The world’s first full-scale zero-carbon steel plant will require a whopping €500m ($588m) of public money to go ahead, Recharge has learned.

ArcelorMittal, the planet’s largest steel producer, announced last week that, after signing a memorandum of understanding with the Spanish government, it will oversee a €1bn investment to build a green-hydrogen-powered direct reduced iron plant at its existing facility in Sestao on the outskirts of Bilbao, as well as a new electric arc furnace.

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Powering this redesigned plant with renewable energy would mean the Sestao plant would produce 1.6 million tonnes of zero carbon steel by 2025.

“Given the significant cost associated with the transition, in terms of both capex and opex, it is ArcelorMittal’s expectation [that public] support will cover at least half of the additional cost to enable its operations to remain competitive as it accelerates its decarbonisation program,” ArcelorMittal said in a statement.

A spokesman for ArcelorMittal confirmed to Recharge that this means €500m of public funding will have to come from the Spanish or Basque governments or possibly the EU — raising questions as to whether handing over so much cash to a conglomerate worth about $30bn represents a good use of taxpayer money.

It also highlights the scale of the challenge needed to decarbonise heavy industry.

The steel sector has traditionally used coke — a form of coal — as both a heat source and a method of removing unwanted oxygen from iron ore (iron oxides) in a process known as reduction. Consequently, the steel industry is said to produce 8% of the world’s annual carbon emissions.

Clean hydrogen has long been proposed as a method for replacing coke, as it can provide both the high-temperature heat needed and remove oxygen in a way that purely electric solutions cannot. (Electric arc furnaces are used to melt scrap steel, not to process iron ore).

This raises questions as to whether handing over so much cash to a conglomerate worth about $30bn represents a good use of taxpayer money

The Sestao plant is first “meaningful” use of green hydrogen for direct reduced iron, says ArcelorMittal.

“This is a hugely significant development and demonstrates the strength of innovation embedded in our people, our unparalleled technology leadership, and what can be achieved through investment in existing steelmaking infrastructure,” said chief executive Aditya Mittal. “It means ArcelorMittal will be the first company in the world to be in a position to offer its customers meaningful volumes of zero carbon-emissions steel.

“The ability of the Sestao plant to become the world’s first zero carbon-emissions steel plant would not be possible without the support and partnership of the Spanish government.”

ArcelorMittal also revealed in the small print of a press release: “Should green hydrogen not be available at affordable rates by the end of 2025, natural gas would be used to power the DRI furnace.”