Hydrogen-based green steel output could reach 46 million tonnes by 2035, according to a new report from technology research firm IDTechEx. The report highlights how regulation, corporate climate targets, and pressure from sectors like automotive and construction are driving investment in low-carbon steelmaking. However, high hydrogen costs, infrastructure gaps and policy uncertainty risk slowing progress – and 46 million tonnes is only about 2.5% of annual steel production.
Steel accounts for around 7% to 9% of global CO2 emissions and it is one of the hardest sectors to decarbonise, with high temperatures involved. In Europe, policies such as the Emissions Trading System (ETS) and the upcoming Carbon Border Adjustment Mechanism (CBAM), along with over €2bn ($2.2bn) in public funding, are accelerating green steel initiatives.
Other countries are taking a mix of approaches. The US offers tax credits and grants for hydrogen and carbon capture, though its longer-term outlook remains uncertain. China is rapidly expanding hydrogen capacity but still relies on fossil-derived sources such as coke oven gas for direct reduced iron (DRI) production. India, Australia and Saudi Arabia are also developing national strategies with mixed progress.
To lower emissions from existing infrastructure, steelmakers are turning to measures like hydrogen or biomass injection into blast furnaces, off-gas recycling and expanded use of electric arc furnaces. While these can cut emissions, they are not viewed as long-term solutions.
Investment is also growing in next-generation technologies including fluidised bed hydrogen-DRI, hydrogen plasma smelting and electrochemical processes developed by startups such as Electra and Boston Metal. These remain at pilot scale and face challenges around cost, ore quality and scale-up.
The automotive sector is leading demand for green steel as manufacturers prepare for tighter rules on recycled content and Scope 3 emissions. Carmaker BMW and its supplier Schaeffler have signed offtake deals with Stegra (formerly H2 Green Steel), which is building Europe’s largest green steel plant.
Despite the premium, IDTechEx estimates green steel adds only $100 to $200 of cost per vehicle produced – a cost automakers can absorb. Uptake in construction and industrial equipment is slower due to greater cost sensitivity, with shipbuilding expected to lag further behind.
A major barrier remains the high cost and limited supply of green hydrogen. In Europe, prices often exceed €6 per kilogramme, making producers hesitant to invest without stronger policy support or long-term price certainty. ArcelorMittal has paused hydrogen projects despite nearly €3bn ($3.3bn) in subsidies, citing unfavourable market conditions.
Chinese producers have demonstrated hydrogen-based DRI at scale but continue to rely on fossil-based hydrogen. In the US, future policy decisions could impact support for hydrogen and carbon capture technologies.
While the 46 million tonne forecast is progress of sorts, it represents only a fraction of global steel output. As it stands, coal-based blast furnaces will remain dominant for years to come.
