production, a sector responsible for a significant share of Japan’s CO2 emissions.

The model is supported by a rich underlying dataset of techno-economic characteristics, commodity price projections, and demand forecasts.

Its flexible structure allows for rapid scenario exploration to assess the impact of policies such as emissions reduction targets and carbon taxes.

The scalable and generalised representation allows for the model to be applied to other geographies at different levels of spatial detail from national to asset-level.

Introduction

TZ-OSeMOSYS-STEEL is an open-source energy systems model of Japan’s steel sector developed by TransitionZero. The model optimises the capacity expansion and operation of steel assets in Japan to meet steel production demand at least cost while adhering to a set of resource constraints and policy targets.

The model is designed to be replicable in other countries and regions, and is scalable to different spatial resolutions from asset- to national-level. Therefore, it can increase transparency and accessibility of system modelling for the global steel sector, a significant source of emissions.

TZ-OSeMOSYS-STEEL- is available under an AGPL open-source license. Access it on Github here.

Model scope

The model scope can be characterised by its sectoral coverage, spatial scope, and temporal resolution. TZ-OSeMOSYS-STEEL is a model of Japan’s steel sector, from 2022 to 2060, running annually. All steel assets are aggregated at the national level by technology type.

Model framework

The model framework underpinning TZ-OSeMOSYS-STEEL is TZ-OSeMOSYS. It is a modern, open-source energy systems modelling framework designed for long-run analysis and planning. Developed by TransitionZero as a pip-installable Python package, it is a re-built version of the original OSeMOSYS (Open Source Energy Modelling System).

TZ-OSeMOSYS can be used to create energy system models at various scales, from global to regional and even village levels. It supports detailed representations of power systems, comprehensive all-energy systems (including supply, demand, and climate policies), and nexus problems involving commodities adjacent to the energy sector such as water.

It operates as a deterministic linear optimisation model, capable of covering all or individual energy sectors such as heat, electricity, and transport. It allows for the definition of energy service demands, which are then met by a range of technologies drawing on specified resources with associated potentials and costs. The framework also enables the incorporation of policy scenarios, including technical constraints, economic implications, and environmental targets.

A key advantage of TZ-OSeMOSYS is its open-source nature, meaning it requires no upfront financial investment for software or commercial programming languages and solvers. It is compatible with various solvers like Coin-OR CBC, GLPK, HiGHS, Gurobi, and CPLEX, with HiGHS being the recommended open-source option. The package also offers features such as Pydantic-based model construction and validation, Linopy-based optimisation, and the ability to specify models using human-readable YAML files with advanced functionalities like cross-referencing and wildcard usage.

Steel production routes

The model includes a representation of eleven steel production routes across three types of technologies: BF-BOF (Blast Furnace-Basic Oxygen Furnace), DRI-EAF (Direct Reduced Iron-Electric Arc Furnace), and EAF (Electric Arc Furnace). Ten of the routes are for primary steel and one for secondary steel. All the steel production routes, their inputs, and techno-economic characteristics are described below.

BF-BOF (Blast Furnace-Basic Oxygen Furnace)

• Coke + PCI – A conventional blast furnace route where pulverised coal is injected to supplement expensive metallurgical coke, reducing costs and improving operational efficiency.
• Coke + PCI + Scrap++ – A BF-BOF process modified with technologies to maximise the use of scrap steel in the basic oxygen furnace, beyond the typical ~25-30% limit.
• Coke + PCI + Green H2 (Course50 and Super Course50) – An advanced BF-BOF route where green hydrogen is injected into the blast furnace to act as a supplementary reducing agent, lowering coke consumption and CO₂ emissions.
• Coke + PCI + HBI Imports – A BF-BOF route where imported Hot Briquetted Iron (HBI) is added to the blast furnace burden to increase productivity and reduce the specific coke consumption.

Blast Furnace-Basic Oxygen Furnace (BF-BOF) production route

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DRI-EAF (Direct Reduced Iron-Electric Arc Furnace)

• Gas-based – A two-step primary steelmaking process where iron ore is reduced to solid sponge iron using natural gas, which is then melted in an electric arc furnace to produce steel.
• Gas + 50% Green Hydrogen – A transitional DRI-EAF route where the natural gas-based reducing gas is enriched with up to 50% green hydrogen, significantly lowering CO₂ emissions as a step toward 100% hydrogen operation.
• 100% Hydrogen DRI-EAF – A green steelmaking route where DRI is produced using 100% green hydrogen as the reductant and then melted in an EAF powered by renewable electricity, enabling near-zero emissions.


Direct Reduced Iron-Electric Arc Furnace (DRI-EAF) production route

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EAF (Electric Arc Furnace)

• Primary steel via HBI: An EAF process that melts recycled scrap steel alongside HBI produced using green hydrogen, creating ultra-low-emission, high-quality steel.
• Primary steel via HBI (Natural Gas): An EAF process that uses Hot Briquetted Iron (HBI) produced from a natural gas-based DRI plant as a primary feedstock, enabling the production of virgin-quality steel.
• Recycled steel: A steelmaking process where scrap steel is melted using high-power electric arcs, representing the primary route for steel recycling.

Electric Arc Furnace (EAF) - Primary Steel production route

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Electric Arc Furnace (EAF)- Secondary Steel production route

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Commodities

Based on the latest available information, we have projected the future prices of various commodities in Japan through to 2050. In addition, we have calculated the emission factors for each commodity — both for Scope 1 and for Scope 1+3 — in order to estimate the CO₂ emissions associated with different steel production routes.

