Key points:
- While many mining groups, financial institutions and governments are betting on long-term growth in metallurgical coal consumption, demand has plateaued.
- Consumption is expected to decline in the years ahead as China transitions to a services-led economy and low-carbon steel production methods gain traction.
- Some producers are moving away from traditional methods that use met coal. Electric arc furnaces (EAFs) fed by scrap steel or “green iron” are leading the shift.
- The iron and steel sector accounts for around 11% of global carbon emissions, making its decarbonisation critical to the world’s climate goals.
- Governments and financial backers continuing support to met coal production and expansion run the risk of exposure to stranded assets.
- To accelerate the transition, governments can scrap subsidies for traditional steel products, lower industrial electricity prices, and prioritise green steel in public infrastructure procurement programmes.
Overview
A number of mining houses, financial institutions and national governments remain bullish about the long-term demand outlook for metallurgical coal (met coal), which has long been the key component of traditional steelmaking technologies. They argue that infrastructure investment needs, particularly in India and other parts of Asia, will continue to boost consumption of this high-carbon commodity.
However, there is growing evidence that met coal demand has plateaued, with consumption set to decline slightly in the years ahead as China evolves into a services-led economy and pushes toward low-carbon steel production, along with Europe. This raises the risk of stranded met coal assets as a looming wave of new mines pushes the market towards oversupply.
Why decarbonising steel is so important
Iron and steel production accounts for around 11% of global carbon emissions, largely due to the industry’s heavy reliance on coal – both as a fuel for heat and as a chemical agent for stripping oxygen from iron ore. Decarbonising the sector, which plays a pivotal role in the global economy, will therefore be crucial if the world is to achieve its climate goals and transition to a more sustainable development model.
This is particularly true given that demand for steel continues to rise, driven by emerging markets. Steel consumption is expected to grow by 0.7% per year through 2030, according to the Organisation for Economic Co-operation and Development (OECD). While China has long been the driving force of consumption growth, demand there will decline amid structural shifts in the nation’s economy. However, this will be more than offset by rising demand in Southeast Asia and in the Middle East and North Africa region.
As such, there is a pressing need to shift to cleaner production methods. While steel is considered a ‘hard-to-abate’ sector, low-carbon manufacturing methods are gaining traction.
Progress is being made in the shift to cleaner steel technologies
Some producers are beginning to move away from traditional blast furnace methods of steelmaking that use met coal, and are instead opting for electric arc furnaces (EAFs) fed by scrap steel or “green iron”.
Green hydrogen is considered the leading low-carbon reducing agent in the nascent green iron industry. The primary route in green iron production utilises direct reduced iron (DRI) — green hydrogen in these facilities replaces the fossil gas used in conventional processes, eliminating the need for coking coal altogether.
In northern Sweden, energy company Vattenfall, steelmaker SSAB, and mining group LKAB started producing steel from a pilot facility that uses green hydrogen in 2021. The consortium is planning to build a larger demonstration plant.
Elsewhere in Sweden, Stegra (formerly H2 Green Steel) is constructing a complex that aims to produce 5 million tonnes of green steel a year when fully commissioned.
German steel producer Salzgitter is reconfiguring a factory for green steel production, and ArcelorMittal is converting a blast furnace in France into an EAF unit.
China is also eyeing a shift to cleaner production processes. The country’s first low-carbon production line was commissioned in late 2025, and authorities certified as many as 126 new green steel facilities between 2021 and 2024.
In India, JSW Group has built a green hydrogen facility adjacent to a steel plant in Karnataka to produce low-emission steel, while Tata Steel has installed a 20 megawatt-hour heat battery at a mill in the eastern state of Jharkhand. The thermal storage system captures waste heat to replace fossil gas used in the plant, thereby helping reduce emissions.
However, there is still a long way to go. Only 270,000 tonnes per year of green iron capacity and 60,000 tonnes per year of green steel capacity are currently operational, according to a tally by the Stockholm Environment Institute.
Meanwhile, planned green steel capacity by 2050 totals an additional 28 million tonnes per year, alongside 18 million tonnes a year of green iron, according to the Leadership Group for Industry Transition. For context, the world currently makes 1,800 million tonnes of steel a year.
To help scale up the emerging production technologies, the European Commission plans to boost demand for low-carbon steel partly by prioritising its use in public procurement programmes and the automotive sector.
In 2022, the Chinese government set a target to raise the share of EAF steel to 15% of total steel production by 2025. These facilities use scrap steel rather than virgin materials as the primary input, vastly reducing emissions. However, as of mid-2025, EAF production remains at around 10% of China’s total output, according to the Centre for Research on Energy and Clean Air.
Global demand for met coal has plateaued
Owing to China’s infrastructure investment slowdown as the country transitions to a services-led economy, and the beginning of a shift to low-carbon steel technologies in Europe and Asia, demand for met coal is expected to decrease slightly in the years to come.
In fact, met coal demand is expected to fall at a faster rate than thermal coal and lignite, according to projections from the International Energy Agency (IEA). Consumption of the high-carbon steelmaking commodity will drop 4.8% between 2025 and 2030, versus a 2.8% decline for the coal used in power generation.
In China, the world’s largest consumer of steel, met coal demand could slump by 77 million tonnes (Mt) between 2025 and 2030, according to the IEA’s most recent coal market report — published before the Iran war further dampened the outlook for economic growth and, therefore, steel consumption.
