Green steel, hydrogen DRI, and the 2026 transition: from Hesgang to Boden, from CBAM to 45V: Deluair Consultancy

Global crude steel production reached 1.85 billion tonnes in 2024 (worldsteel), with China at 1,005 Mt, India at 149 Mt, and the United States at 79 Mt. The integrated blast furnace and basic oxygen furnace (BF and BOF) route, responsible for roughly 70 percent of output, runs at 1.85 to 2.3 tonnes of carbon dioxide per tonne of crude steel and accounts for 7 to 9 percent of global emissions (IEA Iron and Steel Roadmap). Hydrogen direct reduced iron (H2 DRI) feeding electric arc furnaces (EAF) is the only commercially visible pathway to sub 0.5 tonne intensity. This brief tracks HBIS Hesgang Wesgaard 600 kt H2 DRI commissioned January 2024, ArcelorMittal Sestao Bilbao restart, ThyssenKrupp tkH2 Hamburg, Salzgitter SALCOS, SSAB Hybrit and the Lulea full scale FID, Stegra Boden 2.5 Mtpa (USD 8 billion), Cleveland Cliffs Toledo, Posco Pohang, and Hyundai Steel Hyrasia One, against the IRA 45V hydrogen credit, 45X manufacturing credit, and the CBAM definitive period from January 2026.

The 1.85 billion tonne base and why steel emits 7 to 9 percent of global CO2 #

World Steel Association January 2025 statistics fixed global crude steel production at 1.853 billion tonnes for 2024, a 0.9 percent decline against 2023. China produced 1,005 Mt flat year on year, India accelerated to 149.6 Mt (a 6.3 percent gain, the fastest in the top ten), Japan 84.0 Mt, the United States 79.5 Mt, Russia 70.7 Mt, South Korea 63.5 Mt, Germany 37.2 Mt, and Turkey 36.9 Mt. Worldsteel covers more than 98 percent of the global base. Approximately 71 percent of tonnage was produced via the integrated BF and BOF route, with EAF at 28.5 percent globally and 70 percent inside the United States, where scrap based mini mills (Nucor, Steel Dynamics, Commercial Metals) anchor the cost curve.

The IEA Iron and Steel Roadmap (Tracking Industry 2024) places direct steel emissions at 2.6 gigatonnes of carbon dioxide equivalent in 2022, equivalent to 7 to 9 percent of global energy and process emissions. The BF and BOF route runs at 1.85 to 2.3 tonnes of CO2 per tonne of steel, natural gas DRI plus EAF at 1.0 to 1.4, scrap EAF at 0.3 to 0.6, and hydrogen DRI plus renewable EAF below 0.4 once green hydrogen replaces fossil reductant. The decarbonization arithmetic hinges on substituting hydrogen for the metallurgical coke that strips oxygen from iron ore in the blast furnace, and clean electricity for the coal fired grid powering the EAF.

Country	2024 crude steel (Mt)	BF and BOF share	EAF share	Notable green steel projects
China	1,005.1	89 percent	11 percent	HBIS Hesgang Wesgaard 600 kt
India	149.6	55 percent	45 percent	JSW Vijayanagar pilot, Tata Kalinganagar
Japan	84.0	75 percent	25 percent	Nippon Steel COURSE50, JFE Kurashiki
United States	79.5	30 percent	70 percent	Cleveland Cliffs Toledo NG to H2
Russia	70.7	65 percent	35 percent	Limited, sanctions constrained
South Korea	63.5	67 percent	33 percent	Posco Pohang H2 DRI roadmap
Germany	37.2	70 percent	30 percent	Salzgitter SALCOS, ThyssenKrupp tkH2
Turkey	36.9	30 percent	70 percent	Tosyali Iskenderun NG DRI conversion
Brazil	33.7	75 percent	25 percent	Vale briquette, Ternium Pesqueria
Iran	31.0	10 percent	90 percent	NG DRI dominant via Mobarakeh, Khouzestan

Crude steel production 2024, World Steel Association January 2025 monthly release reconciled with national steel association reports (China Iron and Steel Association CISA, Japan Iron and Steel Federation JISF, American Iron and Steel Institute AISI, Korea Iron and Steel Association KOSA, German Steel Federation Wirtschaftsvereinigung Stahl, Turkish Steel Producers Association).

