Close to the Arctic Circle in northern Sweden, work is under way to complete a €6.5bn project that aims to cut the carbon emissions from traditional steelmaking by 95 per cent.

H2 Green Steel expects to begin production of the metal by mid-2026 at its greenfield site in Boden, with ambitions to ramp up supply to the European market initially to 2.5mn tonnes a year, growing to 5mn tonnes annually by 2030.

At the heart of the project is the use of hydrogen — produced through electrolysis using Sweden’s excess capacity of green hydroelectric power — as an alternative to conventional coking coal. Hydrogen gas will be used to reduce iron ore, turning it into hot “green” iron that can then be mixed with recycled scrap and rolled into fresh steel in electric arc furnaces.

Electrolysers with a capacity of 700MW at the integrated plant are intended to produce 100,000 tonnes of the gas per year, making it one of Europe’s biggest planned green hydrogen facilities.

The venture’s planned steel output remains modest compared with the 152mn tonnes a year that trade body Eurofer, the European Steel Association, calculates is produced across the EU. But Boden’s backers hope the plant will serve as a blueprint for decarbonising steelmaking elsewhere in the trading bloc, and beyond.

The need to decarbonise the industry is pressing worldwide. Steel production remains heavily dependent on coking coal in traditional blast furnaces, which produces huge amounts of carbon dioxide. Electric arc furnaces typically used in the recycling of scrap or final stages of steel production are less carbon-intensive but can also be highly polluting, depending on the carbon footprint of their electrical power supply.

Overall, steel production is calculated to be responsible for 7-9 per cent of the world’s annual CO₂ emissions, according to the World Steel Association. Using hydrogen instead of coal in the process, however, produces water vapour rather than carbon dioxide.

Coking coal — which is polluting and commonly used in steelmaking — is mined in Pawlowice, Poland © Bartek Sadowski/Bloomberg

Henrik Henriksson, chief executive of H2GS, says: “This is our first project, not our last.” The company has also identified Canada, Brazil, the US and Portugal as locations that — given the development of sufficient renewable energy — could also be suitable for hydrogen-powered plants.

But the short-term fortunes of the Swedish steelmaker depend on securing a market of customers prepared to pay a premium for

On an overcast day at the end of May, the UK’s energy minister climbed aboard the world’s first hydrogen-powered digger. 

After connecting a pipe to refuel the white-and-green backhoe loader, built by JCB, Claire Coutinho vowed that Britain would “stay at the front of the race” to use renewable hydrogen to reduce emissions from the construction industry. 

But not everyone agrees that hydrogen will necessarily be the future fuel for heavy machinery. “I’m sorry Lord Bamford [JCB’s owner], I love that you have built an internal combustion engine that runs on hydrogen, but who is going to buy it?” asked Michael Liebreich, who runs a clean energy advisory firm, as he published his latest assessment of which sectors are likely to switch to the clean-burning gas.

“It takes 16 to 18 tube trailer deliveries of hydrogen to replace one delivery by diesel tanker and I just can’t get my head around the logistics or safety of hydrogen . . . on a construction site,” he explained. 

Around the world, industries rushing to replace fossil fuels with green hydrogen — produced using renewable energy — are also reconsidering where the future demand will actually come from. 

“We were told hydrogen was going to be the Swiss Army Knife of the energy industry, that it can be used everywhere,” says Anne-Sophie Corbeau at Columbia University’s Center on Global Energy Policy. “In theory, this is, of course, correct. But, in practice, the number of sectors where it makes sense to use hydrogen is becoming more and more realistic than it was before.” 

Its high cost is one obstacle. Proponents of green hydrogen believe that it can eventually be produced for $1 per kg, the same as the price of hydrogen produced by fossil fuels; the current price, however, is at least five to 10 times higher. 

At the top of the list of clients for green hydrogen are those for which it is the only viable solution to cutting emissions: businesses involved in ammonia production for fertiliser, the hydrogenation of fats in the food industry, hydrocracking to produce jet fuel and diesel, and steelmaking. 

Other industries where there is likely to be demand for green hydrogen include shipping, aviation, chemicals and power generation. 

Shipping is one industry where there is likely to be a demand for hydrogen as a fuel © Lida Marie David/Bloomberg

“There are certain industries where the carbon emissions simply cannot be abated, other than with green molecules,” says Marco Raffinetti, the chief executive

Hydrogen has been pitched as a clean superfuel that can decarbonise our heavy industry, power our vehicles and heat our homes — but its producers are finding that new projects are taking far longer to approve than expected.

In 2021, the International Energy Agency (IEA) estimated that the world would need about 150mn tonnes of low-carbon hydrogen per year by 2030 to be on course to cut global emissions to net zero by the middle of the century. Now, three years later, analysts predict that available supply at the start of the next decade will be closer to a 10th of that level.

