Steel scaffolds our world, undergirding buildings and machines. It also presents a major challenge for climate change, since steel production largely relies on polluting fossil fuels. The automotive industry could be a key player in turning things around.
Steel production is currently responsible for about 7% of global greenhouse gas emissions. There’s a growing array of technologies that can produce steel with dramatically lower emissions—though some are still in development, and they often come with a higher price tag. The auto industry could be a fertile early market for these technologies, both because it’s a major player in the industry and because switching to more expensive materials would only bump costs up for new vehicles by less than 1%, according to a new report.
Finding economical ways to produce the materials we rely on while also cutting emissions is a major challenge for the industrial sector. Vehicle manufacturers embracing greener steel could provide a blueprint for how to bring more climate-friendly materials to the market without driving customers away.
Since automakers use a lot of steel, they have an opportunity to lead the charge to decarbonize the industry, says Peter Slowik, an analyst leading research on passenger vehicles in the US for the International Council on Clean Transportation.
About 12% of global steel production goes to the auto industry, and in some regions, the percentage is significantly higher—about 60% of all primary (non-recycled) steel produced in the US goes to vehicle manufacturing. That non-recycled steel comes with higher emissions than the recycled version, so making a swap to greener steel in the automotive industry, which mostly uses non-recycled material, would have an outsized impact.
Making steel today generally requires steelmakers to heat raw materials to high temperatures, using fossil fuels like coal to drive the chemical reactions that transform iron ore into steel. But there’s a growing array of ways to make steel with lower emissions, including efforts to add carbon capture technology to new and existing plants and implement new technologies that rely on electricity instead of fossil fuels.
One leading contender for producing low-emissions steel is a process called direct reduction, where chemical reactions can be powered by hydrogen fuel instead of coal. If that hydrogen is produced with renewable or other low-carbon energy sources, it could allow steel production with up to 95% lower emissions.
Steel is responsible for a major chunk of the climate impacts of manufacturing a vehicle—so swapping in green steel could cut the emissions associated with building a car by 27%, according to the ICCT report.
And the materials wouldn’t dramatically inflate costs, either. “Generally, we’re finding that it wouldn’t add too much to the cost of the vehicle,” Slowik says.
H2 Green Steel is currently building what could become the world’s largest low-emissions steel factory, with a capacity of 2.5 million metric tons of steel by 2026. The company has said its product will cost 20% to 30% more than conventional steel. That would add roughly $100 to $200 more to a vehicle’s cost of materials, totaling less than 1% of the average vehicle.
In another recent report examining steel in vehicle manufacturing in Europe, experts put the additional cost at just €105, or about $115, for a vehicle made entirely with steel produced using a hydrogen-powered process in 2030. And even that slight cost bump could disappear in the future as production volumes increase and costs come down.
“The relatively high value of cars, especially of premium brands, also means they can absorb the short-term green premium of greener steel,” Alex Keynes, cars policy manager at the European Federation for Transport and Environment, said in an email.
The same principle might hold for some other common products made with steel. One estimate from Hannah Ritchie, a data scientist and deputy editor at Our World In Data, put the added cost for using green steel in a house at less than 1% of its purchase price.
There’s a complicated web of actors in construction though, from architects to builders to contractors, which could make purchasing more expensive materials that come with a climate benefit a more complex proposition. And bigger projects that require more steel could face much larger price increases that make green steel unaffordable in those contexts, at least for now.
Automakers committing to purchasing green steel from steelmakers could help ensure they’re able to grow quickly, and some companies have already secured such commitments. As of January 2024, H2 Green Steel had binding agreements in place for more than 40% of its steel production in the initial years of its new plant.
However, there are still challenges facing the industry, including questions about the future cost and availability of green hydrogen, Keynes says. Policy measures, from subsidies to encourage the fuel’s production to regulations, could be crucial to getting greener steel into our vehicles and beyond.