🌎 Steelin’ the show

Forging a new path for steel decarbonization with Taggart Bonham

If the steel industry were a country, it would be the third largest global CO2 emitter - bested only by the US and China. At 11% of all global emissions, decarbonizing this omnipresent industrial material is quite literally foundational to slowing global warming.

Steel has some tricky ratios working against its decarbonization favor - namely, 1 : 1.85. Every ton of steel emits 1.85 tons of carbon dioxide. Fortunately, cleaning up steel’s act has been heating up with over 72 low-carbon steel projects, 90%+ of which have been announced since 2019. (Must click: Industry Transition’s green steel tracker). Steel also has some big fresh funding numbers in its favor - namely $3.5B for H2GreenSteel’s debt round, $85M for Electra’s Series A. Despite being up against fundamental chemistry and massive capital intensity challenges, investors and strategics continue to smelt (okay, pour?) funding into the low-carbon steel startup smithy, in an attempt to extract value (another smelting joke!) from the $1T market opportunity to lower that 1 : 1.85 ratio.

Steel’s dirty secret

Technically speaking, novel steel decarbonization technologies must overcome two separate challenges:

  • Chemical reduction of iron ore: Steel is notoriously difficult to decarbonize because carbon is an unavoidable part of the chemistry
  • High temperatures: Similar to calcination in cement production, it’s a technical challenge to decarbonize heats high as 1700°C

The 1, 2 Step to make steel

For the non-forgemen and forgewomen amongst us, there are two steps to make steel. Iron ore is reduced (the oxygen is removed) during the ironmaking process. Then, the carbon concentration is adjusted as it becomes steel in the steelmaking process.

  1. Ironmaking (Iron Ore → Iron): All steel starts out as raw iron ore (Fe2O3 - an impure iron oxide combined with silicates, or basically rust) which is mined primarily in Australia, Brazil, India, China, Russia, Europe, and South Africa. The ore is heated and reacted with a reductant like carbon (which comes from a processed form of coal called “coke”), hydrogen, or methane. Added limestone then reacts with the silicates in the iron ore and forms a slag that’s removed from the bottom of the furnace. Out comes a substance called pig iron, which is about 90% iron (Fe) and 10% carbon (C).
  2. Steelmaking (Iron → Steel): High temperatures and oxygen remove most of the carbon and the remaining impurities. The hot metal is poured into molds to form ingots or other shapes, to cool into the final product. China produces roughly half of the world’s crude steel, pumping out 1,032 MMT (million metric tonnes) of steel annually. This is ~9x the volume of (2nd place) India and 11x the (3rd place) US’ production.
Interactive map of global steel plants (Source: Global Energy Monitor)

Existing steelmaking pathways

Steelmakers choose between the different industrial routes to minimize their energy inputs (coal, natural gas, electricity) and raw materials costs (iron ore, scrap metal).

Primary Route (BF-BOF): Also called integrated steelmaking, this pathway encompasses raw material processing through final steelmaking. The blast furnace uses coked coal to reduce iron ore to pig iron, which is then transferred into a basic oxygen furnace. Here, oxygen blows over the hot metal to encourage the production of CO2, lowering the carbon content of the final steel produce from 4% to 1%.

Directly Reduced Iron (DRI-EAF): A newer route where iron ore is reduced with natural gas or hydrogen. Small amounts of coal are added in the electric arc furnace (EAF) to provide the carbon required for steel.

Secondary Route (EAF Recycling): Scrap metal is melted via electrodes to produce crude steel. Because this relies on recycled automotive metals containing alloys, the end product is typically lower grade.

Cleaning up steel

New steel decarbonization approaches can broadly be overlaid on the existing steel pathways and broken into three categories: carbon capture, cleaner energy, and alternative pathways.

💨 Carbon capture:

Capturing emissions from furnaces with point-source methods like post-combustion capture, pre-combustion capture, or oxy-fuel combustion (reference CTVC’s previous list of carbon capture innovators here).

These drop-in approaches work with existing steel infrastructure that will remain in operation over the next few decades. CCUS solutions are easily integrated and shared across all kinds of heavy industry. However, the infrastructure doesn’t exist today and these technologies serve as a stopgap. Geographies with less regulation will continue to produce inexpensive steel without CCUS, making this economically infeasible without heavy subsidies.

⚡ Cleaner energy:

Decarbonizing the energy inputs of today’s pathways.

