The First Real Hydrogen Market Isn’t Shipping or Aviation — It’s Steel
Hydrogen’s first real demand story is already unfolding in steel — where decarbonization makes hydrogen a structural necessity, not a choice.
Hydrogen is supposed to be the great decarbonization tool of the energy transition. But most of its future demand remains trapped in projections — pinned on sectors like shipping, aviation, or seasonal energy storage where commercial momentum is still shallow and timelines are long.
Steel is different.
Steel isn’t waiting on hypothetical breakthroughs. It accounts for nearly 9% of global CO₂ emissions today — more than global aviation and shipping combined — and its production volumes are not expected to shrink. Demand for steel will remain high across infrastructure, automotive, wind power, and construction. And unlike many sectors that can lean on electrification, primary steelmaking has no easy substitute. The process of turning iron ore into iron requires stripping away oxygen — historically done with coal, and deeply embedded in industrial systems worldwide.
This makes steelmaking one of the few places where hydrogen is not just one option among many — it is the only industrial decarbonization pathway available right now that allows producers to act without waiting for speculative technologies to mature.
The hydrogen story often sounds like it’s about what might happen in 2040. But in steel, the story is happening now.
Steel’s Emissions Problem
Steel is essential to the modern economy. It’s in bridges and skyscrapers, cars and wind turbines, pipelines and ships. Global demand for steel is expected to remain strong through mid-century — not just because of growth in emerging markets, but because the energy transition itself depends on steel-heavy infrastructure: transmission lines, renewable power installations, and electric vehicles.
But steel also has a problem. It is the single largest industrial source of carbon emissions.
Roughly 2–3 billion tonnes of CO₂ are released every year from steel production, primarily from the blast furnace process that uses coking coal to reduce iron ore into iron. This process hasn’t fundamentally changed in over a century.
Decarbonizing steel is a necessity if global climate goals are to be met. Steel alone contributes nearly 9% of global CO₂ emissions, making it harder to achieve net zero without addressing this sector directly.
While there is an easier decarbonization story for scrap-based steelmaking (using electric arc furnaces powered by renewables), scrap supply is limited. Primary steel — made from iron ore — will remain the majority of global production for decades to come. Recycling alone cannot close the gap.
This is why the decarbonization challenge in steel is structural. Unless there is a viable, scalable replacement for coal in the reduction process, steel will remain locked into its emissions footprint — and so will the broader industrial economy.
The Only Viable Tool
Decarbonizing primary steel production means finding a way to remove oxygen from iron ore without coal.
There are only a few credible pathways on the table for primary steelmaking:
Natural gas-based direct reduced iron (DRI) process with carbon capture (CCS): This approach uses natural gas instead of coal as the reducing agent and bolts on CCS to catch a portion of the emissions. A DRI plant reduces the carbon footprint compared to coal-based blast furnaces — but does not fully eliminate emissions. CCS remains politically controversial, faces public skepticism, and may not scale fast enough or cheap enough to fully decarbonize the sector. But even without CCS, using natural gas over coal significantly reduces GHG intensity of the process.
Hydrogen-based direct reduced iron: Replaces natural gas with hydrogen as the reducing agent in DRI processes. Technically feasible today. Several pilot plants are operating, and full-scale commercial projects are already under development. Requires green hydrogen to fully decarbonize — but does not require fundamental reinvention of the steelmaking process. In fact, a natural gas-based DRI plant can gradually move towards hydrogen-based DRI as cheaper hydrogen becomes available.
Electrolysis of iron ore (direct electrification): Uses renewable electricity to split iron ore directly, without any hydrogen. Attractive in principle — but still experimental and not proven at scale. Even optimistic timelines suggest that large-scale deployment of electrolysis-based steelmaking will take at least another decade or more. The methods most talked about here are electricity-based methods like molten oxide electrolysis (MOE) and electrowinning, both of which offer alternatives to traditional iron ore reduction.
Only hydrogen-based DRI allows the steel industry to begin deep decarbonization today without waiting for future breakthroughs.
It fits into the existing DRI framework, leverages equipment and expertise already present in the sector, and allows for gradual scaling as hydrogen costs decline.