Pilot to first plant: HBIS Hesgang, ArcelorMittal Sestao, ThyssenKrupp Hamburg #

HBIS Group commissioned its 600,000 tonne per year hydrogen enriched shaft furnace at Hesgang Iron and Steel in Hebei in January 2024, the first commercial scale H2 DRI module in China. The Wesgaard process licensed from Tenova HYL runs on a syngas containing 60 to 70 percent hydrogen with the balance carbon monoxide from coke oven gas, reducing per tonne CO2 intensity to roughly 1.05 tonnes against the BF and BOF baseline of about 2.0. Full hydrogen operation is scheduled for 2027 to 2028, contingent on dedicated electrolyzer build out at the adjacent Zhangjiakou wind and solar zone.

ArcelorMittal Sestao in the Basque Country (Bilbao region) is the European reference point. The 1.6 Mtpa flat carbon site moved to a 100 percent EAF and scrap configuration in 2023 and received the EUR 1 billion hydrogen DRI investment package announced in 2021 with the Spanish government, with the Innovation Fund leg clearing in 2023. ArcelorMittal paused Bremen and Eisenhuettenstadt DRI projects in late 2024 citing hydrogen supply and gas price uncertainty, but Sestao remains on the 2025 capital plan with a 2.3 Mtpa H2 DRI plant targeted for the late 2020s. ThyssenKrupp's tkH2Steel program includes the Hamburg pilot where the world's first industrial scale hydrogen direct reduction operated from 2019, reducing 50,000 tonnes of pellets per year. The Duisburg flagship of 2.5 Mtpa H2 DRI plus two melter modules cleared a German federal and North Rhine Westphalia funding combination of EUR 2.0 billion in 2023, with first DRI scheduled for 2027 and steady state by 2029.

SSAB Hybrit, Stegra Boden, Salzgitter SALCOS: the Nordic and German anchor #

SSAB and the Hybrit consortium (SSAB, LKAB iron ore, Vattenfall power) operated the world's first fossil free DRI pilot at Lulea from 2020, supplied hydrogen reduced steel to Volvo Group in 2021, and committed in 2024 to a full scale 2.5 Mtpa Lulea transformation with FID confirmed in 2026 and first commercial heats in 2028 to 2029. Stegra (formerly H2 Green Steel) is the larger and faster moving Nordic project, a EUR 6.5 billion to USD 8 billion greenfield in Boden, Sweden for 2.5 Mtpa of green steel via H2 DRI, two electric melting furnaces, and a hot rolling line. Boden targets first hot metal in 2025 and ramp through 2026, anchored by an 800 megawatt electrolyzer cluster on northern Swedish hydropower, with offtake from BMW, Mercedes Benz, Scania, Volvo Cars, Porsche, Electrolux, and Marcegaglia covering more than 1.5 Mtpa.

Salzgitter SALCOS at Wilhelmshaven and Salzgitter is the German federal anchor, a 1.9 Mtpa first phase combining a Tenova HYL hydrogen capable shaft furnace, a 100 megawatt electrolyzer, and an EAF integrated with the existing rolling mill, with start up scheduled for late 2026 and full hydrogen ramp through 2027 to 2030. Federal and Lower Saxony contributions total roughly EUR 1 billion against an envelope above EUR 2.3 billion, with EU state aid clearance in 2023. The IEA Tracking Industry 2024 update and the Mission Possible Partnership treat SALCOS, Boden, and the Lulea full scale as the three projects moving European green steel from press release to nameplate capacity in the 2026 to 2029 window.

