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H2 Green Steel is building a large steel plant in northern Sweden that will rely on green hydrogen and renewables to substantially cut climate pollution. The startup is helping to clean up one of the world’s most important building materials, which is also one of the biggest sources of industrial pollution.

Intro

Last July, H2 Green Steel broke ground on what could become the world’s first commercial-scale clean steel factory, marking a milestone in its quest to reinvent one of the world’s dirtiest industrial sectors.

The startup says the factory in Boden, Sweden, will produce 2.5 million metric tons of steel by 2026, while cutting carbon dioxide emissions up to 95% compared with traditional steel mills. It says it has already lined up customers for about half that supply, including BMW, Mercedes, and the agricultural giant Cargill.

Steel is made by removing oxygen from iron ore and adding other metals as well as carbon, producing an alloy strong and resilient enough to keep skyscrapers and bridges standing. But the most common method of steelmaking releases huge amounts of carbon dioxide. The planet-warming gas is generated from the coal-derived coke used to extract the oxygen from the iron, from other chemical reactions during the process, and from the fossil fuels burned to heat the furnaces.

In contrast, H2 Green Steel intends to tap into the rich hydroelectric and wind power resources in northern Sweden to run one of the world’s largest electrolyzers, a device that splits water molecules to produce a clean form of hydrogen. That will flow into a renewables-powered steel plant, where it will play the role of coke in plucking oxygen from heated iron pellets, producing water as a byproduct instead of carbon dioxide. From there, the metal will go through several additional electrified steps in which carbon and alloys are added to strengthen and refine the steel, and gases are removed.

The process will still produce some emissions, in large part because the company will initially rely on natural gas to add carbon to the molten metal.

The startup has secured commitments for more than €3.5 billion ($3.7 billion) in debt financing for the project and raised more than €1.8 billion ($1.9 billion) in equity investments, much of which will also go toward building the plant.

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Key indicators

• Industry: Steel
• Founded: 2020
• Headquarters: Stockholm
• Notable fact: The company was spun out of the battery maker Northvolt, after electric-vehicle makers told its executives that steel was the next big challenge for cleaning up the auto sector

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Potential for impact 

Steel and iron production generates 2.6 billion tons of carbon dioxide emissions per year, adding up to about 7% of all energy-related climate pollution, according to a 2020 report by the International Energy Agency. The industry needs to cut its emissions in half by 2050, even as worldwide demand rises by a third, to get on track with global climate targets, according to the group.

The grand hope is that well-funded companies like H2 Green Steel will kick-start that process by demonstrating it can be done—and by showing there’s a market for cleaner steel and driving down costs as low-carbon facilities scale up.

A ton of steel made by H2 Green Steel will cost the firm’s early customers 20% to 30% more than the standard product. But the company expects that more and more customers will be willing to pay such premiums as tightening climate policies and corporate net-zero commitments force businesses to figure out more sustainable ways of sourcing their materials.

Most notably, the EU’s price on carbon pollution has risen sharply in recent years on the EU’s Emissions Trading System, a marketplace designed to lower commercial climate emissions over time. In addition, while the system has granted free polluting permits for years to industrial plants making steel, cement, and other materials, it will start phasing those out in 2026.

Caveats 

The global steel industry is huge, and it will take a massive up-front investment to retrofit or replace the world’s factories. Much of that sector is based in poorer countries that will have limited resources or appetite for shutting down functioning steelworks. The mining sector will also need to make sweeping changes in its practices to clean up the earlier stages of the supply chain. 

H2 Green Steel still needs to build the Boden plant and prove that the facility can produce steel as cleanly and cheaply as hoped. And it will need to finance, permit, and construct many more mills before it can make a real dent in steel emissions. 

Meanwhile, a growing number of other players are also working on the problem. Sweden’s largest steel manufacturer, SSAB, is similarly exploring the use of renewables and hydrogen to cut emissions, through the HYBRIT partnership. Ventures in Germany, South Korea, and elsewhere are investigating similar technology, while other startups, including Boston Metal and Electra Steel, are exploring more radical ways of reinventing the process using tricks of electrochemistry. 

When

But H2 Green Steel is further along than most of its competitors. The company plans to turn on the Boden factory in 2025, and produce 5 million tons of clean steel per year there by 2030. 

Next steps

H2 Green Steel is also exploring plans to build additional projects along Europe’s Iberian Peninsula, as well as in Brazil and North America. 

In addition to low-emissions steel and iron, the company says it also intends to sell green hydrogen directly, for shipping and other purposes.

In time, H2 Green Steel plans to use bio-based or synthetic gas instead of natural gas to add the carbon that makes steel steel, in the hope of ensuring this stage of the process is carbon neutral as well.

With this and other improvements, the company intends to push beyond that 95% reduction in carbon pollution, eventually producing a form of steel that doesn’t contribute to climate warming at all.

Explore the 2023 list of 15 Climate Tech Companies to Watch.