It was not long ago that the combination of “hydrogen” and “automakers” would bring to mind fuel cells, a technology that has already fallen out of favor as buyers flock to electric cars. In its wake, though, green hydrogen is catching the eye of automakers for another reason: It could allow them to decarbonize one of their trickiest supply chains.
In the last two years, major car companies have committed to integrating green or recycled steel, made with hydrogen, into their vehicles. At the forefront of this effort is Volvo, which aims to be the first automaker to use fossil-free steel in its cars. If successful — and, given where the company is in the process, that’s a big if — the Swedish automaker’s efforts could provide a template for how to decarbonize other challenging parts of industrial supply chains.
The challenge
Steelmaking is responsible for roughly 8% of global energy demand and 2.6 gigatonnes of carbon dioxide emissions per year, a total higher than all of the European Union’s emissions in 2021. Steelmakers use fossil fuels — and especially highly polluting coal — to process iron ore and produce the alloy. At present, there aren’t any surefire paths to reduce these emissions, given how crucial a role steel plays in modern manufacturing.
But green steel has real promise. Hydrogen made using renewable energy can be used to replace coal in steelmaking with near-zero greenhouse gas emissions. The market for green steel is still small, though, in part because there is simply not a lot on offer. In 2019, just 8% of the world’s steel mills had even begun committing to zero-carbon technology, according to the green energy non-profit RMI.
This is largely because the supply of green hydrogen — the ingredient that gives green steel its name and a hot commodity among investors — is itself constrained. Creating the fuel is incredibly energy intensive. To produce 550 million metric tons of green hydrogen annually, the world would need 18 times more solar capacity than it has installed today, according to the Hydrogen Council.
As of 2020, the world demanded 90 million metric tons of hydrogen for refining and industrial applications, which were produced almost entirely by fossil fuels. Of that, just 30,000 metric tons were produced using renewable energy.
Volvo’s commitment
For Volvo, the first step of the enormous undertaking of steel decarbonization was to assess the carbon footprint of a car, specifically its first electric vehicle. It found its XC40 Recharge would emit 27 metric tons of carbon dioxide over its lifetime even if it were charged entirely using renewable energy. Of that total, 18% of the materials-related emissions came from the steel used to build the car.
According to Jonas Otterheim, who was until recently the head of climate action for the Swedish automaker (though he is temporarily on leave), this realization drove home that finding suppliers of low- or no-emissions steel would be “critical” to reach the company’s goal of supply chain-wide carbon neutrality by 2040.
Volvo turned to its steel suppliers, namely SSAB, the manufacturer that has long provided the company’s conventional steel. In June 2021, the two partnered to explore developing fossil-free steel for use in its cars as well.
It may seem that substituting green steel for conventional is straightforward, especially given that, per SSAB, “the only difference in the process is that the energy used will be exclusively fossil-free electricity and other fossil-free fuels.” However, with an operation as complicated as auto manufacturing, any material change requires exhaustive testing.
And that’s where Volvo is today. The automaker aims to integrate green steel into its vehicles in 2026, which is when SSAB intends to have its fossil-free plant up and running. In the meantime, Volvo is evaluating “part-by-part” which components of its manufacturing process can safely be replaced with green steel.
“This is [a] very big job over a number of years, before the material can be put into any car,” said Otterheim. The two companies are evaluating whether the switch to green steel will require retooling its plants, which “are built specifically for every car and every material quality we have,” he added.
Otterheim said the deal initially was just exploratory in nature: an opportunity for both companies to explore whether it’s possible to make fossil-free versions of all the different grades of steel that are necessary to build a car, and potentially use it in a concept car.
However, his colleague Stina Klingvall, who is Volvo’s acting head of climate action in Otterheim’s absence, said that things have developed to the point where Volvo is actively starting to prepare to produce components with the new steel.
One promising development has come already from within the Volvo ecosystem. In August 2021, SSAB shipped a batch of green steel made at a pilot plant with renewable electricity and hydrogen to Volvo’s truck-making arm (separate from Volvo Cars), which was then integrated the steel into a dump truck prototype. (SSAB produced this steel under its Hybrit initiative, a collaboration with mining company LKAB and power company Vattenfall.)
But how much will it cost?
One big outstanding question is how much automakers and other green steel buyers will have to pay to use the more sustainable metal.
RMI’s analysis found that hydrogen-based steel production can result in a 20% cost premium, but also that the premium disappears when electricity prices are in the range of $15-$20 per megawatt-hour or lower. This remains out of reach across most of the U.S., though a Lawrence Berkeley National Laboratory study found that the country is on track for solar costing $22 per MWh hour on average by 2035 (down from $34 per MWh in 2020).
Meanwhile, Otterheim said that he hopes that Volvo’s work will “help drive down costs'' to be more in line with the status quo for steel, and that it will push more automakers to make commitments of their own. This represents the most crucial knock-on effect of a single company’s dipping a toe into greener materials: peer pressure.
“Due to the scarcity of these materials over the short-term period, other premium car makers are also starting to act to secure volumes for their supply,” Otterheim said. “The race for such materials is naturally good, creating an even stronger signal to other steel suppliers to follow.”
Volvo may have made the first green steel purchase commitment, but several automaker competitors have followed suit, including BMW and General Motors. While the pool of customers for steel is a big one (and includes the renewables industry), transportation is a particularly big fish in that pool, responsible for 12% of global steel consumption, per the World Steel Association.
When it comes to urging heavy industry to decarbonize, there is strength in numbers. Materials like steel, cement, and chemicals are integral parts of countless other supply chains, which means it’s hard for a single customer to have much sway. As a consequence, heavy industrial companies lack the incentive to innovate, said former New York Times journalist Justin Gillis, who recently published a book on how to push for climate action. There are few market signals “that clean products are going to be favored,” he said.
But some companies are trying to change that dynamic. The First Movers Coalition was formed last year explicitly to create markets for nascent sectors like green steel and carbon dioxide removal. With a market cap of $8.5 trillion between the more than 50 companies involved, their collective pledges to procure climate-friendly products despite the higher price tag offers market certainty. When Ford joined the coalition in May, the company pledged that at least 10% of its steel and aluminum would have near-zero carbon emissions by 2030.
Ultimately, companies that have committed to cleaning up their supply chains have a choice of how to decide to define that supply chain, and how much pressure to put on their suppliers with hard-to-abate emissions.
“How many steps back in the supply chain do you go? The further back you go, the less responsibility any one consumer-facing company can have,” Gillis said. “I do think these companies can play a role by sending market pressure, but they need to be willing to pay a price premium for cleaner supplies or materials.”
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Editor's note: This article was updated at 12:23 pm ET to clarify part of the steelmaking process.
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