It’s easy to get swept up in the excitement of innovation, isn't it? When a company like Microsoft announces a deal to purchase the 'environmental attributes' of green steel, the headlines often sing praises of market-shaping breakthroughs. But as Lisa Sachs, Director of Columbia University’s Center on Sustainable Investment, points out, we need to look a little closer. This kind of transaction, while seemingly progressive, often shifts claims rather than changing the fundamental reality of production.
Think about it: Microsoft didn't actually procure green steel for use in the market where it was produced. Instead, they bought the 'environmental rights' associated with it. This allows them to label steel they use elsewhere as 'green,' especially in places where producing green steel isn't yet feasible, like China, which accounts for a massive chunk of global steel output. The physical infrastructure, the actual steel mills in Asia, remain unchanged. No new green steel capacity is built, no power price risks are magically reduced, and no financing hurdles are cleared. It’s a bit like making your balance sheet look good without altering the underlying industrial engine.
This mirrors the logic of carbon offsets, doesn't it? It’s a methodological fix that lets companies claim progress without actually changing their system's emissions trajectory. The widespread praise for these approaches, Sachs observes, highlights a deeper issue: we've become accustomed to celebrating what can be claimed methodologically, rather than what genuinely alters the physical world.
For years, the conversation around green steel has revolved around standards, disclosure, 'book-and-claim' systems, and buyer commitments. These tools are appealing because they're easily understood, fit neatly into corporate net-zero plans, and operate at the individual company level, making it simple to report progress. However, they tend to sidestep the tougher, more critical questions: Is steel production actually becoming cleaner, cheaper, and easier to finance at the point of production?
If the only real barrier to scaling green steel were a lack of demand signals or unclear definitions, the market would have sorted itself out by now. But that’s not what we’re seeing. In Asia, for instance, green steel projects are largely still in pilot phases, heavily reliant on corporate balance sheets for financing, with very little in the way of project finance.
This distinction is crucial. Industrial market expansion is fundamentally driven by financing. If a project can't secure independent financing, it’s not necessarily a lack of ambition; it’s often because the project's risks and cash flows don't meet the thresholds for financial institutions.
'Book-and-claim' systems, while separating environmental attributes from physical supply, don't lower production costs, stabilize electricity prices, or reduce investment risks in hydrogen. They merely reallocate attributes after the fact, doing little to make the next project easier to finance or cheaper to build.
Unlike solar photovoltaic, where each new panel installed directly scales manufacturing, triggers learning effects, and lowers unit costs, green steel doesn't follow such a neat cost-reduction curve. Buying environmental attributes from a Swedish project, for example, won't mitigate the electricity price volatility risks faced by a hydrogen-based ironmaking project in China, nor will it alter grid access rules or financing conditions. There’s no cross-market learning effect generated by mere claims.
Buyer commitments face a similar pitfall. While often framed as a missing demand signal, their practical impact is more limited. They can help stabilize project utilization after the supply-side risks are largely resolved, but they can't make fundamentally uneconomical projects viable or convince lenders to finance assets exposed to volatile electricity prices and operational uncertainties.
This isn't just theoretical. Short-term, conditional commitments, disconnected from production timelines, have repeatedly failed to unlock financing for hard-to-abate sectors. Buyer commitments are most effective when a project's economics are already close to market-clearing, not before.
So why do we keep placing our hopes in these tools? Partly, we're trapped in an 'individual corporate perspective' mindset. Standards, targets, disclosures, and transition plans all ask, 'What can a single company do on its own?' They align with corporate accountability frameworks but treat the political and institutional complexities of electricity markets, infrastructure, and industrial policy as external factors. This allows for claims of progress without systemic change.
But green steel isn't an individual corporate challenge; it's a systemic one. And systemic problems aren't solved by tools designed for individual actors.
Inspired by transactions like Microsoft's, researchers are digging into the real constraints facing green steel scale-up, particularly in China. They've identified a critical issue: hydrogen-based ironmaking requires massive, consistent electricity input over its asset lifecycle. Even with low average renewable energy prices, industrial users in China face price volatility, curtailment risks, congestion, and grid access uncertainties. The decisive risk isn't whether electricity is expensive, but whether it's stable.
While price volatility is paramount, it's not the only risk. It compounds with technical, capital, and policy risks, most of which are currently borne by steel companies themselves. This excessive risk concentration keeps green ironmaking confined to cautious pilot stages.
We have the capacity to disentangle these project risks, but we rarely do. Instead, we broadly label unfinanceable projects as 'high-risk' without specifying which risks are blocking financing, which could be managed through boundary setting or risk-sharing pools, and which remain unviable even with support. This leads to a proliferation of blunt interventions like generalized blended finance, universal subsidies, and token demand aggregation – all of which improve the 'look' but don't alter the financing reality or production outcomes.
These are precisely the issues being addressed in recent workshops focused on driving the Asian green steel market forward. The emphasis isn't on standards or commitments, but on economics. The goal is to define risk boundaries for green ironmaking, pool risks to lower them, and thereby reduce green steel production costs. As costs fall and economics improve, narrowing the gap with traditional steel, credible buyer commitments can then effectively address residual utilization risks, creating genuine market demand.
The same challenges plague other hard-to-abate sectors and industries yet to embark on meaningful transformation. Thus far, the industry and its partners have poured immense effort into designing methodologies for 'claiming progress,' rather than focusing on the systemic constraints that drive physical reality. These transformations, though difficult, are achievable. The key is to stop mistaking 'claimable' for 'changed.' The true starting point must be economics, risk, and financing. We possess the tools to address these core issues, and there's ample room for innovation. Until these fundamental questions are tackled, we'll continue to celebrate seemingly innovative transactions while the underlying systems remain largely untouched.