The commodities included in the model are:

• Thermal Coal – A type of coal primarily used for its heating value to generate electricity or steam, not for the chemical process of steelmaking.
• Coking Coal – A high-quality grade of coal that is heated to produce coke, which serves as a crucial fuel and chemical reducing agent in a blast furnace.
• PCI – Pulverized Coal Injection; finely ground coal injected into a blast furnace as a supplemental fuel and carbon source to reduce the need for more expensive coke.
• Natural Gas – A fossil fuel used for heating and as a source of reducing gases (hydrogen and carbon monoxide) in blast furnaces and Direct Reduced Iron (DRI) plants.
• Electricity price – The cost of electrical energy, a key input for Electric Arc Furnaces (EAFs) that melt scrap or DRI, and for producing green hydrogen via electrolysis.
• Iron ore – The primary raw material for virgin steel production, containing iron oxides that are chemically reduced to produce metallic iron.
• Iron ore 65% – A high-grade iron ore with at least 65% iron content, necessary for producing high-quality pellets for Direct Reduced Iron (DRI) and for improving blast furnace efficiency.
• Pig iron – The high-carbon, brittle iron produced in a blast furnace, which is an intermediate product before being refined into steel.
• HBI Imports (Hydrogen) – A premium, transportable form of Direct Reduced Iron (DRI) produced using green hydrogen as the reductant, enabling near-zero-emission primary steelmaking.
• HBI Imports (Natural Gas) – A compacted, stable form of Direct Reduced Iron (DRI) produced using natural gas, which can be shipped globally and used as a high-purity iron source.
• Limestone – A rock used as a fluxing agent in furnaces; it combines with impurities in the molten metal to form slag, which is then separated from the liquid iron or steel.
• Electricity price with carbon costs – The total cost of electricity, which includes the generation price plus additional costs from carbon pricing mechanisms applied to the power source.
• H2 – Hydrogen, a key future reductant for green steelmaking, which is a major factor determining the economic viability of decarbonized production routes.
• Scrap – Recycled steel from end-of-life products or manufacturing waste, serving as the primary raw material for Electric Arc Furnaces (EAFs).

Demand projections

In forecasting future steel demand, three scenarios — High, Medium, and Low — were developed based on projection scenarios provided by the Nippon Steel Research Institute (NSRI) (2). Although NSRI’s projections are based on FY2019 figures, actual domestic crude steel production in 2024 had already fallen below some of the levels projected for FY2030 (28). Therefore, we adjusted the starting point to reflect the actual production level in FY2024, while applying the same rates of change as those in the NSRI scenarios to estimate future demand.

In the High scenario, it is assumed that Japan maintains its current competitiveness in automobile production and steel exports, resulting in total steel demand of approximately 76.9 million tonnes by 2050. In the Low scenario, a significant decline in competitiveness in both sectors is assumed, leading to total steel demand of around 34.6 million tonnes by 2050. The Medium scenario assumes a moderate decline of approximately 25%, resulting in total steel demand of about 63.6 million tonnes by 2050.

Policies and targets

In Japan, two main policy measures have been introduced to support decarbonisation in the steel industry. The Energy and Manufacturing Process Transformation Support Business (Business I (Steel)) provides subsidies for capital expenditure (CAPEX), supporting up to one-third of costs, when the production process is converted from BF-BOF to EAF. Issued by the Japanese Climate Transition Bond, it has for total budget JPY 484.4 billion, distributed between steel, chemical, pulps, and cement industries.

The Strategic Field Domestic Production Promotion Tax System offers tax credits for operating expenditure (OPEX) for companies that produce and sell steel made using EAF processes following the transition from BF-BOF, and is available for a period of ten years(11). The credit amounts to approximately USD 132 per tonne for years one to seven, USD 99 per tonne in year eight, USD 66 per tonne in year nine, and USD 33 per tonne in year ten.

The Japan Iron and Steel Federation (JISF) aims to reduce energy-related CO₂ emissions by 30% compared to FY2013 levels by FY2030. At the national level, Japan has set a target of achieving carbon neutrality by FY2050. In light of these targets, we have assumed that CO₂ emissions from the Japanese steel industry will decline in a linear manner, reaching a 30% reduction from FY2013 levels by FY2030, and then continuing to fall along a linear trajectory to achieve a 90% reduction by FY2050.

Read 'Decarbonising the steel industry: modelling pathways in Japan', our analysis of the model results.

References

1. Transition Asia
2. Nippon Steel Research Institute
3. Can Yilmaz, Jens Wendelstorf, Thomas Turek
4. Volodymyr Shatokha
5. National Research Council and National Academy of Engineering
6. Kobe Steel Group
7. Corsa Coal
8. Japan Organization for Metals and Energy Security
9. Midrex
10. Ministry of Economy, Trade and Industry (HTA Process)
11. Ministry of Economy, Trade and Industry (Strategic Tax System)
12. Japan Customs Statistics
13. Public Policy Studies Association Japan (PPSAJ)
14. Agency for Natural Resources and Energy, Ministry of Economy, Trade and Industry (METI)
15. Life Cycle Assessment Society of Japan (LCA Japan Forum)
16. International Energy Agency (IEA)
17. World Bank Carbon Pricing Dashboard
18. Shanghai Metals Market (SMM)
19. Japan Iron and Steel Recycling Institute (JISRI)
20. World Integrated Trade Solution (WITS), World Bank
21. Argus Media
22. UK Department for Energy Security and Net Zero
23. International Energy Agency (IEA) – Methane Tracker
24. Natural Resources Canada – Coal Facts
25. Robert W. Howarth – LNG Assessment (Preprint, 2023)
26. CarbonCloud Product Report
27. Ajay Singh et al., American Journal of Environmental Sciences (2016)
28. Japan Iron and Steel Federation (JISF) – Statistics
29. Japan Iron and Steel Federation (JISF) – Carbon Neutrality Action Plan (2025)