Environment and resources – decarbonising heavy industry
The global push toward net zero is reshaping industries well beyond power generation and transport. Steelmaking, responsible for around 7–8% of global greenhouse gas emissions, according to the World Steel Association, is one of the hardest sectors to decarbonise. As governments tighten carbon pricing, buyers demand lower-carbon supply chains and investors seek exposure to the energy transition, green steel has emerged as a critical theme at the intersection of clean energy, the circular economy and climate adaptation.
Why is steel in the spotlight?
Steel is one of the world’s most widely used materials and one of the largest industrial sources of greenhouse gas emissions. The World Steel Association reports that in 2024, each tonne of steel produced emitted an estimated 2.18 tonnes of CO2, with total sector emissions of around 4.1bn tonnes of CO2. Pressure to reduce these emissions is now moving down the supply chain. Steel-dependent industries such as construction, infrastructure and automotive increasingly need lower-carbon steel to meet climate targets, procurement requirements and carbon border measures. Green steel offers a way to decarbonise a hard-to-abate material without changing what steel does in the real economy.
What does ‘green steel’ really mean?
Green steel refers to steel produced with significantly lower greenhouse gas emissions than conventional routes. The end product has the same performance and applications as traditional steel, but the production pathway and therefore the emissions footprint differ. Emissions released during the steelmaking process are primarily driven by how the iron is produced, how much scrap is used and whether electricity and hydrogen inputs are low carbon.
How is green steel made?
Traditional ore-based steelmaking uses the blast furnace-basic oxygen furnace (BF-BOF) route, in which coal-derived carbon removes oxygen from iron ore, generating large CO2 emissions. BF-BOF still accounts for around 70% of global steel production, according to the World Steel Association. Green steel has lower emissions primarily through a change in the reduction step and the power supply. Using scrap steel means that the iron is already in metallic form and does not need an ore reduction step, allowing it to be melted directly in an electric arc furnace (EAF) using renewable electricity. This method avoids most ore-related emissions and accounts for around 29% of global steel production.
Where iron made from ore is needed, direct reduced iron (DRI) can be used. DRI produces a porous solid known as sponge iron, which is melted, often with scrap, in an EAF to produce steel. Emissions can be reduced further through hydrogen-based DRI (H2-DRI), where hydrogen replaces carbon as the reducing agent, producing water rather than CO2 as a byproduct. Using H2-DRI also opens up the possibility of using green hydrogen, typically made via water electrolysis, resulting in emissions falling sharply compared with BF-BOF routes.
Innovative zero CO2 emission electrolysis-based approaches, such as molten oxide electrolysis (MOE), use renewable electricity to convert all grades of iron ore directly into liquid metal, producing oxygen as a byproduct rather than CO2. MOE does not require hydrogen infrastructure or carbon capture, avoiding the complexity and constraints of multi-step pathways.
What are the advantages and disadvantages of green steel?
The main advantage of green steel is its decarbonisation potential at scale. Scrap use is particularly powerful: the World Steel Association estimates that each tonne of steel scrap used avoids 1.5 tonnes of CO2 as well as 1.4 tonnes of iron ore and 740kg of coal.
The main constraints are high production costs and access to enabling inputs such as green hydrogen and renewable electricity. High-grade iron ore (typically at least 64% iron) is also important for efficient low-carbon steel production, yet represents less than 20% of global supply. In addition, inconsistent emissions accounting methodologies complicate benchmarking, certification and product claims.
Who are the key players in the US and Europe?
In the US, leaders include Nucor (NYSE: NUE, c $43.5bn market cap), Steel Dynamics (NASDAQ-GS: STLD, c $28.4bn market cap) and Boston Metal (pre-IPO). Nucor’s green steel brand, Econiq, produces net-zero carbon steel at scale, and the company has invested in Helion Energy to develop a 500MW fusion power plant aimed at supplying zero-carbon baseload power by 2030. Steel Dynamics’ brand BIOEDGE operates entirely with EAFs and reports that in 2024, 82% of its furnace inputs were recycled scrap or internally produced iron. Boston Metal is advancing MOE and commissioned an industrial cell in 2025 to de-risk the technology and demonstrate scalability.
In Europe, SSAB (STO: SSAB.B, c SEK78.1bn market cap) markets SSAB Zero and reports carbon emissions below 0.05kg CO2e per kilogram of steel. Policy support is also significant: EU transition analysis highlights nearly €9.3bn in approved state aid for steel decarbonisation, with Germany accounting for over €7bn.
What does the green steel industry look like in Asia?
China remains central as the world’s largest and most carbon-intensive steel producer. Policy is increasingly focused on structural change, including greater use of EAFs, hydrogen-based routes and lower-emissions blast furnace technologies. China Baowu Steel Group, for example, is advancing hydrogen-focused metallurgy and demonstration projects.
India is an important emerging case where rapid demand growth meets competitiveness pressures. According to EY-Parthenon, India’s steel consumption rose to 136Mt in FY24 and could rise to 220Mt by FY30 and 390Mt by FY50. It estimates the current green steel premium for hydrogen-based DRI at around $210 per tonne. Carbon pricing could materially shift competitiveness, increasing BF-BOF steel prices by around 14% by 2030 and more than 80% by 2050.
What must change for green steel to scale?
Scaling green steel depends on infrastructure and coordination. The World Steel Association estimates the transition will require around $1.2tn in capital expenditure for steel facilities, plus a further $2.5–4tn for upstream or downstream processes, such as energy and infrastructure.
What should investors watch?
Investors should look out for three things:
- Access to long-term, low-cost renewable electricity, which becomes a dominant cost driver in hydrogen-based routes.
- Execution risk, as many projects remain at the announcement stage.
- The credibility of emissions claims and certifications, to avoid greenwashing and double counting.
The outlook for green steel depends on how quickly clean power and hydrogen scale, but policy and procurement signals (including the EU Carbon Border Adjustment Mechanism, public procurement and offtake agreements) are increasingly shaping who can gain share as green steel moves from pilot to commercial deployment.
Edison insight
Steel is a cornerstone material but a major emissions source, contributing around 7–8% of global greenhouse gas emissions in 2024. Green steel can materially reduce these emissions while delivering the same product, but it relies on new production routes, clean power and, in some cases, green hydrogen and high-grade iron ore. Momentum is building through corporate innovation, supply-chain pressure and policy support. For investors, the key questions are whether producers can secure low-cost clean energy, execute projects beyond announcements and deliver credible, comparable emissions claims that buyers can trust.
Megatrends: environment and resources (clean energy, circular economy, climate adaptation); transformative technologies
