Why steel and chemicals decarbonize differently

A tonne of conventionally produced steel releases about 2.2 tonnes of CO2, and the global steel sector accounts for roughly 2.9 gigatonnes of CO2 annually. That is about 8% of global energy-related emissions, according to reporting on green steel published by Expansión ESG on June 25, 2026. Global steel demand could grow 40% by 2050 even as the sector targets a 45% emissions-intensity reduction for primary steel and 65% for secondary steel by 2030, en route to net zero by 2050, per the same reporting. That is the scale coverage leads with. It is the wrong frame for a Mexican plant manager deciding where to put capital this year, because Mexican steel and Mexican chemical production start this transition from genuinely different positions.

DeAcero, the Mexican steel producer, already makes 97% of its steel from recycled material. Its 2025 sustainability report puts its carbon intensity at 0.39 tonnes of CO2e per tonne of hot-rolled steel across Scope 1 and 2, inside the range the commodity research firm CRU classifies as green steel. That also sits below the sector averages DeAcero publishes for the United States, the European Union, China, Brazil, and Canada. A Mexican chemical producer making ammonia for fertilizer sits somewhere else entirely. Its process begins with a feedstock, hydrogen from natural gas, that has to be substituted in full to get the emissions reduction. There is no recycled-scrap shortcut in that substitution.

Steel and chemicals are not the same decarbonization decision wearing different labels. A Mexican steel producer’s highest-value move is largely about how it powers an already-favorable process. A Mexican chemical producer’s highest-value move is a genuine feedstock switch to green hydrogen, and Mexico’s solar and wind resources may make that switch more competitive here than in most of the markets it competes with. Both decisions are urgent. Neither is served well by generic industrial decarbonization guidance built around a single global average.

Where Mexican steel already stands

DeAcero’s position matters because it shows what the scrap-based, electric-arc-furnace route common in Mexican steelmaking already delivers. That route captures most of the emissions benefit that direct-reduced-iron and green-hydrogen projects are built to capture elsewhere. Low-emission steel technologies target under 0.05 tonnes of CO2 per tonne of output, according to the Expansión ESG reporting. Reaching that tier from a conventional blast-furnace baseline requires the 40% to 70% cost premium and the global investment of up to 2.6 trillion dollars that the same reporting cites for the sector as a whole. A Mexican EAF producer starting near 0.39 tonnes faces a much narrower gap, and it closes that gap primarily by decarbonizing the electricity it already runs on.

Ternium’s new direct-reduced-iron and electric-arc-furnace plant at its Pesquería industrial center in Nuevo León shows the next step in that same direction. The steel shop adds 2.6 million metric tonnes of annual capacity within a 4 billion dollar expansion of the complex, and Ternium now expects start-up in early 2027, later than the first-half 2026 date it gave earlier. The plant will start on natural gas, and Ternium built it to switch to hydrogen when hydrogen is available at a workable cost. That design is a hedge, not a bet on hydrogen arriving on schedule. Ternium avoids rebuilding the plant when the economics turn, and sequencing the investment that way costs materially less than retrofitting a conventional facility later. Ternium reports investing about 7.5 billion dollars in Pesquería since 2010 and describes the complex as the first industrial site in the Americas to receive LEED certification.

ArcelorMittal México reports emission-reduction and circular-economy initiatives of its own, per the Expansión ESG reporting. For a Mexican steel buyer or a Tier 1 supplier sourcing steel inputs, the point is practical. Scrap-based domestic supply already sits closer to the emissions profile that OEM customers and CBAM-facing exporters need than a generic global benchmark would suggest.

The harder problem for chemicals

Ammonia production accounts for about 1.3% of CO2 emissions from the global energy system, according to the International Energy Agency. That is a smaller share than steel, and it is concentrated in a feedstock decision with no equivalent to steel’s recycled-scrap shortcut. Conventional ammonia synthesis uses hydrogen derived from natural gas. Green ammonia replaces that hydrogen with hydrogen produced by electrolysis powered by renewable electricity. The entire emissions case rests on that single substitution, and not on incremental efficiency gains across an existing process.

Mexico’s position here is more competitive than its position in most other decarbonization categories. The reason is renewable resource geography, not incumbency. A competitiveness analysis GIZ published in April 2024 under its H2Uppp program identifies Mexicali and Salina Cruz as the country’s strongest sites for green ammonia production, Mexicali for its solar resource and Salina Cruz for its wind. The same analysis puts the cost of Mexicali-produced green ammonia at about 682 dollars per tonne in 2030, below the 800 to 950 dollars per tonne that United States prices reached at their 2022 peak. It also notes that realizing the competitive position depends on infrastructure investment in ports and transmission, a functioning carbon price, and a supportive regulatory framework. None of that is guaranteed today.

