Big green steel project in Ohio is on again after CEO waffles

If the United States is entering its ​“green steel” era, then the last few days suggest the transition away from the sector’s coal-fueled furnaces is off to a bumpy start.

Steelmaking is one of the world’s most carbon-intensive industries. Earlier this year, the Biden administration announced up to $1 billion in awards for two commercial-scale projects that will demonstrate cleaner methods for making the high-strength metal. The grants are part of a larger $6.3 billion federal program that aims to slash planet-warming pollution from the production of key materials such as iron and steel, aluminum, cement, and chemicals.

Cleveland-Cliffs was selected to receive potentially half a billion in funding to revamp its existing steel mill in Middletown, Ohio. But last week the company’s president and CEO, Lourenco Goncalves, said he was considering ditching the project — and forgoing federal support. In an interview with Politico, he said that Cleveland-Cliffs has struggled to convince automakers and other major buyers to pay a higher price for the cleaner steel it wants to produce.

Then, just as suddenly, the company reversed course. On Monday, Cleveland-Cliffs released a statement saying that it ​“remains fully committed toward the transformational project” proposed in Ohio and that it ​“continues to be in active negotiations” with the U.S. Department of Energy (DOE) related to the award of up to $500 million.

Green steel experts said that they’re still trying to parse the meaning of the corporate flip-flop and of Goncalves’s comments to Politico. But two things remain clear: Project negotiations are a messy business, and big green steel facilities can’t move forward without first securing sizable ​“offtake agreements” for their future products.

“It’s not surprising that buyers are not materializing overnight, so we understand that frustration,” said Christina Theodoridi, who manages the industrial policy team at the Natural Resources Defense Council (NRDC).

“At the same time, it’s absolutely crucial that offtakers are part of the negotiations,” she told Canary Media. ​“Now that the spotlight has been shown into some of the [project’s] inner workings, hopefully we’ll see stakeholders come to the table more actively.”

Ditching coal for gas and hydrogen

Cleveland-Cliffs’ existing setup in Middletown, just north of Cincinnati, resembles that of many other conventional mills. A blast furnace uses purified coal (or ​“coke”), limestone, and scorching heat to transform raw iron ore into molten iron. The iron then moves into a basic oxygen furnace to become finished steel — a material that’s used in everything from cars, cargo ships, and airplanes to buildings, power generators, and transformers.

Worldwide, steel production generates as much as 9 percent of human-caused CO₂ emissions every year, along with a slew of toxic air pollutants. The vast majority of this dirty output comes from the ironmaking stage.

The U.S. still operates 13 traditional blast furnaces, seven of which are owned by Cleveland-Cliffs. The rest belong to U.S. Steel — a company embroiled in a much larger quagmire over its pending acquisition by Japan’s Nippon Steel.

For the Middletown project, Cleveland-Cliffs has said it plans to spend $1.1 billion, plus the DOE award, to replace the blast furnace with an alternative approach: a ​“direct reduced iron” (DRI) furnace. The process involves using gas — not coal — to remove the oxygen atoms in iron ore, which then becomes hot briquettes of iron.

To start, Cleveland-Cliffs intends to run the new DRI plant on fossil gas, a method that’s about half as carbon-intensive as making iron in a conventional blast furnace. The steelmaker will gradually mix in ​“clean hydrogen” as supplies become available. By using only clean hydrogen — ideally derived from renewable electricity and water — the facility could potentially curb CO₂ emissions from ironmaking by over 90 percent.

The DRI process isn’t new. The United States already has three fossil-gas DRI facilities, including Cleveland-Cliffs’ plant in Toledo, Ohio. What’s unique is that Cleveland-Cliffs plans to install two 120-megawatt electric melting furnaces, which will allow it to use iron briquettes from the new DRI plant in the existing basic oxygen furnace to make steel.

Goncalves told Politico that he worried that steel buyers aren’t yet willing to pay the true cost of green steel. But at least to start, the steel coming out of the refurbished Middletown facility isn’t expected to cost much more than existing products. Cleveland-Cliffs has indicated that the initial gas-fueled setup will actually reduce production costs, with annual savings on the order of $450 million relative to the current configuration.

