H2 Green Steel Raises Almost US$2 Billion to Develop the World’s First Green Steel Plant, but What Implications Will This Have on the Decarbonization of the Steel Industry?

Subscribe To Download This Insight

By Alexander McQueen | 2Q 2024 | IN-7082

Demand and investment in green steel have seen increases over the last few years as H2 Green Steel raises US$1.6 billion to develop the world’s first green steel plant using hydrogen as an energy source. But high premiums and insufficient production infrastructure will likely restrict widespread consumption of green steel over the next decade.

Registered users can unlock up to five pieces of premium content each month.

Log in or register to unlock this Insight.


Investment in Green Steel Grows


H2 Green Steel, a Sweden-based supplier of sustainable steel, announced last week that it had raised equity funding of around US$1.6 billion to support its efforts in building the world’s first dedicated large-scale green steel factory, set to begin operations by the end of 2025. The new plant, located in Boden, Sweden, will use sustainable methods of production by replacing the use of coal with fossil-free electricity and green hydrogen. H2 Green Steel has also partnered with Brazilian sustainable mining company Vale to assess the feasibility of developing green industrial hubs in Brazil and North America, which would explore the development of low-carbon steel products, including green hydrogen. The company has secured agreements with globally leading industrial and manufacturing firms, including Volvo, IKEA, and Hitachi Energy.

The funding, led by Altor, GIC, Just Climate, and Hy24, marks a new wave of investment in sustainably produced steel and represents a significant step toward initiating green steelmaking at the Boden plant by the end of 2025. Boston Metals also closed a US$262 million Series C round earlier this year, developing direct electrolysis technology for green steel production. The demand for green steel has seen an increase over the last few years with its production becoming recognized as a critical driver of the decarbonization of the steel sector, which currently accounts for around 7% of global emissions.

Is Hydrogen an Answer to Green Steel?


Traditional steelmaking is a carbon-intensive process requiring vast amounts of coal as a source of energy in blast furnaces to extract iron from iron ore. H2 Green Steel, among other green steel producers, is substituting coal for hydrogen produced from renewable electricity, which provides the possibility to completely redesign the process of steelmaking. Using hydrogen from renewable sources in the production process produces water vapor as a byproduct instead of Carbon Dioxide (CO2). This process is capable of producing 95% less CO2 emissions compared to the traditional steelmaking method and would prevent around 0.3 billion tonnes of CO2 emissions by 2040. Traditional steel production emits around 1.4 tonnes to 2 tonnes of CO2 per tonne of steel, compared to a predicted 200 kilograms per tonne through the hydrogen process.

The urgent need for the decarbonization of the steel industry, as well as recent developments in regulations, has led to several major players, including ArcelorMittal and Tata Steel, announcing net-zero commitments and developing their own sustainable production processes. According to Bloomberg New Energy Finance (BNEF), over 18% of global production of steel is under a net-zero target by 2050, underlining the need for sustainable steel. H2 Green Steel is among the leading startups focused on producing green steel amid rising interest in the sustainable material. The company has already pre-sold over 1.5 million tonnes before the low-carbon plant has been built, including an agreement with Mercedes-Benz for 50,000 tonnes. It has also signed an agreement with Iberdrola to build a plant powered by solar energy. The company is targeting 5 million tonnes in annual production by 2030.

According to forecasts by the World Steel Association, the global demand for steel is expected to grow by 20% by 2050. Transitioning to sustainable production methods, like substituting coal for hydrogen, would help ease the environmental burden of this increased demand and support steel industry players’ achievement of net-zero targets.

Green Steel an Unlikely Short-Term Solution for Decarbonization


Steel is critical to the global net-zero transition, as it is a key material to many renewable technologies, including Electric Vehicles (EVs) and wind turbines, as well as being one of the most significant contributors to global emissions. H2 Green Steel, Boston Metals, and many others investing in green steel production highlights positive action toward the decarbonization of the steel industry and a shift away from traditional production methods. However, global consumption of green steel will likely remain low for the next 10 to 15 years at least, questioning its validity as a short-term solution to the decarbonization of the industry.

A primary challenge is the cost. The acceptance of green steel among consumers has been limited by premium pricing, making it more expensive than its traditional counterpart. The latest H2 Green Steel purchase agreements were at a 30% premium, while premiums can typically be as high as 40% according to BNEF. Players in steel-intensive industries, such as automotive, are unwilling to pay the extra cost that would impact their bottom line. Forthcoming hydrogen tax credits and technology advancements are believed, however, to drive the cost of green steel below grey steel over the next 5 years. Despite this, the current infrastructure for green steel production is a fraction of what would be required to meet the current level of steel consumption. Even if green steel becomes the economically viable option, it will take years to build the necessary infrastructure to meet current steel demand. The focus for steelmakers today should center around improving current processes of grey steel production while the capacity for green steel production ramps up. This includes increasing recycling rates, improving the energy-efficiency of traditional processes, and piloting carbon capture technologies.

Decarbonizing the steel industry is a considerable task requiring emissions to be cut by 93% by 2050 to stay in-line with the Paris Agreement. To meet this target will require a collaborative effort among governments, regulators, industry stakeholders, steelmakers, and technology suppliers to alter the landscape of steel production and stimulate demand for green steel. It is also likely that trillions of dollars of investment will be needed in green steel production to meet current steel demand. Efforts need to be widespread—without a total global transition, there will be little decarbonization effect.