Decarbonisation of Steel – Hydrogen-Based Furnaces and Renewable-Powered Production

Introduction

Steel is the backbone of modern civilisation. It forms the skeleton of our cities, the infrastructure of our transport systems, and the machinery that drives global industry. Yet, it also carries a heavy environmental burden. The global steel industry contributes approximately 7–9% of total CO₂ emissions, making it one of the most carbon-intensive sectors worldwide.

As governments, investors, and manufacturers intensify their push toward sustainability, decarbonisation has become the defining challenge for steelmakers. Traditional blast furnace operations depend heavily on coal and coke, which emit large volumes of carbon dioxide. Therefore, to meet global net-zero targets, the steel industry must undergo a fundamental transformation—moving away from fossil fuels and embracing hydrogen-based and renewable-powered production systems.

This article explores the path toward decarbonised steel. It explains how hydrogen furnaces and renewable energy can drastically reduce emissions, highlights current innovations, and examines how this shift can reshape one of the world’s oldest and most essential industries.

The Carbon Problem in Steelmaking

The Conventional Route: Blast Furnaces

For more than a century, the blast furnace–basic oxygen furnace (BF-BOF) route has dominated global steelmaking. In this traditional process, iron ore is reduced using coke, a carbon-rich derivative of coal. The carbon reacts with the oxygen in iron ore (Fe₂O₃), producing molten iron and large quantities of CO₂.

While the process is efficient, it is also inherently carbon-heavy. On average, every tonne of steel produced through this method releases nearly two tonnes of CO₂. Consequently, with annual steel production surpassing 1.8 billion tonnes, the environmental footprint is vast.

The Energy Challenge

Steelmaking also demands significant energy input. Furnaces must reach temperatures exceeding 1,500 °C, and this heat is typically supplied by burning fossil fuels. As the global energy transition accelerates, the steel industry must find a way to align with renewable power systems while maintaining production quality and output.

The Path to Decarbonisation

To tackle this challenge, steelmakers are adopting multiple complementary strategies. These include:

Hydrogen-based direct reduction (H-DRI).
Electric arc furnaces (EAFs) powered by renewable energy.
Carbon capture, utilisation, and storage (CCUS).
Circular economy principles, such as recycling and material efficiency.

Among these methods, hydrogen and renewable electricity offer the most transformative potential. Together, they provide a route toward truly carbon-neutral steel production.

Hydrogen in Steelmaking: The New Reductant

How It Works

In hydrogen-based direct reduction, hydrogen gas (H₂) replaces carbon as the reducing agent. Instead of producing carbon dioxide, the reaction generates water vapour (H₂O)—a harmless by-product.

The simplified reaction is:

Fe₂O₃ + 3H₂ → 2Fe + 3H₂O

This process occurs in a shaft furnace at temperatures between 800 and 1,000 °C, which are significantly lower than in conventional blast furnaces. As a result, energy efficiency improves, and carbon emissions are almost entirely eliminated.

The Types of Hydrogen

Hydrogen can be produced in several ways, and the carbon footprint depends on the production method.

Grey hydrogen is made from natural gas via steam methane reforming (SMR) and emits CO₂.
Blue hydrogen also comes from natural gas but captures and stores CO₂ using CCUS technologies.
Green hydrogen is created by splitting water through electrolysis powered by renewable energy, generating no emissions.

Therefore, green hydrogen represents the cleanest and most sustainable option, and it is key to the long-term decarbonisation of steelmaking.

The Advantages

Hydrogen-based steelmaking offers several advantages:

Zero direct CO₂ emissions—water replaces carbon dioxide.
Lower operational temperatures—reducing energy waste.
Compatibility with renewable energy—creating fully sustainable production.

Consequently, hydrogen furnaces provide an effective path toward carbon-free steel when powered by renewable energy.

Renewable-Powered Production: The Second Pillar

The Rise of Electric Arc Furnaces

Electric arc furnaces (EAFs) use electricity, rather than coke, to melt scrap metal or direct-reduced iron (DRI). When powered by renewable sources like wind, solar, or hydropower, EAFs can achieve near-zero emissions.

