The steel industry is facing significant challenges in its efforts to transition to greener production methods. Various companies globally are striving to decarbonise steelmaking, which contributes approximately 11 percent of global carbon emissions. Despite some progress in cleaner operations, producing green steel remains a complex endeavor requiring considerable time and investment.
Steel production traditionally involves adding alloys to molten iron, which is typically derived from coal-based blast furnaces. This reliance on fossil fuels has prompted many manufacturers to explore alternative methods. In the United States, two companies, SSAB and Cleveland-Cliffs, received $1 billion in federal funding under the Biden administration to develop low-carbon steel production initiatives. SSAB aimed to utilize green hydrogen at its facility in Mississippi. However, in September 2024, the hydrogen supplier, Hy Stor Energy, cancelled its contract, forcing SSAB to pause its project.
Cleveland-Cliffs also announced delays in its Ohio hydrogen ironmaking facility, reverting to fossil fuels for steel production. The recent downturn of the U.S. green hydrogen industry has hindered the momentum for green steel initiatives.
While expectations were high for U.S. green steel just a couple of years ago, the current landscape shows no domestic green steel projects in development for this decade. Without substantial support from the government, achieving economically viable green steel production appears increasingly unlikely.
Despite these setbacks, certain companies are investing in innovative technologies and steel-recycling mills to reduce carbon intensity. The rising demand for more sustainable construction materials, particularly from tech firms developing large-scale data centres, has spurred some manufacturers to clean up their operations.
Kaitlyn Ramirez, a senior associate in the Responsible Minerals Initiative’s Climate-Aligned Industries Programme, noted, “The real challenge, from a technology perspective, is that there’s not really a path for a blast furnace to make the [low-carbon] products that are increasingly being demanded in the market.” She added that current alternatives are unlikely to be cost-competitive.
In contrast, the situation in Europe is somewhat more optimistic. The European Union’s Carbon Border Adjustment Mechanism (CBAM), which will take effect in early 2026, aims to impose fees on imports of steel and other industrial products based on their production emissions. This policy is designed to encourage manufacturers to invest in cleaner processes, ensuring that European companies purchasing from more carbon-intensive sources will face higher costs.
Globally, the steel industry is gradually moving away from traditional coal-based methods. Approximately 10 percent of iron is now produced via gas, leading to the creation of direct reduced iron. Additionally, the use of electric arc furnaces (EAF) has increased, now accounting for around 31 percent of steel production, according to Global Energy Monitor. EAFs reduce emissions by approximately two-thirds compared to conventional methods and eliminate many atmospheric pollutants.
Switching to renewable electricity could further reduce emissions, but current capacities fall short of meeting the global demand for nearly 2 billion tonnes of steel annually. Enhanced investment in research and development is crucial for achieving technological breakthroughs necessary for green steel production. Policies promoting clean steel initiatives and carbon taxes on construction materials, similar to those implemented in the EU, could also stimulate progress.
Nevertheless, setbacks in the green hydrogen sector have delayed numerous projects in the U.S. and other regions. The high costs associated with decarbonising steel operations have led some major producers to prolong their climate commitments, raising concerns about the future of green steel production worldwide. As the industry grapples with these challenges, the path to a sustainable steel future remains uncertain.
