​Key Drivers and Technologies Shaping the Green Steel Market

Steel is vital to modern society, with diverse alloys serving critical applications. Buildings, infrastructure, machinery, and vehicles constitute 75% of global steel usage, with global demand projected to increase. However, the industry generates 7-9% of global CO2 emissions, making it a challenging but essential sector for decarbonization efforts. New regulations and government incentives drive major steelmakers to reduce emissions, complemented by pressure from automotive and construction customers, corporate sustainability commitments, technological innovations in production, and developing clean energy infrastructure. These forces collectively create an emerging market for green steel, with IDTechEx forecasting hydrogen-based green steel production to reach 46 million tonnes by 2035.

Green steel policies & regulations

The EU leads global steel decarbonization with an integrated policy framework that combines economic pressure and incentives. Its Emissions Trading System (ETS) and Carbon Border Adjustment Mechanism (CBAM) create financial pressure on both domestic and foreign producers, while sector-specific regulations like the End-of-Life Vehicles (ELV) directive generate demand for green steel. The EU has committed over €2 billion to support hydrogen-based steelmaking projects through various funds.

Other nations follow with more fragmented approaches. The US offers Department of Energy grants and Inflation Reduction Act tax credits for hydrogen and CCUS projects, though their future remains uncertain under the Trump administration. China provides substantial grants without comprehensive carbon pricing, while Australia, Brazil, and Saudi Arabia also provide subsidies and are developing their own policy frameworks. Other countries like India, Japan, Korea, and the UAE have established national roadmaps for reducing steel sector emissions and are providing some funding for projects. Despite these varying approaches, these collective efforts drive global investment in steel decarbonization technologies, particularly hydrogen-based direct reduced iron (DRI) production.

Technologies for decarbonization of existing steel mills

Existing steel mills can leverage various technologies to reduce emissions. In upstream processes, iron ore feedstock preparation (sintering and pelletizing) can be improved through off-gas recirculation, heat integration, alternative heating methods (microwaves, hydrogen, biomass), and innovative approaches like Vale's cold iron ore briquetting.

The blast furnace, responsible for around 80% of total emissions, remains the primary focus for decarbonization efforts in existing plants. Technology companies, steelmakers, and researchers are developing solutions to maintain these valuable assets while reducing their carbon footprint. Promising approaches include biomass as a reducing agent, hydrogen injection (prioritized by companies like Nippon Steel), and syngas recycling (SMS Group's EASyMelt). Some steelmakers have also developed coal-based replacements to blast furnaces that aim to reduce emissions (e.g. Tata Steel's HIsarna technology). Still, it is uncertain whether large plants using these will be built.

Carbon capture, utilization, and storage (CCUS) have seen limited commercial implementation. ADNOC's Al Reyadah project – capturing CO2 from Emsteel's natural gas shaft furnaces and using it for enhanced oil recovery – is a rare example. Other applications, such as converting steel plant off-gases into synthetic fuels, remain in the pilot stages. CCUS is expected to be a supplementary rather than the primary decarbonization solution. While carbon credits could offset emissions, their adoption has been minimal but will likely play a more important role in the future.

As an intermediate strategy, steelmakers worldwide are embracing circular steel production. Companies like Tata Steel, ArcelorMittal, and Nucor are expanding electric arc furnace (EAF) capacity to recycle more ferrous scrap while securing renewable energy sources and exploring nuclear power for these operations. While the Scrap-EAF route offers immediate emission reductions, the industry recognizes it as a partial solution, which is why companies are continually investing in next-generation hydrogen and electricity-based technologies.

Hydrogen-DRI and new ironmaking technologies for green steel

Low-carbon hydrogen is emerging as coal's replacement for ironmaking processes. Natural gas-based direct reduction of iron (DRI) uses shaft furnace technology and is already established globally, particularly in gas-rich Middle East and North African regions, accounting for around 7% of global steel production. Leading suppliers, Midrex Technologies (Kobe Steel subsidiary) and Energiron (Tenova and Danieli) are deploying hydrogen-ready shaft furnaces worldwide, though most will initially operate on natural gas before transitioning to low-carbon hydrogen as availability improves. This production pathway remains constrained by underdeveloped low-carbon hydrogen infrastructure.