“It feels like the math should check out, even if Cliffs isn’t able to secure a ​‘green premium’ for materials [initially] coming out of this facility,” said Nick Yavorsky, a senior associate in the Climate-Aligned Industries Program at RMI, a clean-energy think tank.

Still, switching to clean hydrogen will undoubtedly raise steel costs, particularly in these early days when the U.S. is still working to boost production of the fuel — up from virtually nothing right now. And steelmakers will need a lot of clean hydrogen. To support just one full-scale DRI facility, a company would have to procure around 4 gigawatts of renewable electricity capacity to power 2 GW of electrolyzers for making hydrogen, according to RMI.

Only one commercial operation in the world runs primarily on clean hydrogen today: the Hybrit pilot plant in Sweden, which to date has produced over 5,000 metric tons of material for customers including Volvo Group. SSAB, the Swedish steelmaker behind the Hybrit project, was also selected to receive a $500 million DOE grant to build a fully hydrogen-fueled DRI plant in Mississippi. (That project is also still undergoing award negotiations.)

RMI estimated that Cleveland-Cliffs would need to charge a premium of roughly 15 percent for steel made using clean hydrogen, even when factoring in the half billion dollars in federal funding. That amounts to an extra $120 per ton over the cost of conventional blast furnace steel. For consumers, such a premium would add less than 2 percent to the price tag of a new car.

A 15 percent premium ​“certainly feels well within the realm of possibility,” Yavorsky said. He noted that in Sweden, the massive H2 Green Steel project — now called Stegra — that’s under construction has already secured offtake agreements with price premiums of around 20 to 30 percent from automakers, construction firms, and other buyers.

Getting carmakers to commit

However the dust settles on the Cleveland-Cliffs deal, green steel proponents agree that automakers in particular could be doing more to signal their support — and willingness to pay — for American steel made using lower-carbon technologies.

The automotive industry is a major consumer of steel, and most of the metal used for cars comes from blast furnaces, owing to the higher quality and strength of primary steel. Cleveland-Cliffs, for its part, is the largest supplier of automotive steel in the U.S., with Toyota as its biggest customer in that market.

Among U.S.-based carmakers, Ford Motor Company and General Motors are so far the only ones to have joined the First Movers Coalition, a global initiative in which companies pledge to buy at least 10 percent ​“near-zero carbon” steel by 2030.

For these firms, signing offtake agreements with the DOE-backed facilities in Ohio and Mississippi ​“is the most obvious place to start,” said Hilary Lewis, the steel director at Industrious Labs, an advocacy group. She said automakers can bring both ​“a carrot and a stick” to the negotiating table, by proffering much-needed offtake agreements and by demanding that steelmakers deliver a truly lower-emission product.

“There’s work to be done, both by automakers to really prove out their demand and by Cleveland-Cliffs to ensure that the project is actually making green steel by taking that final step and securing green hydrogen,” Lewis said.

A handful of federal policy initiatives could help shrink the green premium and make such projects more palatable to would-be steel buyers. In August, U.S. Representative Ro Khanna (D-Calif.) introduced the Modern Steel Act in Congress, which, among other things, calls for providing a production tax credit worth $89 per ton of ​“near-zero emission” steel.

“The policy landscape is still ripe for action to make sure that industry can actually clean up … and ensure that it can be competitive with incumbent processes,” said Ian Wells, the federal industrial lead at the NRDC.

Failing to clean up, as it happens, also carries a substantial cost, for both the climate and communities living near traditional steel mills, RMI’s Yavorsky said. Last year, before the DOE announcement, Cleveland-Cliffs said it was considering spending hundreds of millions of dollars to ​“reline” its Middletown blast furnace in 2027 or later to extend the plant’s operating life.

If Cleveland-Cliffs kept its existing ironmaking operations going for the next 20 years, that could add an estimated 94 million metric tons of CO₂ to the atmosphere over that period — about the same as driving 22 million cars for one year, according to RMI. The site would also keep spewing lead, particulate matter, and other harmful pollutants, all of which could be significantly reduced with hydrogen-based ironmaking.

Theodoridi of the NRDC said that projects as large and complicated as the green steel plants are naturally going to experience setbacks as companies and governments hash out negotiations for novel, risky initiatives.

“This is a relatively new way of doing industrial decarbonization — and industrial decarbonization [itself] is a new thing that now a lot of governments are trying to figure out how to do,” she said.