Project	Operator	Capacity (Mtpa)	Capex envelope	First steel target
Hesgang Wesgaard	HBIS Group	0.60	RMB 4 billion approx	Commissioned January 2024
Sestao restart	ArcelorMittal	1.60 EAF, 2.3 future H2 DRI	EUR 1 billion phase 1	EAF active, H2 DRI late 2020s
tkH2Steel Duisburg	ThyssenKrupp	2.50	EUR 3 billion plus EUR 2 billion grant	2027 first DRI
SALCOS Wilhelmshaven and Salzgitter	Salzgitter AG	1.90 phase 1	EUR 2.3 billion	Late 2026 start up
Hybrit Lulea full scale	SSAB, LKAB, Vattenfall	2.50	Approx SEK 50 billion	2028 to 2029
Stegra Boden	Stegra (formerly H2 Green Steel)	2.50	USD 8 billion (EUR 6.5 billion)	2025 to 2026 ramp
Toledo NG to H2 conversion	Cleveland Cliffs	1.90 NG DRI today	USD 575 million DOE OCED award	Hydrogen blending 2026 to 2030
Hyrasia One Pohang track	Hyundai Steel	1.50 first module	KRW 8 trillion through 2030	First DRI 2030

Selected H2 DRI and green steel projects 2024 to 2030, compiled from operator releases (HBIS January 2024 commissioning notice, ArcelorMittal 2024 annual report, ThyssenKrupp Steel Europe 2024 capital markets day, Salzgitter AG 2024 annual report, SSAB Hybrit consortium 2024 update, Stegra investor materials Q1 2025, Cleveland Cliffs DOE OCED announcement March 2024, Hyundai Steel ESG report 2024).

The IRA 45V plus 45X stack and the CBAM definitive period #

The Inflation Reduction Act of August 2022 created Section 45V, a production tax credit of up to USD 3.00 per kilogram of clean hydrogen for projects meeting a lifecycle threshold below 0.45 kg of CO2e per kg of H2, graduated downward through four tiers up to 4.0 kg. The Treasury final rule of January 2025 codified incrementality, time matching (annual through 2029, hourly from January 2030), and deliverability for grid based electrolytic hydrogen. Section 45X, the advanced manufacturing credit, separately covers electrolyzers and critical mineral inputs at rates that compound the 45V stack for integrated projects. The seven DOE Regional Clean Hydrogen Hubs awarded October 2023 (Mid Atlantic, Appalachian, California, Gulf Coast, Heartland, Midwest, Pacific Northwest) drew a combined USD 7 billion, with the Midwest hub tied to integrated steel demand at Cleveland Cliffs Toledo and Indiana Harbor.

The EU Carbon Border Adjustment Mechanism (CBAM), regulated under EU 2023 956, entered transitional reporting October 1, 2023 with quarterly emissions reports for steel, aluminum, cement, fertilizers, hydrogen, and electricity. The definitive period begins January 1, 2026, with importers required to surrender CBAM certificates priced at the weekly EU ETS auction clearing, net of free allocation phase out under the parallel ETS revision (free allowances for steel falling from 100 percent in 2025 to zero by 2034). The Innovation Fund, capitalized through ETS auction revenues, has awarded green steel grants to ArcelorMittal Belgium Gent (EUR 280 million) and Stegra Boden (EUR 250 million), with ThyssenKrupp tkH2 funded primarily via the Important Project of Common European Interest (IPCEI) channel at EUR 2 billion. The IRA plus IPCEI plus Innovation Fund stack is the only public capital architecture bridging the H2 DRI cost premium of roughly USD 150 to 250 per tonne against BF and BOF benchmark steel.

China direction and Korea Posco: the Asian half of the transition #

China produces roughly 54 percent of global crude steel and faces a domestic absorption problem before a transition problem. The Ministry of Industry and Information Technology 2021 guidance, restated through the 2024 Action Plan for Energy Conservation and Carbon Reduction, caps crude output and accelerates capacity swaps that retire older BF and BOF capacity in exchange for permits to build EAF and DRI capacity. The HBIS Hesgang Wesgaard line is the lead reference, but Baowu (the world's largest steel group at roughly 130 Mt) operates a hydrogen DRI demonstration at Zhanjiang and is building a 1.0 Mtpa shaft furnace at Baotou adjacent to wind and solar capacity. Shougang, Ansteel, and Jianlong all hold pilot stage announcements. The 2024 expansion of the China ETS to include steel, aluminum, and cement in 2025 will embed an opportunity cost on coke based reduction that has so far been priced at near zero outside of pilot regions.