A secondary challenge involves DRI plants' requirement for high-quality iron ore pellets, with production capacity expanding but potentially limiting future growth. In response, companies like POSCO and Primetals Technologies are scaling fluidized bed hydrogen-DRI technologies that can directly utilize lower-grade iron ore fines without pelletization. These newer approaches, however, remain at pilot or small industrial scale.

These limitations are driving the development of novel ironmaking technologies. Hydrogen plasma smelting reduction (HSPR) is undergoing pilot testing by Voestalpine, with several startups entering the field. Significant activity centers on purely electrochemical processes that bypass hydrogen entirely led by companies like Electra with its aqueous electrolysis (electrowinning) process and Boston Metal with molten oxide electrolysis – both backed by major mining and steel corporations. Various hybrid technologies are also emerging, including electrified furnaces for hydrogen-DRI (demonstrated by Calix) and biomass reductant-microwave heating combinations (notably Rio Tinto's BioIron). IDTechEx explores many more such technologies and most of the key players developing them in “Green Steel 2025-2035: Technologies, Players, Markets, Forecasts“.

Key sectors procuring green steel

The automotive sector leads green steel adoption, driven by EU automakers' net-zero commitments and regulations like CBAM and the End-of-Life Vehicles directive. These regulations mandate increased use of recycled materials and higher material recovery targets. While specific steel targets have not been formally implemented, the industry is preparing for their eventual introduction. Automotive manufacturers are drawn to recycled and green steel products to market more sustainable vehicles and reduce Scope 3 emissions. Despite green steel's substantial premium over conventional steel, the impact on vehicle production costs remains minimal – around US$100-200 per vehicle. This manageable cost increase explains why Stegra (formerly H2 Green Steel) is planning Europe's largest green steel plant and has secured offtake agreements with major automakers like BMW and Tier 1 suppliers like Schaeffler.

Other sectors showing notable green steel activity include construction, tubing and piping, and industrial machinery and equipment (including wind turbines). These industries stand to benefit similarly from green steel adoption, though with higher cost implications as steel represents a more substantial component of their overall expenses. The shipbuilding sector is not expected to embrace green steel significantly, as the cost premiums could prove economically prohibitive for shipbuilders.

Green steel challenges & outlook

While promising on paper, green steel production faces significant implementation challenges. The primary obstacle is the scarcity of large-scale green hydrogen production facilities. Steel producers generally prefer to source hydrogen from nearby projects rather than developing their own, which often pushes them to design plants initially for natural gas use with gradual transition plans to low-carbon hydrogen. Industry stakeholders argue that green steel premiums and government subsidies are insufficient to offset European green hydrogen costs, which frequently exceed €6/kg H2. Decarbonization investments are also more difficult to justify, given the elevated energy prices in Europe and geopolitical uncertainties. ArcelorMittal exemplifies this challenge – despite securing nearly €3 billion in EU subsidies, the steel giant has suspended investments in hydrogen infrastructure and hydrogen-based green steel plants while awaiting more favorable market conditions.

China presents a contrasting scenario with more rapid green hydrogen development. Chinese steelmakers have demonstrated high hydrogen concentrations in their DRI operations, though currently sourced from coke oven gas (a fossil fuel source). Nevertheless, Chinese producers are expected to adapt to EU CBAM requirements by increasing their recycled and green steel output. US green steel projects face uncertainty under the Trump administration, while Australia, Brazil, and Middle Eastern nations maintain ambitious green steel goals.

Overall, while steel decarbonization shows promising developments, the industry continues to face substantial challenges and will remain dependent on coal-based blast furnace infrastructure for many years to come. Despite these obstacles, IDTechEx projects hydrogen-based green steel production to reach 46 million tonnes by 2035 – a significant number, though still highly insufficient to meet 2050 net-zero targets.

For more on information on green steel and steel sector decarbonization, including downloadable sample pages, please see www.IDTechEx.com/GreenSteel.