As the U.S. begins its shift towards “green steel,” recent developments suggest the transition away from coal-fueled steel furnaces may face early challenges. Steelmaking is one of the most carbon-intensive industries, contributing significantly to global CO2 emissions. To address this, the Biden administration announced up to $1 billion in funding for two commercial-scale projects aimed at developing cleaner steel production methods, as part of a broader $6.3 billion federal program to reduce emissions from key materials such as steel, aluminum, and cement.
Cleveland-Cliffs was selected to receive up to $500 million to modernize its steel mill in Middletown, Ohio. However, last week, the company’s CEO, Lourenco Goncalves, expressed uncertainty about moving forward with the project, citing difficulties in convincing automakers and other major buyers to pay a premium for cleaner steel. In a surprising reversal, Cleveland-Cliffs later announced that it remains committed to the project and is actively negotiating with the U.S. Department of Energy (DOE) regarding the federal funding.
Experts in green steel have noted that while the company’s abrupt change of course raises questions, two things are clear: negotiations for major green steel projects are complex, and such ventures cannot progress without securing significant “offtake agreements” — pre-arranged contracts for buyers to purchase the green steel.
“It’s not surprising that buyers are hesitant to commit right away,” said Christina Theodoridi, from the Natural Resources Defense Council (NRDC). “But offtakers are essential to the process, and hopefully, this spotlight will encourage more stakeholders to engage.”
The project in Middletown is set to replace Cleveland-Cliffs’ traditional blast furnace with a more environmentally friendly “direct reduced iron” (DRI) furnace, a process that uses natural gas instead of coal to extract iron from ore. Initially, the plant will operate using natural gas, a method that produces about half the carbon emissions of conventional blast furnaces. Over time, the company plans to introduce clean hydrogen into the process, which could reduce emissions by up to 90%. This transition to clean hydrogen is a critical aspect of the project’s long-term sustainability goals.
While the DRI process itself isn’t new — the U.S. already operates three DRI plants powered by natural gas, including one in Toledo, Ohio, owned by Cleveland-Cliffs — what sets this project apart is the inclusion of two 120-megawatt electric melting furnaces. These furnaces will allow the plant to use the iron briquettes produced by the new DRI system in its basic oxygen furnace to produce steel.
Despite the potential for lower carbon emissions and cleaner production methods, Goncalves expressed concerns that buyers are not yet ready to absorb the additional costs associated with green steel. However, Cleveland-Cliffs has indicated that the revamped facility could actually lower production costs, with projected annual savings of up to $450 million compared to the current operation.
Nick Yavorsky, a senior associate at RMI, a clean-energy think tank, suggested that even without an immediate price premium for green steel, the financials should still work out. “The math seems solid, even if Cleveland-Cliffs doesn’t secure a green premium right away,” Yavorsky said.
As Cleveland-Cliffs pushes forward with this transformational project, its success could serve as a critical test case for the U.S. steel industry’s broader green transition, which will require balancing environmental goals with economic realities.