Posco at Pohang has published a hydrogen reduction roadmap built around the proprietary HyREX fluidized bed process, which feeds fine ore directly without pelletization, with a 300 kt demonstration scheduled for 2027 and a 1.0 Mtpa first commercial module by 2030 against a 2.5 Mtpa HyREX target by 2035. The K Taxonomy finalized in 2023 qualifies HyREX product as transition aligned. Hyundai Steel announced Hyrasia One in 2023, a USD 5.8 billion project integrating Australian renewable hydrogen with a Korean H2 DRI plus EAF complex, with first DRI in 2030. Japan's Nippon Steel COURSE50 and Super COURSE50 sit at lower hydrogen fractions and longer timelines, with JFE Kurashiki and Kobe Steel Kakogawa on parallel blending pilots. India's JSW and Tata Steel operate hydrogen blending pilots at Vijayanagar and Kalinganagar respectively, with no firm 2030 H2 DRI commercial commitment as of Q1 2025.

2030 trajectory and the cost gap: how the corridor closes #

The Mission Possible Partnership and IEA Net Zero Roadmap converge on a 2030 checkpoint of approximately 50 to 80 Mtpa of H2 DRI capacity globally, against a 2024 base of roughly 5 Mtpa (counting NG DRI conversions and partial hydrogen pilots). Stegra Boden, SALCOS, Hybrit Lulea, tkH2 Duisburg, ArcelorMittal Sestao, HBIS Hesgang plus Baowu Zhanjiang and Baotou, and the Cleveland Cliffs Toledo conversion together account for roughly 16 to 18 Mtpa of nameplate by decade end if all FIDs hold and electrolyzer supply does not bottleneck. The 2030 hurdle is not technology, it is hydrogen at USD 2.0 to 3.0 per kilogram delivered at the steel mill gate at the right hourly profile, which today sits closer to USD 5.0 to 7.0 in Europe and USD 4.0 to 6.0 in the United States outside Hub anchored projects. The Hercules platform inside the deluair monorepo tracks delivered hydrogen prices against the 45V threshold and CBAM clearing in real time.

The cost gap to BF and BOF benchmark steel today, against the Q1 2025 European hot rolled coil contract near EUR 700 per tonne and the Stegra guidance corridor of 25 to 30 percent green premium, is roughly EUR 175 to 210 per tonne, narrowing toward EUR 80 to 130 by 2030 if hydrogen reaches USD 2.0 to 2.5 per kilogram and CBAM phases in fully (EU ETS at EUR 80 to 110 per tonne of CO2 multiplied by 1.85 tonnes per tonne of steel implies a CBAM charge of EUR 148 to 204 per tonne for fully exposed Chinese imports). Our 2030 base case places green steel at 6 to 10 percent of European flat rolled demand, 3 to 5 percent of United States flat rolled, 1 to 2 percent of Chinese demand, and a global green premium between EUR 100 and EUR 180 per tonne. Buyers locking in offtake in 2025 and 2026 across the BMW, Volvo, and Mercedes block are the price setters for the next decade.

Sources #

Cite this brief

@misc{hossen2026greensteeldrihydrogen2026,
  author = {Hossen, Md Deluair},
  title  = {Green steel, hydrogen DRI, and the 2026 transition: from Hesgang to Boden, from CBAM to 45V},
  year   = {2026},
  url    = {https://deluair.com/consultancy/insights/green-steel-dri-hydrogen-2026},
  note   = {Deluair Consultancy briefs}
}

Hossen, M. D. (2026). Green steel, hydrogen DRI, and the 2026 transition: from Hesgang to Boden, from CBAM to 45V. Deluair Consultancy briefs. https://deluair.com/consultancy/insights/green-steel-dri-hydrogen-2026

Hossen, Md Deluair. "Green steel, hydrogen DRI, and the 2026 transition: from Hesgang to Boden, from CBAM to 45V." Deluair Consultancy briefs, 2026-04-26. https://deluair.com/consultancy/insights/green-steel-dri-hydrogen-2026.

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Green steel, hydrogen DRI, and the 2026 transition: from Hesgang to Boden, from CBAM to 45V