Norrbotten is likely not the first place that comes to mind when thinking of groundbreaking advances in the global energy transition. The county at the northern end of Sweden is larger than Ireland but hosts a mere quarter of a million human inhabitants, and roughly as many reindeer, in a vast boreal forest that fades into alpine tundra to the north.
But here in small mining towns and modest coastal cities near the Arctic Circle, a revolution in the global steel industry is beginning. It’s playing out partly in the city of Luleå, on the coast, where a large gray industrial building hosts a technology that could remake steel production. The plant, dubbed Hybrit, has been operating since August 2020, producing iron that will serve as the raw material for steel.
In conventional iron production, blast furnaces use coke — nearly pure carbon coal — to heat ore and separate oxygen from the iron in the ore. For this step, Hybrit uses a different, more efficient process called direct reduction. While this can be done with natural gas or even coal as the agent that removes the oxygen, Hybrit’s innovation is to use hydrogen made from electrolysis powered by renewable energy. The clean exterior of the facility is a testament to this: Instead of soot from unburned carbon and large amounts of CO2, the Hybrit plant emits clouds of water vapor.
This is groundbreaking. Iron and steel production accounts for 7% of total global CO2 emissions, and climate and energy experts have long considered it one of the more challenging industries to decarbonize. Recycling of steel can mitigate some of the emissions — provided furnaces run on electricity from low- or zero-carbon sources — but will not suffice to meet global demand in the 21st century. Building all of the wind turbines, transmission towers and other infrastructure we need for global decarbonization will require a lot of steel. Additionally, growing economies in China, India and other rapidly developing nations are expected to drive a big increase in steel demand over the next few decades.
The race for fossil-free steel
Hybrit is a partnership between SSAB, Sweden’s largest steelmaker; state utility Vattenfall; and LKAB, which produces 80% of Europe’s iron ore. The plant in Luleå is a pilot-scale facility, meant to demonstrate and test the process for industrial purposes. However, the results of the first 10 months appear to have confirmed the path forward. The plant has produced about 100 tons of iron so far.
“Direct reduction is an old process that works,” Stefan Savonen, senior VP of energy and climate at LKAB, told Canary Media. “There is not a huge technical issue on running it with hydrogen.”
The Hybrit consortium is now securing permits to build a commercial-scale plant using the same technology 140 miles to the north in Gällivare, next to one of LKAB’s massive iron ore mines. The consortium expects the plant to come online in 2026 and produce 1.3 million tons of fossil-free iron annually, all ready for production into high-quality steel.
Gällivare is along a rail line to a year-round port in Narvik, Norway, situated on the North Atlantic coast, from which LKAB’s iron ore is shipped to European and global markets. “The northern part of Sweden is good for a test bed,” said LKAB’s Savonen.
Last November, LKAB announced a strategy to shift its operations from selling the iron ore it mines as a raw material to producing fossil-free iron ready for steelmaking, using the Hybrit process, by 2045. This would require an investment of between $1.2 billion and $1.8 billion per year over the course of decades, making it the largest industrial investment in the history of the nation. LKAB calculates that it would result in a reduction in CO2 emissions equivalent to two-thirds of Sweden’s total emissions.
Competitors are coming to Norrbotten too. In the town of Boden, on the rail line between Luleå and Gällivare, the H2 Green Steel consortium is in the process of acquiring a two-square-mile site to build its own fossil-free steel plant. This will be backed by an estimated 500 megawatts of electrolyzers — the machines that splits water molecules into hydrogen and oxygen — to produce carbon-free hydrogen for the direct reduced iron (DRI) process.
H2 Green Steel is bringing in big names — and big money. In May the company completed a $105 million funding round. Investors in the company include Daniel Ek, the co-founder of Spotify, and Vargas, which is involved in the massive Northvolt battery plant, also in northern Sweden. Under CEO Henrik Henriksson, formerly of Scania, this star-powered venture says it plans to produce its first green steel in 2024.
“The market is there already”
One of the major concerns with hydrogen-based direct reduction is that it is more costly than making iron in blast furnaces. According to an analysis by Thomas Koch Blank, a senior principal at RMI, at roughly average Northern European wholesale electricity prices of $40 to $45 per megawatt-hour, the cost of steel using iron made via DRI is 20% higher than the current market cost.
This puts off many steel companies, which produce a commodity under fierce price competition and with tight margins. But their customers are another matter.
“We spoke to our customers in the steel industry, and they weren’t so keen on paying more for green steel,” said Savonen. “But when we spoke to our customers’ customers, they were very interested.”
Specifically, European auto and truck manufacturers are embracing fossil-free steel and competing to become industry leaders in making the switch.
In March, Swedish truck maker Scania, a division of Volkswagen, announced a partnership with H2 Green Steel that includes an investment in the company. Anders Williamsson, Scania’s executive VP and head of operations, said his firm expects to produce some trucks with fossil-free steel in 2024 or 2025 and then move its entire production to green steel in 2027–2028.