Primary Route (BF-BOF):

  • Biomass with Carbon Removal and Storage (BiCRS): Use carbon-rich ‘chars’ made from raw biomass pyrolysis or hydrothermal carbonization to substitute coal’s role as the carbon input in reduction.
  • Zero carbon heat: Replace coal or natural gas by generating zero carbon heat from “heat batteries” at extreme temperatures.
Innovators: Antora, Rondo, Heaten


  • Zero carbon hydrogen: Produce low-carbon hydrogen via pathways such as methane pyrolysis or electrolysis which acts as the reducing agent to make sponge iron. This route ensures operational continuity of brownfield assets since sponge iron can be fed into existing steelmaking plants.
Innovators: Molten, Monolith, C-Zero, Electric Hydrogen, H2Pro, Hgen
  • Zero carbon fuels: Produce carbon-free syngas or fuels (acts as a similar function to hydrogen).
Innovators: Terraform Industries, Dimensional Energy, or Electrochaea

There are a few types of furnaces under development for hydrogen reduction:

  • Shaft Furnace: Retrofitting natural gas-based furnaces currently used in DRI for hydrogen.
Notable Projects: H2 Green Steel (see our interview with Chairman Carl-Erik Lagercrantz), MIDREX, GrInHy2.0, Tenova HYL, HYBRIT
  • Fluidized Bed: A design that uses finely processed iron ore powder instead of pellets, saving costs and emissions from pelletization.
Notable Projects: Outokumpu, Posco HYREX, Cincored
  • Suspension Ironmaking: Even finer grinding of low grade iron ore reduced in a high temperature “flash reactor”.
Notable Projects: University of Utah
  • Plasma Direct Steel Production: All forms of Iron ore are reduced by hydrogen plasma. If carbon is added, both the iron and steelmaking steps can be done at once in a single integrated reactor.
Notable Projects: Voestalpine SuSteel

Though these are well-characterized energy sources that demonstrably work in today’s capital equipment, they need to be cost competitive with conventional energy sources. Further, they need to be scaled to supply the 7% of total energy consumed by steel production.

🔮 Alternative Pathways:

Despite these solutions above, the silver bullet to steel decarbonization still remains unsolved. As a result, a handful of novel steel production pathways have recently burst onto the scene, from using electricity directly to convert iron ore to steel, shooting lasers, to employing electrochemistry.

Molten Oxide Electrolysis (MOE): Heating iron ore electrolyte to 1600°C via a submerged anode causes oxygen to split from iron, which then can produce high purity iron from low-grade ore. This significantly reduces capital requirements by skipping the upstream stages - there’s no need to produce coke or hydrogen as reductants. The big name here is Boston Metals. Similarly,  ArcelorMittal has pioneered the electrowinning process, where a current passes an iron oxide solution causing iron to collect on an electrode.

Aqueous Electrochemical: This process works by dissolving iron ore in an acid and then electroplating it out. This reaction can use low quality iron ore, and runs at room temperature. The notable company here is Electra.

Alternative Heat: These processes use hydrogen purely for the reduction reaction and heat the iron ore with alternative heat sources. Limelight Steel uses light energy to efficiently and rapidly heat iron-oxide, similar to how microwaves are tuned to quickly heat water. Hertha uses a modified electric arc furnace to provide the heat. The potential benefit of this pathway is the ability to electrify and substantially reduce the required energy needed for steelmaking.

Key Takeaways

Cheap steel wins. Steel is a global commodity with intense international competition for slim margins. Firms compete to take costs out of these major inputs:

  • Energy (40% of cost): Different routes enable competition on energy consumption and cost of  energy source. Geographies unable to secure low-cost reliable clean energy will be unable to produce clean steel.
  • Iron Ore (40% of cost): Whereas the primary route has longer term contracts for iron ore, the secondary route is exposed to volatile scrap prices driven by new automotive purchases. Startups can build cheaper processes that utilize historically discarded  lower grade ore.
  • Capital Equipment (15% of cost): While this looks like a small component, it’s disproportionately important because these large upfront costs determine if a steelmaker greenlights project funding. (For those abacus-obsessives amongst us, the remaining 5% cost balance comprises of small line items like labor and limestone.)

Quite literally, there’s no margin for error for novel steel production pathways. New technologies must be meaningfully cheaper on these axes to have a chance at wide-scale adoption.

Beware ‘Carbon Credit Profitable’. Governments grok the national importance of steel and can enact policies to move the elbow of the market’s invisible hand by incenting clean energy inputs or punishing carbon emissions - influencing which form of steel is the “cheapest” within country borders. Profitability that’s reliant on carbon offsets can ultimately create carbon leakage, where producers in countries with less strict regulations can produce a cheaper dirtier commodity that dominates the market. While CCS has a role to play in the transition, investment should continue to orient for long term insetting by derisking alternative production routes that may prove cheaper - even without additional offset expenditure.

An idle plant rusts. Plants require decades of continuous uptime to pay back the large upfront costs. Downtime for upgrades and installs means less revenue. Therefore, drop-in technologies that can minimize downtime will face smoother adoption. Constant production is essential for new facilities too - where high uptime is needed to amortize the large upfront investment. This makes variable renewables an unlikely component of future steel plants unless we solve long duration energy storage.

Green steel is an energy game. Firms compete on iron ore and energy prices. While there’s some margin in exploring lower grade ore, steelmakers are ultimately betting on their cheapest future source of energy. Whether that’s hydropower in the Northeast for MOE, natural gas in the Permian Basin for methane pyrolysis, or curtailed energy in Australia for a low capex electrochemical process - the future of steel will be forged by the future prices of energy.

Steeling the show! Thanks to Taggart Bonham for forging this feature. When he’s not in the smithy, Taggart drops the blacksmith welding apron and dons the vest as a deeptech VC at Playground Global where he focuses on the future of heavy industry.

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