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image by Nigel Barker

Hard-to-abate industries require substantial funding to overcome barriers in scales of engineering and reach a demonstrative Tech Readiness Level. Infrastructure and Deep Tech startups have long cycle times that conflict with the shorter ROI horizons of most early funders. H2 Green Steel, a startup in the difficult to decarbonize steel industry,  recently secured €4.2 billion in debt financing, bringing its total funding near €6.5 billion–a recent high for investment in the Deep Tech sector. Use of  this type of large debt instrument to provide higher leverage is beginning to gain acceptance in the climate tech space.

​This level of funding says many things about H2 Green Steel and its supporters, especially their acceptance of risk and their certainty in the project’s ability to scale at pace in competition with traditional steel. Henrik Henriksson, CEO of the startup, discussed in an interview with McKinsey how they are achieving this support despite charging a 25% green premium. H2 Green Steel produces steel at a claimed 95% CO2 reduction compared to traditional steel by fueling the process with hydrogen that they produce in house from renewable energy and optimizing the process from start to finish with the help of digitalization. They report that their in house green hydrogen is made by electrolysis, splitting water into H2 and O2 gasses, using “fossil-free” electricity. Henriksson states “it’s a way for customers to secure a scarce material for the future early in the process … the commitment from our customers comes with their notion that the price of carbon will rise.” 

One likely reason this project has seen such great support compared to sustainable cement is that steel costs much more than cement and emits less CO2 per revenue dollar making it more financially viable to factor in the green premium. Hot-rolled band (HRB) steel costs about $1100 per metric ton in the US, while cement costs about $130/ton. Steel production emits 1.41-1.91 tons of CO2 per ton of steel, while cement production emits about 0.58 tons of CO2 per ton of cement. Cement decarbonization is more likely to see this level of funding in the near future as the cost of emitting carbon increases, the cost of renewable energy decreases, making scalable innovation more economically feasible.

There are other reasons cement may be behind in investment, including the fact that steel production is more universalized and less geographically specific. Iron ore is found around the world, while cement’s components–limestone, sand, and clay–are locally concentrated, so cement is usually produced near the site of its material sources and its final use location. This also makes the regulation of cement composition highly variable, and manufacturing plants are different in each region. Since iron ore results in virtually the same steel depending on desired materials, it is universally regulated and production processes are similar across the globe. Even recycled steel has generally consistent production and regulation standards, while cement is not feasible for direct recycling. Though many initiatives in cement incorporate waste from other outputs into production, these substitutes are also subject to regional and conditional availability. These differences may create a more accessible groundwork for widespread, global scaling for H2 Green Steel and other initiatives in their industry. It also falls onto the startups themselves to develop deep process innovation that can be established across the globe if they want to reach H2 Green Steel’s levels of funding.