Hydrogen DRI is not a perfect solution — but it is the only viable tool that steelmakers can deploy now to meaningfully cut emissions from primary steel production.
Industrial Momentum
The argument for hydrogen-based steel isn’t just chemistry. It’s already happening on the ground.
A growing number of steelmakers — especially in Europe — are not waiting for perfect technology or flawless economics. They are moving forward with hydrogen-based DRI because it is the only decarbonization option they can act on today.
SSAB, LKAB, and Vattenfall in Sweden have already produced the world’s first batches of hydrogen-reduced steel at pilot scale, with plans to scale up to full industrial production.
ArcelorMittal has shown interest in investing in multiple hydrogen DRI projects across Europe and Canada.
Salzgitter AG has launched its SALCOS program to replace blast furnaces with DRI units and electric arc furnaces powered by renewables.
The H2 Green Steel project is building a new steel plant entirely designed around hydrogen DRI, aiming for full production in the coming years.
These are not speculative research initiatives. They are capital-intensive industrial projects — backed by real money, real engineering, and real timelines.
The buyer side is also signaling commitment. Large automakers and appliance manufacturers — including Volkswagen, BMW, and Volvo — are signing contracts for green steel to secure low-emission supply. This demand pull reinforces the incentive for steelmakers to move early, even in the face of higher production costs.
Policy is amplifying this momentum. The European Union’s Emissions Trading System (ETS) is raising the cost of carbon, directly penalizing coal-based steel production. The Carbon Border Adjustment Mechanism (CBAM) will make it harder for imported dirty steel to undercut domestic low-carbon production. In the United States, the Inflation Reduction Act (IRA) offers tax credits for clean hydrogen that help close the cost gap.
Hydrogen-based steel is not a future hope. It’s the decarbonization strategy that the sector is already betting on.
What This Means
The hydrogen economy is still heavy on forecasts and light on offtake. But steelmaking stands apart. It’s one of the few sectors where hydrogen demand is not hypothetical — it is structurally necessary and already under development.
This makes steel one of the most credible near-term anchors for hydrogen producers, electrolyzer manufacturers, and infrastructure builders. Unlike sectors like aviation or shipping that are relying heavily on biofuels in the near term, and long-duration storage, where timelines stretch toward 2040 and beyond, the steel industry is moving now because it has few other choices.
That doesn’t mean the opportunity is risk-free. Steel remains a low-margin, highly commoditized business. Hydrogen-based steel production will require either strong carbon pricing, policy support, or buyer willingness to pay green premiums — especially in the early years when hydrogen costs remain high. Investors betting on hydrogen for steel will need to watch these three levers closely.
But this risk is also what makes the opportunity actionable. The decarbonization of steel isn’t a “nice-to-have” marketing story for automakers or wind turbine makers. It’s becoming a regulatory requirement — and those who delay face increasing cost penalties and competitive disadvantages.
Hydrogen supply chains that connect to steelmaking projects are not merely speculative infrastructure. They are tied to the hard reality of industrial decarbonization mandates. And where many hydrogen projects struggle to find credible offtake partners, steel offers one of the clearest demand signals on the table.
For investors deciding where to place early hydrogen bets, steel may be the safest starting point.
Hydrogen has been called the “Swiss Army knife” of the energy transition — a solution for everything from shipping fuel to seasonal grid storage to industrial heat. But much of that promise remains in the future, waiting on policy, infrastructure, and cost curves to align.
Steel is different. Steel doesn’t need the hydrogen story to be perfect. It just needs something that works now — and hydrogen-based DRI is the only tool that does. That makes steel the first real test case for the hydrogen economy.
This isn’t just about emissions accounting. It’s about where capital should flow first. Investors looking for credible scale-up potential shouldn’t start with speculative sectors that might materialize in 2040. They should start where hydrogen demand is already structurally locked in.
Steel may not be hydrogen’s largest market in the long run. But it may be the market that proves whether hydrogen infrastructure can move beyond PowerPoint and into the industrial world.
In the race to scale the hydrogen economy, steel isn’t the endgame. But it may be the first real foothold.