The global steel industry accounted for over 7% of global greenhouse gas (GHG) emissions and over 11% of global CO₂ emissions. The U.S. ranks as the fourth-largest steel producer in the world. The Hydrogen Direct Reduced Iron (H₂-DRI) process utilizing green hydrogen made with renewable/no-carbon electricity promises significant emission reductions and a transition to greener steel production in the sector. The adoption of green H₂-DRI-EAF steelmaking involves financial considerations varying by country, influenced by hydrogen costs and carbon pricing mechanisms. This study assesses the costs of green H₂-DRI-EAF steelmaking compared to traditional Blast Furnace-Basic Oxygen Furnace (BF-BOF) and Natural Gas Direct Reduced Iron-Electric Arc Furnace (NG-DRI-EAF) routes across seven major steel-producing countries.

Green Steel Premium: Impact of H₂ Prices and Carbon Prices in the U.S.

In the U.S., at zero carbon price, green H₂-DRI-EAF with H2 priced at $1.0/kg stands at $544 per ton—marginally less expensive than NG-DRI-EAF at $550 per ton, but slightly more costly than BF-BOF at $565 per ton. The cost-parity for green H₂-DRI-EAF and BF-BOF happens at $1.4/kg H₂. With a carbon price of $15 per ton of CO₂, the cost-parity for green H₂-DRI-EAF and BF-BOF happens at $1.8/kg H₂. The most dramatic shift occurs at a carbon price of $50 per ton, where green H₂-DRI-EAF reaches cost parity with BF-BOF at $2.7/kg H₂.

The United States is advancing its position in the green H₂ sector, backed by robust government policies and incentives. A pivotal element of this strategy is the tax incentive under Section 45V of the Inflation Reduction Act, which provides substantial credits for green H₂ production, aiming to reduce costs and stimulate market growth. This is part of a broader initiative that includes significant federal funding and investments in research and development to enhance electrolyzer technologies. These efforts are designed to increase efficiency, decrease production costs, and make green H₂ a viable competitor against traditional energy sources. Additionally, the U.S. government is focusing on expanding the necessary infrastructure for H₂ production, storage, and distribution across various sectors including the industry sector. 

Impact of green steel premium on car prices 

The automotive industry accounts for 12% of global steel demand. The additional cost attributed to using green H₂-DRI-EAF steel in passenger vehicles—known as the green premium— is aligned with studies that estimated automotive sector as a likely first mover for green steel procurement and demonstrates minimal impact on overall vehicle pricing. For example, in the U.S., when the price of H₂ is at $5/kg, the green premium for steel produced via green H₂-DRI-EAF, compared to the traditional BF-BOF methods, stands at approximately $226 per ton steel. Assuming on average 0.9 ton of steel used in a passenger car, this translates to an additional cost of about $203 per passenger car, which represents a less than 1% price increase on the average price of passenger car in the U.S. (over $40,000), maintaining affordability and market stability. Future projections suggest that with H₂ costs potentially reducing to $1.4/kg, the green premium could effectively disappear, making green H₂-DRI-EAF steel economically comparable to conventionally produced steel. With the introduction of carbon price/credit, the green premium for H₂-DRI-EAF steel can substantially drop even further. 

Impact of green steel premium on building construction cost 

The construction industry (building and infrastructure) accounts for 52% of global steel demand. In the context of building construction in the U.S., the economic effect of adopting green steel produced by H₂-DRI-EAF route can be considered minimal when compared to conventional BF-BOF steelmaking route. Using the green H2-DRI-EAF route, the additional cost of steel at a H₂ price of $5/kg is approximately $226 per ton of steel, translating into an added expense of about $565 for a 50 m² residential building unit (assuming 50 kg steel per m² used for low to mid-rise residential building). This represents a small fraction of the total cost of a residential building. In addition, with future reductions in H2 cost or the introduction of carbon pricing, the green premium could diminish or even disappear, making green H2-DRI-EAF an economically viable alternative for building construction in the U.S.. 

Impact of green steel premium on shipbuilding cost 

Incorporating green H₂-DRI-EAF steel into shipbuilding shows a small cost increase for shipbuilding. While there are many types of ships in the global market. This study focused on bulk carrier ships which are built in large numbers every year around the world. For example, to build an average 40,000 DWT (Deadweight tonnage) bulk ship, approximately 13,200 tons of steel are needed. If green H₂-DRI-EAF at $5/kg H₂ is used in the U.S. to build this ship, the additional cost would be about $ 2.98 million per ship in the U.S.. Considering the average cost of a new 40,000 DWT bulk ship is over $30 million, this represents less than 10% increase in the ship’s price for the U.S..

The reason for this relatively higher green steel premium as a share of the total cost for shipbuilding compared to cars and buildings is higher share of steel cost in the shipbuilding cost. Over 95% of a ship consists of steel. Anticipated reductions in H₂ costs in the future could nullify this green premium, aligning the costs of green H₂-DRI-EAF steel with those of traditional BF-BOF steelmaking. Moreover, the introduction of carbon pricing could further reduce the green premium costs, enhancing the financial attractiveness of adopting green H₂-DRI-EAF steel in the maritime sector. 

Our recommendations 

Financing the transition to H₂-DRI steelmaking requires both public and private investments to mitigate financial risks. Our recommendations for stakeholders include:

Government:

• Enact tax rebates and other incentives for green H₂ production to make it more economically viable.
• Invest in R&D and infrastructure to drive down the costs of green hydrogen production.
• Implement public procurement policies that prioritize green steel in publicly funded projects to boost market demand.

Steel Companies:

• Transition from traditional BF-BOF routes to green H₂-DRI by forming partnerships for a reliable hydrogen supply.
• Engage in industrial-scale pilot projects to demonstrate the feasibility and benefits of green H₂-DRI.
• Secure market demand through long-term supply agreements with major end-use sectors and share the costs of the green premium.

Automotive and Construction Companies:

• Integrate green steel into procurement strategies to stimulate demand and help cover the green premium.
• Enhance market positioning by promoting the climate, environmental, and health benefits of green steel.
• Cater to climate-conscious clients by engaging in green private procurement practices.

Shipbuilding and Shipping Companies:

• Utilize both public and private procurement strategies to boost the adoption of green steel in the industry.
• Establish robust supply chains with green H₂-DRI steel manufacturers to ensure a steady demand for green steel.
• Promote broader industry adoption through government policies and commercial agreements to reduce the green premium.