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Financing Green Steel: Challenges and Opportunities in Emerging Markets

A new report from the Oxford Institute for Energy Studies (OIES) explores the financial feasibility of a green hydrogen-based ironmaking plant in emerging markets. Authored by industry experts, the study highlights key challenges and solutions in financing the transition to green steel production.

Key Insights

• High Production Costs: Producing green Hot Briquetted Iron (HBI) using renewable hydrogen is expensive, with an estimated cost of $690/tonne, over twice the cost of conventional grey HBI.
• Massive Capital Requirements: A world-scale green ironmaking plant requires an investment of approximately $9 billion, making debt and equity financing complex, particularly in emerging economies.
• Role of Carbon Pricing: Mechanisms like the EU Emissions Trading System (EU ETS) and Carbon Border Adjustment Mechanism (CBAM) are essential to making green steel competitive, but current price levels remain insufficient.
• Need for Offtake Agreements: Long-term contracts with steelmakers in developed markets can stabilize demand and ensure financial viability for investors.
• Resource Availability: The success of green steel projects depends on access to high-grade iron ore (>66%) and low-cost renewable electricity.

Potential Solutions

• Government Support: Incentives from host countries and carbon pricing/subsidies from importing nations can bridge the cost gap.
• Blended Finance: Grants, concessional loans, and guarantees from Development Finance Institutions (DFIs) and Multilateral Development Banks (MDBs) can lower capital costs and attract private investment.
• Optimized Project Structuring: Structuring projects to separate power, hydrogen, and iron production could improve financing feasibility.

The report underscores the need for strong collaboration between governments, financial institutions, and the steel industry to scale up green hydrogen adoption and enable a sustainable future for steelmaking.