The iron and steel industry accounts for approximately 45% of the CO2 emissions in the Japanese industrial sector, and therefore is investing in improvements to reduce the CO2 emissions. Current projections are for the stock of scrap iron and steel products to increase in the future. Being already in the reduced state, such scrap can be regenerated to steel with lower CO2 emissions than iron ore. The “Packed bed type Partial Smelting Reduction process” (PSR), which concurrently smelts scrap and reduces iron ore, is a promising method to utilize scrap iron. This work evaluates the feasibility of combining PSR with top gas recycling, a process commonly called the ‘SMART steelmaking system’. In the SMART system, CO2 derived from the PSR gas is reduced into CO or CH4 and recycled to the furnace as a reducing agent. The integrated whole process including shaft furnace, CO2 electrolysis, pressure swing adsorption, and other conventional auxiliary systems was modelled in Aspen Plus, and CO2 emissions reduction and exergy analysis of the system adaptive for flexible operating conditions was performed. Increasing the scrap ratio by 5% consistently lead to a 4% reduction in CO2 emissions. Similarly, increasing the CO input rate by 100 kg/THM consistently resulted in a reduction of CO2 emissions of approximately 3%. The maximum CO2 emissions reduction of 22% was achieved at the condition of the operably highest scrap ratio and CO input rate.