That conditional matters for how a chemical or fertilizer producer should read the opportunity. Mexico ran a nitrogen-fertilizer trade deficit of 3,862 kilotons in 2018, per the same GIZ analysis. The country is a net importer of a product category it may be able to produce more competitively than its current suppliers within the decade. A domestic producer that builds green ammonia capacity ahead of that window captures the emissions benefit and a domestic-supply position against a deficit the country has long filled with imports. A producer that waits for the economics to fully mature risks entering a market where an earlier mover, domestic or foreign, has already taken the cost advantage Mexicali and Salina Cruz offer today.

The figure that settles this for a fertilizer producer is its own embedded carbon per tonne priced against the EU carbon price as it stands today, and that calculation runs off production data you already report. Talk to an advisor.

Why CBAM hits the two differently

The European Union’s Carbon Border Adjustment Mechanism entered its definitive period on January 1, 2026 and covers iron and steel, aluminum, cement, fertilizers, electricity, and hydrogen. The cost attaches to goods imported from 2026 onward, but EU importers can buy CBAM certificates only from February 1, 2027 and must surrender the first ones by September 30, 2027. Importers that bring in less than 50 tonnes a year of covered goods, other than electricity and hydrogen, are exempt, and EU institutions are negotiating an extension to downstream steel and aluminum products. Fertilizers sit on the covered list alongside steel. A Mexican ammonia or fertilizer exporter therefore faces the same border carbon-pricing exposure as the steel exporters covered elsewhere in this series. The EU carbon price closed at 86.78 euros per tonne on September 25, 2026, about 99 dollars, after trading between roughly 79 and 88 euros since July. Mexico’s federal carbon tax averaged about 2.7 dollars per tonne of CO2 in a December 2024 estimate by the research organization Fundar. After the 2026 inflation update and the peso’s gains, the same measure is closer to 3 dollars.

The asymmetry runs in Mexican steel’s favor. A Mexican steel exporter already running near or below the green-steel threshold, as DeAcero does, carries less exposure under CBAM than a conventional-process producer elsewhere. A Mexican chemical exporter making ammonia through the conventional natural-gas route carries the fuller exposure, because it has not yet made the feedstock substitution that would reduce its embedded-carbon number. Closing that gap is precisely what the Mexicali and Salina Cruz opportunity is positioned to do. It works only for a producer that builds the capacity, and not for one that keeps exporting on the conventional process while waiting to see how CBAM enforcement evolves.

What each path costs

For a steel producer already running an efficient scrap-based process, the highest-return decarbonization move is the one covered elsewhere in this series: a renewable power contract against an already-operating asset. DeAcero signed a 20-year supply contract in March 2017 with IEnova, now Sempra Infraestructura, for the output of the 110 MW Pima Solar plant in Caborca, Sonora, a plant IEnova put at about 115 million dollars. Renewables now supply 15% of DeAcero’s electricity, according to its 2025 sustainability report. That is the model. It reduces the carbon intensity of a process already close to the green-steel threshold, with no feedstock or process redesign of the kind a chemical producer needs.

For a chemical or fertilizer producer, the capital case is a genuine build decision. The question is how much electrolysis capacity to size against a renewable power source in Mexicali or Salina Cruz, and not whether to overlay a power contract on an existing process. That is a larger, longer-horizon commitment. Evaluate it against the Plan México immediate deduction (deducción inmediata) published in the Diario Oficial de la Federación on January 21, 2025. For machinery used to generate, transmit, transform, and distribute electricity, a company can deduct 56% of the investment at once for assets acquired in 2025 and 2026, and 49% for assets acquired from 2027 through September 30, 2030, once the decree’s evaluation committee approves the project. That shortens the payback on the renewable generation such a project requires. The rate for the electrolysis equipment itself depends on how the asset is classified.

Where the argument could break

The green ammonia case rests on a 2030 price projection and on a set of conditions: port and transmission infrastructure, a functioning domestic carbon price, and supportive regulation. None of them is in place yet. If they do not arrive on the GIZ analysis’s timeline, the Mexicali and Salina Cruz cost advantage narrows or disappears, and a producer that committed capital against the 2030 projection bears that risk directly. Mexico’s federal carbon tax has also shown no clear path toward a price level that would meaningfully close the gap with the EU carbon price on its own. The domestic policy lever assumed here may develop slowly against the CBAM exposure driving the urgency.

The steel case carries a narrower but real risk too. DeAcero’s position reflects a scrap-based EAF model that depends on continued access to sufficient recycled steel input at competitive cost. A tightening scrap market, whether from export competition or domestic demand growth, could erode part of the cost and emissions advantage that currently distinguishes Mexican EAF producers from conventional blast-furnace competitors elsewhere.

How to choose your path

If you run a scrap-based steel process already near the green-steel threshold, prioritize a renewable power contract against an operating asset over any process redesign. The DeAcero model shows this is the fastest and the highest-return move available. It does not require the multi-year capital commitment a feedstock switch demands.