Projects are not being developed fast enough. More than 1,600 worldwide have the potential to produce a combined 65 million tonnes per annum of low carbon hydrogen by 2030. Of those, however, only 477 are likely to be online at that point, according to a recent study by consultancy BNEF. And they can produce a total of only 16.4Mtpa,

Part of the shortfall is the result of targets colliding with the realities of delivery. But the industry is also facing specific challenges. Rising interest rates have significantly increased the cost of new projects. In Europe and the US, government schemes have been set up to subsidise low-carbon hydrogen but payments are yet to start flowing and — in many cases — customers are yet to materialise.

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“On the supply side, in a lot of markets, projects that have applied for and been allocated subsidies for producing low-carbon hydrogen, in any form, are still waiting to get those funds,” says Adithya Bhashyam, an author of the BNEF study.

Hydrogen is already being used in industrial processes to help refine petroleum, treat metals, and produce fertiliser and other chemicals. Almost all of that hydrogen is extracted from natural gas, though — which means carbon is emitted in the production process.

Hydrogen’s advocates argue that low-carbon versions of the fuel could have many uses, including powering commercial ships that currently run on oil, or heating industrial processes such as cement production, which will be hard to electrify.

Here, ‘low-carbon’ hydrogen is generally understood to mean ‘green’ hydrogen, which is extracted from water using renewable electricity, or ‘blue’ hydrogen, which is extracted from natural gas but with the associated emissions

A lit cigarette provided the first clue to the energy source deep underground. Drillers accidentally set fire to the gas coming out of what they had thought was a dry water well in Bourakébougou, south-west Mali, in 1987. 

Rather than natural gas, whose main component is methane — a driver of global warming — the drillers had struck hydrogen. Now, decades later, the village, population 1,500, is still using this reservoir of the clean-burning gas to generate electricity.

Mali is, so far, the only place in the world to have exploited underground hydrogen deposits. But it may soon be joined by others. The push to ditch fossil fuels means engineers, geologists and prospectors are scouring the globe to see if they can find and extract the gas — also referred to as geologic, gold, or white hydrogen — at scale.

Forty companies, in countries including Australia, Albania, Canada and South Korea, were searching for hydrogen deposits as of the end of 2023, according to consultancy Rystad Energy. That is up from 10 just three years ago.

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“The world needs dependable, affordable energy,” explains Neil McDonald, managing director of Australia-listed Gold Hydrogen, which is drilling prospects in South Australia first discovered and ignored by oil prospectors a century ago. “We are hoping to be a big part of that.”

Such is the need that the International Energy Agency predicts a more than fourfold increase in annual demand for hydrogen: it will have to rise from 95mn tonnes in 2022 to 430mn tonnes in 2050, if net zero emission targets are to be met by replacing the fossil fuels currently used by refineries, power stations and vehicles.   

Most hydrogen in use today is produced by splitting it from natural gas — a process that leaves carbon dioxide as a byproduct. And efforts to produce cleaner versions to meet net zero goals have so far focused on either capturing and storing those carbon emissions, or on using renewable energy to power industrial scale electrolysers to split hydrogen from water.

Drilling for exploitable reserves of naturally occurring hydrogen has not, generally, been considered feasible. “We’ve known about the natural occurrence of hydrogen for over a century,” says Geoffrey Ellis, research geologist at the US Geological Survey. “But it had been assumed that you just

At the Paris headquarters of the International Energy Agency (IEA), researchers tracking the progress of hydrogen as a clean alternative to fossil fuels have a list of more 100 pipelines for the gas, across more than a dozen countries.  

But the vast majority of these projects are either concepts or undergoing feasibility studies. Only one is actually under construction: a 30km pipeline in the Port of Rotterdam. 

The Rotterdam project, which got under way last October, is the first leg in a plan to build a European hydrogen network that could reach 28,000km by 2030 and span 28 countries by 2040, according to the European Hydrogen Backbone, a group of 33 energy infrastructure operators.  

Gasunie — the Dutch state-owned gas network operator — believes that, as the Netherlands starts using less gas in order to meet its climate commitments, up to 85 per cent of its pipelines could be converted to carry hydrogen instead. 

And there may be no better place to begin the experiment than Rotterdam, which has access to offshore renewable energy, shipments of hydrogen through its port, and several refineries keen to use the gas. 

Shell is building a renewable energy powered hydrogen plant at the end of Rotterdam’s port © Thomas Fasting

At the end of the port, Shell is building its own ‘green’ — or renewable energy powered — hydrogen plant, which will be the largest in Europe. It is to use electricity derived from offshore wind and a 200MW electrolyser to split the gas from water. When it is operational, it will feed hydrogen to Shell’s own Pernis refinery a few kilometres further up the port. 

But Amir Mansouri, head of the project at Shell, stresses that it is at the bottom of the learning curve when it comes to building out hydrogen infrastructure. “To put it into perspective, this is the largest renewable hydrogen facility under construction in Europe, and it constitutes just five to 10 per cent of the hydrogen demand of Pernis,” he points out.

Mansouri adds that there are several challenges to overcome for the project, which will combine 10 of the 20MW electrolysers made by engineering company Thyssenkrupp Nucera. “What is the interplay of the 10 electrolysers as you ramp them up and ramp them down?” he asks. “What is the degradation of that? How much can you really get out of it? We’re spending a lot of time to understand it.”

Another challenge, when thinking about