Shining a spotlight on green steel start-ups

TL;DR

• Steel is one of the world’s most used materials, but it is also responsible for 7% of global annual carbon emissions. It is considered one of the most challenging industries to decarbonise.

• The blast furnaces that the industry relies on to produce steel can be made more sustainable by replacing fossil fuels by hydrogen and powering the furnace with renewable energy.

• Legacy steel manufacturers are hindered by the high costs involved in choosing more sustainable production processes, a lack of hydrogen, and imperfect renewable energy infrastructure.

• Start-ups are offering an alternative, building facilities from scratch so that hydrogen and renewable energy requirements are built in from the beginning. Based in the US and Europe, the leading companies are pioneering new processes to produce green steel at scale.

• While not yet fully operational, these start-ups have attracted significant investment from private investors and governments but more needs to be done if they are to overcome cost concerns and help to decarbonise the wider steel industry over time.

The detail

Decarbonising the steel industry will be easier said than done.

Steel is one of the world’s most used materials and approximately two million tonnes of it is manufactured each year. Unfortunately, around 75% of that is made in coal-fired blast furnaces that need extremely high temperatures to trigger the essential chemical reactions required, resulting in a massive amount of carbon dioxide.

It is for this reason that the steel industry is responsible for around 8% of the world’s total carbon emissions – equivalent to 2.6 billion tonnes. To achieve global climate targets, it’s estimated that steel emissions must be cut by at least 50% by 2050.

Recycled steel is one solution – and already accounts for 26% of global demand. However, green steel is the only process that’s currently available which could eventually help the industry achieve net zero. In essence, green steel is a sustainably produced alternative to standard steel, which is produced without the use of fossil fuels. Typically, this requires green hydrogen and electric arc furnaces, powered by renewable energy, to lower the industry’s carbon footprint as much as possible. Currently, electric arc furnaces account for 31% of steelmaking capacity.

A flawed solution?

While major industry players including ArcelorMittal and Tata Steel have committed to decarbonisation, there are several challenges hindering progress. As green steel relies on using hydrogen instead of carbon as a reducing agent, the fact that low-carbon hydrogen is in short supply and renewable energy infrastructure is flawed means not only are the required raw materials hard to obtain, but they are also expensive.

Developing and scaling more innovative steel production methods also requires substantial investment in advanced technologies. In fact, ArcelorMittal predicts that decarbonising its operations could cost up to $40 billion. These costs make it increasingly challenging for legacy steel manufacturers to go green while remaining competitive.

While legacy steel manufacturers offer the greatest potential for making steel more sustainable, they are generally less agile than emerging players in the market. With stacked orders to fulfil, large operations, and expensive existing facilities to maintain, the most established steel manufacturers will need more investment and more time to make the transition. The equipment these plants need can last for decades before it needs to be replaced naturally. A fundamental shift in production methods will be required, and it’s estimated that over 1,650 existing plants will need to be decarbonised for the world to meet its emissions targets.

It won’t be a quick fix. However, that’s where green steel start-ups come in.

Emerging alternatives

These innovative companies can build from scratch in locations rich in natural resources. They can solve the hydrogen problem by building facilities that act as an all-in-one: green hydrogen and green steel produced on one site. The urgent need to decarbonise steel – and its ubiquity as a material – also means there’s a bank of customers that are ready-and-waiting to place orders, and a clutch of investors ready to provide the capital and reap the potential rewards.

Stegra, previously known as H2 Green Steel, has already raised more than $5 billion in financing to support its sustainable steel production. Founded in 2020, the company, based in Boden, northern Sweden, replaces coal as a reducing agent with green hydrogen – and refines iron ore into green ore – while only emitting steam. It uses renewable electricity to split water into hydrogen and oxygen and uses a hydrogen powered DRI furnace to process iron into steel. A small amount of carbon is used in this step, but it still cuts total steelmaking emissions by 95% compared to standard production processes.

Its location in Boden also lends itself to sustainable steel production thanks to easy access to abundant, affordable renewable energy and the right iron ore. The plant, which will be the first European steel mill for over 50 years, is still under construction but hopes to be producing green steel by 2026 and is set to hire 1,500 people during 2025. Once fully operational, this integrated, digitalised, and circular plant will reduce emissions by over seven million tonnes per year and produce five million tonnes of green steel annually by 2030.