If you run a conventional ammonia or fertilizer process, model your CBAM exposure now against the EU’s current carbon price, and not a projected future price. Weigh that exposure against the Mexicali or Salina Cruz cost trajectory before committing capital. The opportunity is real and conditional. The capital case should carry those conditions, and not the 2030 target price alone.

Evaluate any hydrogen-related capital project against the immediate-deduction window that closes on September 30, 2030, whether it is a hydrogen-ready furnace design like Ternium’s or an electrolysis buildout for green ammonia. The rate for power assets steps down from 56% to 49% in 2027, so a project that clears the bar on a ten-year view clears it more easily if the assets are acquired before the end of 2026.

Track scrap-steel availability and pricing as a supply-chain risk, and not as an input-cost line alone. A Mexican EAF producer’s carbon advantage is tied to continued access to recycled steel at a competitive price. That access is not guaranteed to hold on current terms indefinitely.

Sources

• Conventional steel emissions of about 2.2 tonnes of CO2 per tonne of output, global steel sector emissions of approximately 2.9 gigatonnes annually, sector emissions targets of 45% (primary) and 65% (secondary) intensity reduction by 2030 and net zero by 2050, potential global steel demand growth of 40% by 2050, global investment needs of up to 2.6 trillion dollars, a 40% to 70% cost premium for low-emission steel methods, and ArcelorMittal México’s emission-reduction initiatives. Expansión ESG, “Cada tonelada de acero libera hasta 2.2 toneladas de CO2: por qué la industria debe apostar por el acero verde,” June 25, 2026.
• DeAcero’s 97% recycled input, carbon intensity of 0.39 tonnes of CO2e per tonne of hot-rolled steel (Scope 1 and 2), the CRU green-steel range, the comparison with sector averages, and renewables at 15% of its electricity. DeAcero, “Informe de Sustentabilidad 2025.”
• Ternium’s direct-reduced-iron and electric-arc-furnace steel shop at Pesquería, Nuevo León, with 2.6 million metric tonnes of annual capacity, its natural gas start and hydrogen readiness, the 4 billion dollar expansion, about 7.5 billion dollars invested at the complex since 2010, and its LEED certification. Ternium Investor Relations, “New Steel Slab Mill in Pesquería, Nuevo León, Mexico”; Energy21, “Ternium acelera en Pesquería con acero listo para hidrógeno verde,” February 18, 2026. Start-up expected in early 2027: Ternium second-quarter 2026 earnings call, August 2026.
• Green ammonia competitiveness analysis for Mexico, including a projected production cost of about 682 dollars per tonne at Mexicali in 2030 against 2022 peak United States prices of 800 to 950 dollars per tonne, Mexicali (solar) and Salina Cruz (wind) identified as the most competitive production sites, and Mexico’s 2018 nitrogen-fertilizer trade deficit of 3,862 kilotons. GIZ, H2Uppp program, “Análisis de competitividad para la producción de amoniaco verde en México,” April 2024.
• Ammonia’s 1.3% share of CO2 emissions from the energy system. International Energy Agency, “Ammonia Technology Roadmap,” October 2021.
• CBAM’s definitive period from January 1, 2026, its covered sectors, certificate sales from February 1, 2027, the September 30, 2027 surrender deadline, the 50-tonne annual exemption, and the proposed extension to downstream products. European Commission, Taxation and Customs Union, CBAM guidance and Regulation (EU) 2025/2083; TLC Magazine México, “Europa comienza a cobrar el impuesto al carbono: exportadores mexicanos enfrentan un nuevo reto comercial,” July 1, 2026.
• EU carbon price close of 86.78 euros per tonne on September 25, 2026 (ICE December 2026 contract) and the July to September trading range. Investing.com, carbon emissions futures historical data; IndexBox, “European Carbon Prices Fluctuate in July 2026 Ahead of ETS Reform.” Euro reference rate of 1.1403 dollars on September 25, 2026, European Central Bank.
• Mexico’s federal carbon tax averaging about 2.7 dollars per tonne of CO2. Fundar, Centro de Análisis e Investigación, “Guía para entender el impuesto federal al carbono en México,” December 2024. Updated to 2026 by Mexico Energy Partners with the 2026 IEPS inflation update and the Banco de México FIX rate of 17.8413 pesos per dollar on September 28, 2026.
• DeAcero’s 20-year supply contract with IEnova for the 110 MW Pima Solar plant in Caborca, Sonora, and IEnova’s estimated 115 million dollar investment. IEnova, fourth-quarter 2017 results; PV Tech, March 28, 2017.
• Immediate deduction rates of 56% (2025 and 2026) and 49% (2027 through September 30, 2030) for machinery used to generate, transmit, transform, and distribute electricity, and the evaluation committee requirement. “Decreto por el que se otorgan estímulos fiscales para apoyar la estrategia nacional denominada ‘Plan México’,” Diario Oficial de la Federación, January 21, 2025.