Currently, EAFs account for roughly 30% of global steel production. However, as renewable capacity grows, this figure is expected to rise sharply. Moreover, EAFs allow flexible operation, meaning they can ramp up or down according to renewable energy availability.

Integrating Renewable Energy

The key challenge is ensuring a stable and reliable supply of clean electricity. Renewable sources are intermittent by nature, which can disrupt continuous operations. To overcome this, steelmakers are investing in advanced energy management systems.

Battery storage smooths short-term fluctuations.
Hydrogen storage balances seasonal energy variations.
Smart grids integrate renewable sources efficiently across networks.

As a result, renewable-powered steelmaking becomes more consistent, cost-effective, and resilient.

Emerging Technologies and Global Projects

HYBRIT – Sweden’s Green Steel Pioneer

One of the most promising projects in this field is HYBRIT (Hydrogen Breakthrough Ironmaking Technology) in Sweden. This joint venture between SSAB, LKAB, and Vattenfall aims to completely eliminate fossil fuels from steel production.

HYBRIT uses green hydrogen produced from hydropower to reduce iron ore, and in 2021, it delivered the world’s first batch of fossil-free steel to Volvo. The project is targeting commercial-scale production by 2026, potentially cutting Sweden’s national CO₂ emissions by 10%.

H2 Green Steel

Another groundbreaking initiative, H2 Green Steel, is developing a fully integrated green steel plant in northern Sweden. Powered entirely by wind and hydropower, the site will combine electrolysis, direct reduction, and electric arc furnace technology. When completed, it will produce up to 5 million tonnes of carbon-free steel per year by 2030.

ArcelorMittal, Salzgitter, and Beyond

Global leaders are following suit. ArcelorMittal is converting its Hamburg DRI plant to operate with hydrogen, while Salzgitter AG’s SALCOS project integrates renewable hydrogen with EAFs.

Therefore, the shift toward hydrogen steelmaking is no longer theoretical—it is already underway across continents.

The Economics of Green Steel

Current Costs

Today, hydrogen-based steelmaking remains more expensive than conventional production—often by 30–50%. This cost gap stems mainly from high hydrogen prices and limited renewable energy availability.

However, the economics are improving rapidly. As electrolysis technologies mature and renewable electricity costs fall, the financial viability of green steel strengthens each year.

Cost Reduction Pathways

Experts predict that green hydrogen could fall below USD 2 per kilogram by 2030, making it competitive with natural gas. Moreover, carbon pricing and government incentives will make fossil-based steel increasingly costly to produce.

Therefore, cost parity between green and traditional steel may emerge sooner than many anticipate.

Market Drivers

Several forces are accelerating adoption:

Carbon taxes and emission trading systems penalise polluters.
Corporate sustainability goals drive demand for low-carbon materials.
Consumer awareness pressures industries like automotive and construction to adopt green supply chains.

Consequently, green steel will become a commercial advantage rather than a compliance cost.

Challenges on the Road to Decarbonisation

Hydrogen Supply and Infrastructure

Producing and distributing hydrogen at scale remains challenging. It requires extensive new infrastructure, including pipelines, storage tanks, and electrolysis facilities near production sites.

Governments must therefore support investment in hydrogen corridors and industrial clusters to ensure steady supply.

Renewable Energy Demand

Hydrogen electrolysis and EAF operation consume vast amounts of electricity. Producing one tonne of hydrogen-based steel can require up to 3.5 MWh of renewable power.

Consequently, steel’s decarbonisation depends heavily on accelerating global renewable energy capacity and ensuring reliable grid access.

Retrofitting Existing Plants

Most steel mills were built for blast furnace technology. Converting them to hydrogen-based systems demands high upfront investment and downtime. Transitional solutions, such as injecting hydrogen into existing furnaces, can help bridge the gap.

Technological Maturity

While pilot projects demonstrate feasibility, large-scale commercialisation is still in early stages. Data from upcoming plants will refine operational parameters and guide future expansion.

Policy, Regulation, and Support Mechanisms

Carbon Pricing and Incentives

Government policies are essential to level the economic playing field. Carbon pricing, emissions trading schemes, and clean energy tax credits encourage investment in hydrogen and renewable technologies.