Of course, these innovations come at a cost. Stegra charges its customers 25-30% more for its steel than those using traditional production processes, but it has already signed orders with 30 European customers worth 130 billion SEK. Each contract is set to last seven years and would consume 50% of Boden’s total steel output. Customers and partnersinclude Scania, Siemens, Microsoft, Mercedes and Hitachi. Stegra received 100 million euros in state aid from the Swedish government in September 2024, part of a total support package of 275 million euros, approved by the European Commission. It also benefitted from a 250 million euro grant from the EU’s Innovation Fund.

Low temperature, high reward

Emerging from MIT University, Boston Metal specialises in molten oxide electrolysis (MOE), a process that reduces metal oxides through electrolysis. Essentially, renewable electricity is used to heat iron ore to 1,600 degrees Celsius to produce liquid steel.

With this method, there’s no need for carbon-intensive processes like coking coal as the electrons do all the hard work. It’s touted as a scalable, cost competitive, and sustainable way to produce steel from a variety of different feedstocks and iron ore grades.

Headquartered in Woburn, Massachusetts, and with a subsidiary in Brazil, Boston Metal hopes to commercialise MOE by 2026 to help decarbonise steelmaking and transform the way metals are made. Its potential has already been spotted by investors; Boston Metal’s Series C2 funding round closed in January 2024 having raised $282 million.

Moving from east to west, Electra is a US start-up based in Boulder, Colorado. It is helping contribute to the green steel revolution by using electrolysis to pull pure iron from dissolved low-grade ores. Powered by renewable electricity, the electrochemical-hydrometallurgical process that Electra uses can operate at a low temperature to reduce carbon emissions. By removing critical impurities from ores, it produces a gangue-free iron that can be charged directly into electric arc furnaces.

With its mission to clean up the iron industry, Electra has raised $180.4 million with investors including Breakthrough Energy Ventures, S2G Ventures, Temasek, and Valor. It also signed a memorandum of understanding in December 2024with German steel trader, Interfer Edelstahl Group.

Nordic pioneers

One of the most promising green steel start-ups in Europe is Blastr Green Steel. Its plant location in Inkoo, Finland is similar to Stegra’s Boden site as it is well-suited to its purpose, offering a strong grid connection and a deep, ice-free quay for exports.

Founded in 2021, Blastr creates an ultra-low carbon steel by replacing the coal and coke that would traditionally be used in the production process with hydrogen. Once fully operational, it plans to produce 2.5 million tonnes of steel each year, reducing annual carbon dioxide emissions by six million tonnes and producing 90% fewer Scope 1-3 emissions than standard steel.

When it comes to investment, Blastr is owned by the Nordic investment company, Vanir Green Industries, but also closed an equity financing round in June 2024 with investors including Cargill Metals and Tesi. Following in Electra’s footsteps, the start-up also made a deal with Interfer to supply it with 150,000 tonnes of ultra-low carbon emissions steel products each year, equivalent to roughly 10% of the plant’s total capacity.

These four innovative start-ups are not only pioneering new ways of producing green steel, but they are also working towards commercialisation.

By starting from scratch and choosing locations that are perfectly suited to the production process, they can overcome the challenges presented by a lack of renewable energy infrastructure and the limited availability of green hydrogen. This allows them to build expansive facilities and potentially produce a large quantity of steel while simultaneously reducing emissions by up to 95%.

A holistic approach with high stakes

Even so, these start-ups’ facilities aren’t yet operational and, even when they do so, their product will initially be more expensive and available in lower quantities than the steel available from legacy manufacturers. For emissions to be cut by at least 50% by 2050, we can’t rely on these challengers alone – and they can’t operate without support.

There are several ways that buying green steel could be made more attractive despite its higher cost including imposing government tariffs on traditional steel, allocating funds to start-ups, and rewarding those companies that choose to buy from greener sources.

There is also work to be done to improve the renewable energy infrastructure, develop battery storage so that established sustainable sources like solar and wind power can be relied upon year-round, and increase the amount of green hydrogen being produced each year. That way, the tools will be in place to make the transition easier when the time comes for legacy producers to replace their existing machinery in the coming decades. It’s only by looking at the bigger picture that green steel can be set up for success.

— Lew 👋

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