By: Caroline Arkalji and Telmen Altanshagai
Steel sits at the core of modern industrial economies. It underpins infrastructure, transport, urbanization, and the clean energy transition itself. Yet it is also the single largest industrial source of carbon emissions, responsible for roughly 11% of global CO₂ output. Achieving global net-zero targets will require emissions from steel production to fall by nearly 90% by mid-century. But momentum is now building. At COP30 in Belém, Brazil, Responsible Steel, together with China’s C2F Steel standard and Europe’s Low Emission Steel Standard, advanced efforts to harmonize greenhouse gas accounting and classification for low‑emission steel, with these linked initiatives now covering around 60% of global steel production. Convergence on standards is an important milestone. But translating alignment into decarbonization will depend on addressing four structural constraints that continue to slow progress.
The first constraint is economic. Near-zero emissions steel remains materially more expensive than conventional coal-based production. Energy and raw materials account for 60–80% of steelmaking costs, and dominant production routes reflect domestic resource endowments. In countries with abundant low-cost coal, blast furnaces remain commercially attractive. By contrast, hydrogen-based direct reduced iron, electrified processes powered by renewables, and carbon capture systems require high upfront capital and often carry a significant cost premium over traditional steel. In some emerging markets, that premium can range between 50 and 70%. Managing this “green premium” will be decisive. Governments can narrow the gap through targeted tax incentives, contracts for difference, loan guarantees, and concessional finance for early projects. Equally important is demand creation. Public procurement standards, credible carbon pricing, and clear green public infrastructure rules can generate predictable markets for low-emission steel. Without durable demand signals, producers will struggle to justify the capital shift.
The second constraint is technological and structural risk. Low-carbon steel technologies such as green hydrogen and carbon capture are capital-intensive, commercially nascent at scale, and dependent on supporting infrastructure that itself is still under development. First-of-a-kind plants face long development timelines and uncertain returns. At the same time, conventional blast furnaces are long-lived assets, often operating for two decades or more. New coal-based capacity continues to be announced globally, raising the risk of carbon lock-in and stranded assets. Decisions made in this decade will shape emissions trajectories for decades to come. Addressing this challenge requires active de-risking. Public co-investment in demonstration facilities, accelerated permitting, and shared-risk models can shorten commercialization timelines. Industrial policy must also align incentives away from new high-emission assets and toward future-ready technologies. Strategic partnerships across the value chain — linking miners, energy providers, equipment manufacturers, and steel producers — can distribute technological risk while accelerating innovation.
The third constraint is financial. The global steel sector could require trillions of dollars in capital investment over the next three decades to align with net-zero pathways. Yet steel remains a low-margin, cyclical industry characterized by volatile commodity prices and long payback periods. In many developing economies, high financing costs and policy uncertainty further elevate risk perceptions. International clean energy finance has historically focused on power generation, leaving heavy industry comparatively underfunded. Without affordable capital, decarbonization will remain uneven and geographically concentrated in advanced markets. A blended finance approach is therefore essential. Multilateral development banks, sovereign wealth funds, and public financial institutions can crowd in private capital through guarantees, concessional loans, and first-loss mechanisms. Sustainability-linked finance instruments tied to credible transition plans can mobilize institutional investors. Critically, financing must expand to emerging steel-producing economies where future demand growth will be concentrated. A fragmented transition risks both competitiveness concerns and carbon leakage.
The fourth constraint is social and political. The steel industry directly employs more than six million workers worldwide and supports entire regional economies. The shift toward electrified production, hydrogen-based processes, and digitalized operations will reshape skill requirements and potentially alter industrial geography. Without careful planning, communities dependent on traditional steelmaking could face economic disruption, creating resistance to change. Decarbonization that overlooks workforce implications will struggle to maintain political legitimacy. A credible transition must therefore embed reskilling, technical training, and workforce mobility into industrial strategy. Governments, industry, and labor representatives must collaborate to anticipate skill gaps and support workers through structural change. If managed proactively, green steel can create new engineering, digital, and clean-energy jobs. But these opportunities will not materialize automatically; they require intentional design.
The convergence around emissions measurement and classification standards marks a meaningful step toward greater transparency and trade compatibility in low-emission steel markets. But standards alone will not close the cost gap, finance hydrogen infrastructure, or retrain workers. The transition will hinge on coordinated action across policy, finance, and industry. Governments must align industrial policy with long-term objectives, provide credible investment signals, and discourage lock-in to high-emission infrastructure. Industry leaders must accelerate partnerships, manage capital allocation with a forward-looking lens, and integrate decarbonization into core competitiveness strategies rather than treating it as a compliance exercise.
Steel built the industrial age. In the coming decades, green steel will shape whether heavy industry can remain both competitive and environmentally-aligned. The technologies are emerging, standards are converging, and global awareness is rising. The remaining question is whether policy frameworks, financing mechanisms, and workforce strategies can move at the same pace. This decade will determine whether steel becomes a symbol of industrial inertia or a case study in successful industrial transformation.
Caroline Arkalji is a Research Assistant for the Global Economics & Development and Energy & Climate Policy programs, and Telmen Altanshagai was a Fall 2025 intern at ORF America.