For example, the European Union’s Carbon Border Adjustment Mechanism (CBAM) aims to prevent high-emission steel from undercutting cleaner alternatives.

International Collaboration

Decarbonising steel is a global mission. Cross-border partnerships ensure that hydrogen production, storage, and transport standards are aligned. Initiatives like the European Green Deal and Mission Possible Partnership are already driving collaboration between energy and heavy industries.

Certification and Transparency

To build trust, certification systems such as ResponsibleSteel and Hydrogen Europe’s Guarantee of Origin verify that “green steel” is genuinely low-carbon. Consequently, buyers can make informed choices, and producers gain credibility.

Environmental and Social Benefits

Major Emission Reduction

Hydrogen-based production can cut CO₂ emissions by more than 90% compared with traditional blast furnaces. This transition would eliminate billions of tonnes of greenhouse gases each year.

Cleaner Air and Healthier Communities

Moving away from coal not only reduces CO₂ but also lowers emissions of sulphur dioxide (SO₂), nitrogen oxides (NOx), and particulate matter. Therefore, communities near steel plants enjoy cleaner air and improved health outcomes.

Employment and Economic Growth

The green transition creates new jobs in renewable energy, electrolyser production, and smart manufacturing. As older plants are upgraded, workers gain new technical skills—ensuring a just and inclusive transformation.

Digitalisation: The Hidden Enabler of Decarbonisation

Process Optimisation

Artificial intelligence (AI), machine learning, and digital twins enable real-time optimisation of furnace temperatures, hydrogen flow, and energy consumption.

Therefore, digital technologies ensure that every kilowatt of renewable power is used efficiently.

Smart Grids and Automation

Digital control systems balance renewable generation with plant energy demand. By integrating AI forecasting and smart grids, steel plants can adjust production dynamically, reducing waste and cost.

Data Transparency

Digital tracking tools record emissions across the supply chain, improving ESG reporting and regulatory compliance. Consequently, investors and customers gain confidence in verified low-carbon operations.

Circular Economy: Supporting Decarbonisation

While new technologies are crucial, recycling and resource efficiency remain equally important.

Scrap Recycling: Using recycled steel in EAFs saves energy and reduces emissions.
Material Efficiency: Designing lighter products reduces steel demand without compromising strength.
Extended Lifecycles: Reuse and refurbishment further lower the sector’s total carbon footprint.

Therefore, combining circular economy principles with hydrogen and renewable technologies creates a truly sustainable steel industry.

The Global Outlook: Toward Net-Zero Steel

Regional Leadership

Europe is leading through HYBRIT, H2 Green Steel, and SALCOS projects.
Asia—particularly Japan and South Korea—is testing hydrogen injection technologies.
Australia aims to become a major exporter of green hydrogen for steel production.
The Middle East is leveraging low-cost solar energy to produce competitive green hydrogen.

Global Collaboration

Partnerships between steelmakers, energy firms, and governments are essential. Joint investments reduce risk, accelerate learning, and build shared infrastructure for hydrogen production and storage.

The Road Ahead

Industry forecasts suggest that hydrogen-based and renewable-powered steel could account for up to 15% of global production by 2035 and more than half by 2050.

Therefore, the next two decades will be pivotal in determining how quickly steelmaking achieves full decarbonisation.

Conclusion

The decarbonisation of steel is more than a technological challenge—it is an industrial revolution. By replacing coal with hydrogen and electricity from renewable sources, the steel industry can transition from being a top emitter to a leader in sustainability.

This transformation demands bold investment, policy alignment, and innovation at every level. However, the rewards are immense: cleaner air, sustainable growth, and an industry aligned with the global mission for net zero.

Hydrogen-based furnaces, renewable power, and digital innovation are no longer future concepts—they are the building blocks of green steel. As these technologies mature, they will redefine how the world builds, manufactures, and progresses.

Ultimately, the decarbonisation of steel is proof that progress and sustainability can coexist. Through innovation and collaboration, the industry can forge a future where every beam and sheet of steel carries not only strength—but also responsibility.