WORKWEEK

Putting steel in the ground is often synonymous with making progress, whether on a specific project or as a society as a whole. Steel production accounts for ~1% of global GDP. If you want to look at one or two variables to understand the health of a manufacturing economy, look no further than steel or copper prices. For example, as China’s economic struggles deepen, beset by trouble in real estate, steel rebar prices in China have tumbled.

Steel is also at the epicenter of industrial decarbonization challenges. Steel production accounts for 7% of global emissions annually. Last week, I lamented that most large funding rounds in climate tech of late are for battery material companies. And to be sure, another U.S.-based battery material and recycling company did announce yet another eye-watering round this week: Ascend Elements raised $542M in funding for its battery materials and recycling business.

This week, however, as if to answer my prayers, various companies announced massive growth funding rounds in other areas critical to decarbonization. In particular, steel dominated the headlines this week with an iron first:

• H2 Green Steel AB, based out of Stockholm, raised ~$1.6B in equity funding to build the world’s first large-scale green steel plant, which will leverage a gigaton-scale electrolyzer to make green hydrogen.

• Boston Metal raised $262M in Series C funding for its Molten Oxide Electrolysis (‘MOE’) platform targeted at decarbonized steel making. 

• Japanese steel maker JFE is also planning to raise a $1.3B round across equity and debt with an eye on its decarbonization goals.

How to make steel (and where emissions enter the equation)

Understanding what it means for these companies to pursue decarbonization in steel production helps to know how steel gets made and where emissions enter the equation. 

Here’s how I understand that from some armchair internet research: 

1. Iron Ore Mining and Extraction: You need to mine iron ore before making steel. Of course, this involves heavy machinery, energy-intensive operations, and transportation, all of which emit CO2, e.g., from diesel combustion. The emissions inherent to this step are beyond the purview of the decarbonization companies like H2 Green Steel and Boston Metal are targeting.
2. Iron Ore Processing: Once extracted, iron ore must be processed to remove impurities and transform it into pellet form. This step can also be energy-intensive; iron ore grinding, heating, and cooling also generate emissions depending on the energy source. Heating, in particular, is a pernicious decarbonization challenge.
3. Blast Furnace: The blast furnace is the epicenter of steelmaking emissions and is thus the central area of focus for companies like H2 Green Steel and Boston Metal. The blast furnace is the epicenter of steelmaking emissions & is the main area of focus for companies like H2 Green Steel & Boston Metal. Blast furnaces smelt iron ore to produce molten iron. In the blast furnace, coke (a form of carbon made from coal) is typically used as a reducing agent to convert iron ore into iron. During this process, carbon in the coke reacts with oxygen in the iron ore, releasing CO2 as a byproduct. The combustion of coke also releases CO2. Hence, the emissions here are a direct byproduct of the reaction (true of cement production as well).
4. Basic Oxygen Furnace (BOF) or Electric Arc Furnace (EAF): Once molten iron is produced in the blast furnace, it is further refined and turned into steel in either a BOF or an EAF. The BOF process involves blowing oxygen into the molten iron to remove impurities, while the EAF process uses electricity to melt scrap steel and adjust the composition. Both methods can generate emissions as a byproduct of electricity generation. However, electric arc furnaces are often pointed at as a way to reduce emissions from steel production (if powered by renewable energy). Note that while electric arc furnaces offer incremental emissions reductions in steel making, they do not replace the blast furnace.

To distill emissions sources from the above, many emissions stem from steel plants’ reliance on coal and natural gas for heating and electricity generation as well as from the transportation of raw materials, iron ore, coal, and finished steel products. Using renewable energy sources to replace fossil fuels in steel production can reduce emissions, as could carbon capture and storage, improving energy efficiency, and better steel recycling.

Still, the fact that CO2 is a direct byproduct of reactions in the blast furnace makes the core of steel makings’ emissions more intractable.

Replacing the blast furnace

To make a meaningful dent in the emissions footprint of steel, companies can’t just rely on electric arc furnaces and an increasing share of renewable energy for electricity generation in steel making. They need to transition to alternative iron reduction technologies that emit fewer greenhouse gasses.

For example, H2 Green Steel focuses on hydrogen-based direct reduction, as indicated in the name. Hydrogen-based direct reduction uses hydrogen gas (H2) instead of coke as the reducing agent to remove oxygen from iron ore. This generates significantly fewer emissions; when hydrogen is used as the reducing agent, the main byproduct is water vapor rather than CO2. Using hydrogen as a reducing agent also facilitates more efficient iron ore reduction, lowering energy consumption.

That said, as evidenced by the round H2 Green Steel raised, transitioning to hydrogen-based direct reduction requires significant capital investment in new equipment and infrastructure for hydrogen production and transportation. It’s not something you can retrofit an existing steel plant to do. 

The plant H2 Green Steel wants to build will feature renewable energy generation resources alongside the capacity to pull from Sweden’s (very green) grid, as well as Europe’s largest electrolyzer to make hydrogen on-site. Despite the successful fundraise, the company still awaits a final investment decision (pending forming a sufficient debt funding coalition).

Boston Metal meanwhile aims to commercialize Molten Oxide Electrolysis (“MOE”), which leverages electrochemical processes to reduce metal oxides into their respective metals. In the case of steel, MOE involves using electricity to drive the reduction of metal ions in molten oxide baths. Like hydrogen-based direct reduction, MOE doesn’t use coke as a reducing agent, omitting direct CO2 emissions. Plus, given its dependence on electricity as a primary energy source, it could yield an almost fully decarbonized process. 

MOE can also use a broader range of metal oxides as raw materials, including recycled materials, reducing the need for mining and the environmental impact of ore extraction.

Like hydrogen-based direct reduction, MOE is an emerging technology that has yet to be commercialized at scale. Traditional steelmaking processes have been refined for large-scale production over many decades and may remain cheaper on a pure dollar basis for a long time. 

The net-net

This time last week, I wrote:

Countless other manufacturing sectors and technologies – e.g., thermal solutions for industrial heat, electrolyzers, electric arc furnaces, green hydrogen for fertilizer – will require the same levels of investments we’re seeing in batteries. Shouldn’t we hope for, nay, demand billion-dollar production commitments for those areas, too?

Ask, and you shall receive, apparently. 

Still, as I always try to remind myself (and thereby you), these companies have substantial work to do, both to physically put steel in the ground to build their plants and to commercialize entirely new techniques before they can roll any new green steel off the line. We’ll likely have to wait until 2025 or later to see how much success they have and how much their competitive steel product costs. 

At the same time, if I were making a list of 100 projects to watch (which I will now do) to see how much fruit this current wave of climate and energy tech investment bears, projects like H2 Green Steel’s would be in the top 25