German steel producer Salzgitter is to spend €723m ($723m) on the first development stage of its long-term plan to decarbonise its business — which represents 1% of Germany’s carbon emissions — by the end of 2033.

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It is the largest investment in green steel to date. A handful of larger investments have been announced by rival steel makers such as LKAB, SSAB and ArcelorMittal, but funding for those green steel projects has yet to be approved.

Salzgitter’s plan, called Salcos (Salzgitter Low CO2 Steelmaking), will use green hydrogen to replace the coking coal currently used in its blast furnaces to extract iron from iron ore.

“This will be possible with the help of so-called direct reduction plants, in which iron ore is reduced to iron directly in the solid state by hydrogen,” the Salcos website explains. “This technology emits water vapor instead of CO2.”

The company explains: “Salcos is aimed at converting the integrated steelworks into low-carbon crude steel production in three stages over the period up until 2033. As part of the transformation, direct reduction plants and electric arc furnaces will be built and will then replace the blast furnaces and converters in stages.

“The new facilities will enable us to produce 1.9 million tons of green steel a year. Customers from a range of industries are already expressing keen interest. As a result, the Salzgitter Group has already agreed possible deliveries in recent weeks with customers from various sectors, including household appliance manufacturers, the automotive industry, and re-rollers.”

Car maker BMW is among the companies that have agreed to buy green steel from Salzgitter.

The funding was approved earlier this week by the company’s supervisory board after previous sign-off from its executive board.

“I am convinced that the timely implementation of Salcos will generate competitive advantages for us in the green steel market,” said Salzgitter CEO, Gunnar Groebler, who was previously head of wind power at Swedish utility Vattenfall.

The steel producer said that despite making €723m of its own funds available for the Salcos project, it is still “counting on public funding and consequently submitted the relevant grant applications some months ago — the final decisions are still pending, however”.

Although green steel is more expensive to produce than traditional steel, it would only represent a minimal extra cost in finished products. For instance, it is expected to add only €150-300 to the production cost of a medium-sized electric car. Volvo is already introducing the use of green steel in its trucks, while Mercedes-Benz and BMW will do so from 2025 and 2026, respectively.

Salzgitter aims to complete the first Salcos expansion stage, reducing CO2 emissions in its steel production by 30% by the end of 2025, with a second phase concluded by the end of 2030, along with a 50% carbon reduction.

The full project is due to completed by 31 December 2033, reducing CO2 emissions by more than 95%.