Whalesbook
Global steel production using coal is expanding significantly, with capacity rising 5% to 319 million tonnes annually, despite climate goals. This growth outpaces planned retirements, projecting a net increase of 88 million tonnes by 2035. Meanwhile, cleaner technologies are not keeping pace. Electric Arc Furnace (EAF) steelmaking, which uses scrap metal and electricity, saw its share of global capacity rise only slightly to 34%. Direct Reduced Iron (DRI) technology, a key pathway to lower emissions, makes up just 10% of global ironmaking capacity. Crucially, only 2% of DRI production uses green hydrogen, the most environmentally friendly option. This focus on coal-based production locks in infrastructure responsible for about 88% of the steel industry's 11% share of global CO2 emissions.
India and China are the main drivers of this coal capacity expansion, accounting for 86% of all planned new facilities. India alone is developing over 60% of the world's new coal-based blast furnace capacity, with 93% of its planned ironmaking relying on coal. However, less than 5% of these Indian projects have begun construction, leaving a critical window for policy intervention to change course.
This reliance on coal carries significant financial risks. The European Union's Carbon Border Adjustment Mechanism (CBAM), implemented in January 2026, will impose a carbon price on imported steel. This could increase costs for producers like India by up to 32% in some scenarios. CBAM aims to create a level playing field by matching the carbon costs of imported goods with those produced within the EU, encouraging decarbonization abroad.
The transition to truly green steelmaking technologies, such as hydrogen-based DRI, faces substantial challenges. The cost of green hydrogen is a major barrier, currently much higher than fossil fuel alternatives. To become cost-competitive, projected green hydrogen prices need to fall to around $1.4-$1.70 per kilogram. Achieving this would require massive investment in renewable energy infrastructure and electrolyzer technology.
Beyond these specific technologies, the global steel industry is also vulnerable to volatile metallurgical coal prices and high debt levels within some companies. The long lifespan of blast furnace assets means current investments risk becoming stranded assets—those that can no longer be operated profitably due to regulatory changes or shifts in market demand for low-carbon products.
This continued commitment to coal-based blast furnaces is at odds with global climate goals. The International Energy Agency (IEA) has called for a 93% reduction in heavy industry CO2 emissions by 2050 to reach net-zero targets. However, the scale of new coal capacity being planned will ensure that global blast furnace capacity grows, directly undermining these efforts.
While many large steel producers have set net-zero targets, the specifics of their plans, particularly for intermediate milestones and indirect emissions (scope 3), often lack concrete timelines or clear strategies. The ongoing reliance on coal also exposes the industry to supply chain risks and price volatility in global commodity markets. The window for policy intervention is narrowing, especially for projects in India not yet started. Without a decisive global shift towards lower-emission technologies and robust policy support, the steel sector risks maintaining a heavy carbon footprint long past established climate deadlines.