Similarly, consumption in the European Union, Japan and Korea will likely fall by a combined 21 Mt over the same period. The declines in China and other key markets will more than offset growth in India (26 Mt) and Indonesia (12 Mt). The rest of the world will probably only see marginal growth, per the IEA.
The economic case for green steel is clearer than ever
For the time being, green hydrogen remains a costly energy carrier, meaning progress in the transition to low-carbon virgin steel is being held back. However, China has announced a new strategy to reduce the cost of green hydrogen and expand its use.
The world’s second-largest economy is preparing to launch a pilot programme aimed at bringing the price of hydrogen for end-users to below 25 yuan (USD 3.6) per kilogram by 2030. Together with the possibility that China develops its own DRI technology, rather than relying on European solutions, this could help the country leapfrog Europe in the green steel transition, according to the Institute for Energy Economics & Financial Analysis (IEEFA). China is already making steady progress in the decarbonisation of its aluminium industry, as reported by the Financial Times.
If the country succeeds in driving down the cost of green hydrogen, this would likely accelerate the adoption of low-carbon steelmaking technologies.
Moreover, the second global energy crisis in four years — sparked by the US-Israel attacks on Iran — could prompt the likes of India to aim for a transition away from imported met coal and toward domestically produced green hydrogen. The country’s current approach exposes it to global supply risks, IEEFA noted in a recent report.
Authorities could accelerate India’s green steel shift using public procurement tools, among other options, the Institute says. For the time being, Ernst & Young expects annual demand for green steel in India to reach about 4.5 million tonnes by 2030.
The launch of the EU’s carbon border adjustment mechanism (CBAM) could provide a further incentive for steel manufacturers in India and elsewhere to pivot to low-carbon production methods. Doing so would enhance their competitiveness at a time when other nations, including the UK, Australia, Canada, Norway and the US are considering or already preparing to introduce their own carbon border taxes.
Furthermore, India has signed a trade deal with the EU that does not circumvent the CBAM. As such, its iron and steel producers may need to tackle emissions if they are to maintain or increase their exports to the bloc.
The transition to green steel raises the risk of stranded met coal assets
Mining houses, financial institutions and governments banking on robust met coal demand run the risk of exposure to stranded assets.
Banks provided close to USD 22 billion in financing for met coal mine developers between 2022 and 2024, according to a report by German environmental and human rights group Urgewald. Meanwhile, institutional investors held USD 30 billion in developers’ securities.
According to a separate Urgewald analysis, 145 companies are still planning to expand their met coal mining activities, and more than 250 projects are in the pipeline. If all of these projects go ahead, they would increase global annual met coal capacity by 580 million tonnes a year and raise production by 52%, “risking a wave of high carbon assets that may never pay back.”
Many of the planned met coal projects are in Australia, which is already the world’s leading supplier of the high-carbon commodity. The country continues to advance new mines, including the Isaac River, Winchester South and Moranbah South projects in Queensland.
Australia accounted for 42% of global met coal exports in 2024, according to the IEA. The other major suppliers are Mongolia (15% share), the US (14%), Russia (13%) and Canada (8%).
Meanwhile, the current US administration, which is pursuing an “energy dominance” agenda that prioritises fossil fuels and seeks to prolong their use, included met coal in its new trade deal with Indonesia.
These companies are leading the way in the transition to green steel
Some financial institutions have already taken steps to limit their exposure to the met coal industry, which will face a long-term decline if the world is to meet its climate commitments.
Following in the footsteps of Swiss insurer Zurich, Finnish pension fund Ilmarinen has divested from the sector. As of last count, 14 major financial institutions (of the 318 covered in the Coal Policy Tracker) have issued policies limiting or severing their met coal ties.
Meanwhile, a number of start-up manufacturers have already secured substantial green steel offtake agreements. Jindal Steel Group’s Vulcan Green Steel unit has an offtake agreement with car manufacturer Volkswagen, while Stegra has agreed to supply Mercedes-Benz, among other industrial users. Meranti Green Steel has a partnership with Glencore, while Blastr Green Steel has signed a cooperation deal with German steel and aluminium distributor Knauf Interfer.
These are important developments since offtake agreements help to commercialise and scale-up nascent technologies.
Recommendations
To remain competitive in iron and steel production over the long term, and to avoid the risk of exposure to stranded assets, governments and producers need to develop low-carbon transition plans. This is particularly important for the likes of Australia, which is comfortably the world’s largest supplier of met coal.
As part of these efforts, regulators should scrap subsidies for traditional, high-carbon steel products. China has particularly high subsidies in place, according to an analysis by the OECD.
Authorities should also work to lower industrial electricity prices relative to fossil fuel alternatives, which is key to enhancing the competitiveness of EAF facilities. To promote electrification, countries should reduce subsidies for fossil fuels, which amounted to USD 7 trillion in 2022.
Prioritising green steel in public infrastructure procurement programmes will also help iron and steel’s emerging technologies to become competitive. Countries that lead the way in the shift from high-carbon to low-carbon steel will reap additional benefits, including cleaner air and improved energy security. Many countries, including India, currently rely heavily on met coal imports, leaving them particularly exposed to global supply disruptions.
