Chinese-owned automaker Volvo took delivery of its first shipment of green steel in August in a landmark development for industry. The steel was produced in northern Sweden, using technology based on green hydrogen from low-carbon electrolysis in a joint venture between an electrical utility, an iron ore miner, and a steelmaker.

Small in volume and expensive, the unique product is a proof-of-concept for decarbonizing steel—one of the hardest-to-abate sectors. Global steel production accounts for 7-8pc of total global emissions.

But the challenge for the auto industry and the steelmakers supplying them will be identifying the locations where electrolysis from renewables can come together easily with iron ore supply.

“One thing speaking in favour of the location [in Sweden] was the availability of iron ore pellets,” says Thomas Koch Blank, a Stockholm-based senior principal in breakthrough technologies with US think tank Rocky Mountain Institute (RMI). “When they scale this up in 2024, this will be right at the mine mouth. There is infrastructure there already, iron ore is already coming out.”

20-30pc – Price premium for green steel

Koch Blank also points out the experimental nature of this emerging process. “You should keep in mind the current facility is pretty small,” he says. “Volvo is not cost-focused here.”

Green steel bypasses the use of coking coal by substituting hydrogen to create the high temperatures necessary to melt iron. And therein lies the cost challenge. Hydrogen can be produced cheaply using traditional methods with high emissions or through a green pathway that drives electrolysis with renewables. But electrolysis itself is expensive because the price of electrolysers has yet to fall sufficiently. According to a report Koch Blank produced for RMI, green steel will generally carry a 20-30pc price premium over conventional steel. 

But that has not stopped the auto industry from gravitating towards this method. Daimler has recently partnered with SSAB, the Swedish steelmaker involved in the project to supply Volvo. And BMW is taking a stake in Boston Metal, a US company that proposes to smelt iron ore with electricity.

Less is more?

Global automakers have grappled with steel costs for decades and have found ways to ‘dematerialise’ the manufacturing process on an incremental basis for a long while. The best-selling US vehicle for nearly 40 straight years—the Ford F-150—has become a much lighter vehicle over that timespan, having shifted much of its steel content over to aluminium.

But electric vehicles (EVs) are heavy. And despite the extreme efficiency of an EV’s energy usage, improving range is likely to be a long-term goal of the industry, if not an ongoing race. To use the Ford F-150 again as an example, the all-electric version is expected to weigh about 1,600 pounds more than the petrol version. If automakers have to use less steel as a result of battery weight, this could obviate the higher cost of green steel.

The implications for the steel industry are potentially significant. Green steel does not propose to create less steel. And if electrification of transport continues gathering momentum, there could be a drive to use less steel per vehicle produced—even as production volumes of vehicles rise—as the world races to dump the internal combustion engine (ICE). According to the World Steel Association, global steel demand is rebounding strongly this year by 5.8pc as the auto industry recovers, in China especially. But the big growth in China now comes from EVs, as ICE vehicle sales continue to decline.

Koch Blank is optimistic with the growth outlook for electrolysis.

“If you look at the 2025-26 electrolysis pipeline, the five-year year outlook is skyrocketing every 6 months. Every six months that outlook is changing 7-10 GW,” he says. “In fact, we know of a company targeting 100 GW by 2030. And that is just one company.”

The US, India, and now China have now launched national hydrogen initiatives, and the US in particular is thinking quite deeply about co-location issues in hydrogen production and consumption.

Locating production at the iron ore mine mouth, for example, can confer advantages. China learnt this with its solar industry, where polysilicon production is often located near coal supply and coal-fired power generation.

One country worth watching is Chile, an iron ore-rich nation that has also announced extremely aggressive hydrogen growth and investment plans. “Chile is very aspirational in this regard, and they only consume a small amount of their own iron, most of which is exported,” says Koch Blank.

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Author: Gregor Macdonald