In April, Volvo, which makes trucks as well as cars, announced that it would use the output from Hybrit’s plant in Luleå for testing purposes. The steel will potentially be used to produce concept cars. Volvo also claims it will be the first to mass-produce cars with green steel, suggesting it could happen in 2026.
Mercedes-Benz announced its own investment in H2 Green Steel in late May, saying it will start using fossil-free steel in its cars in 2025 as part of a move to zero-carbon auto production by 2039. Meanwhile, BMW has invested in Boston Metal, a startup that uses an entirely different method for making fossil-free steel.
Ten European construction and property management companies have also committed to moving entirely to fossil-free steel by 2050 under the SteelZero coalition, including big names like Lendlease, Ørsted and WSP UK.
“The market is there already, but there is not yet a supplier for this market,” said Savonen. “The market is waiting for the producers.”
The push toward green steel is also being driven by policy. It is not an accident that European companies are leading the development of both production and a market for fossil-free steel, as the European Union set aggressive targets for decarbonization of the 27-nation bloc under the European Green Deal in 2020. Specifically, the threat of a higher carbon tax at the EU level looms large over the steel sector.
“It is a business decision at both ends,” said Scania’s Williamsson. “We will have legislation pushing [conventional] steel to higher cost levels due to taxes based on emissions, which will make green steel cost-competitive. Many customers are also pushing the business into greener solutions.”
The green steel ecosystem
The development of a green steel ecosystem is a massive opportunity for northern Sweden, which has wind, water, iron ore, and other resources well in excess of what is currently being used by the local economy.
“It’s a game-changer for Gällivare,” said Henrik Ölvebo, the town’s deputy mayor. Gällivare has about 8,500 inhabitants now, and local officials estimate that 3,000 additional people will move there over the next five years. The town will need to upgrade its infrastructure, housing stock and public services, but it can be confident in moving ahead because major companies are making long-term commitments in the area. “The time plan for these investments is quite long. It is 20 years for the investments like LKAB and Hybrit,” said Ölvebo.
Gällivare is planning a sustainability center to help other local businesses eliminate their carbon emissions, as well as looking into new industries including food processing to take advantage of the waste heat from iron reduction. Other towns in Norbotten will have similar opportunities as well.
“The effect that we see in Gällivare we will see in the whole region here,” Ölvebo said. “When the focus is 2060 and they are announcing billions in investment, you will see other branches rising and other businesses rising.”
Ultimately, Ölvebo expects these new opportunities to reverse the trend of young people moving away from rural northern communities to the south of Sweden, making his region a destination.
Taking green steel global
The European steel industry is watching what’s happening in northern Sweden. Other steelmakers including Germany’s Salziggitter have announced hydrogen-based DRI projects, although these are mostly at pilot scale.
But it’s important to put these developments into a global perspective. In 2020, Europe represented only 7% of global steel production. For fossil-free steel to really take off, it must be embraced on the other side of the Eurasian landmass — particularly in China. Currently, China produces more than half of the world’s steel.
Hydrogen-based direct reduction is starting to make inroads in China. In May, the world’s third-largest steelmaker began construction of a DRI iron-making plant in the city of Zhangjiakou, just north of Beijing. Like Hybrit and H2 Green Steel, Hebei Iron and Steel touts the ability to use renewable energy to make the hydrogen for this process — although it is difficult to confirm what the immediate source of power will be.
But even as a market for green steel begins to emerge, there is still the problem of the existing fleet of highly polluting iron ore blast furnaces spread around the globe. These are massively expensive assets that operate under tight margins and can take decades to pay off. Given the momentum of both demand for and production of fossil-free steel, these blast furnaces could become stranded assets.
“By 2040 the ones running on blast furnaces will pretty much be in an industry museum,” said Scania’s Williamsson. “No big fund in the world is going to invest in old tech.”
There are still significant challenges to be overcome as green steel production grows, not the least of which is the massive amount of electricity needed to power hydrogen electrolysis. LKAB’s Savonen estimates that to move his company entirely over to hydrogen-based DRI iron production will require around 8.5 gigawatts of renewable energy capacity — a 33% increase over Sweden’s currently installed base of hydropower and wind.
The rise of hydrogen-based DRI will also drive an incredible demand for electrolyzers, with LKAB alone estimating a need for at least 7.5 GW. As noted in a recent analysis by Bloomberg, most of the electrolysis capacity that will be needed by 2050 has not yet been planned. But many industry observers expect a growing scale of production to further push down the cost of electrolyzers, and thus of the hydrogen they produce, through learning curve effects.
Like all fast-growing industries, the fossil-free steel sector can be expected to experience fits and starts, as well as a persistent mismatch of supply and demand. But the end result could be an unexpectedly rapid industrial transformation.
“This decade ahead of us will be a high-speed decade when it comes to industrial decarbonization,” said Williamsson. “Everyone is competing to be the first to market [and] first to scale.”
(Top photo by Åsa Bäcklin/Hybrit)
Christian Roselund works at RMI, which supports Canary Media.
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