Resources

• H2 Green Steel website
• World Economic Forum: What is green steel and why does the world need more of it?
• McKinsey: Decarbonization challenge for steel
• International Energy Agency (IEA): Steel

Host & Guest

Climate Rising Host: Professor Mike Toffel, Faculty Chair, Business & Environment Initiative (LinkedIn)

Guest: Maria Persson Gulda, the Chief Technology Officer at H2 Green Steel (LinkedIn)

Transcript

Editor's Note: The following was prepared by a machine algorithm, and may not perfectly reflect the audio file of the interview.

Mike Toffel:

This is Climate Rising, a podcast from Harvard Business School, and I am your Host Mike Toffel, a professor here at HBS.

Today’s episode is the second in our series on decarbonizing the roots of value chains, where we’re looking deep into supply chains that serve many industries. Last time we discussed concrete, and today we’re focusing on steel, whose production accounts for nearly 7% of the world’s CO2 emissions, most of which comes from using coal and its derivative coke in the steel making process. Maria Persson Gulda, the Chief Technology Officer at H2 Green Steel, joins me today to explain how steel can be produced using green hydrogen, created using renewable power, to dramatically reduce steel’s carbon footprint. She’ll discuss the new steel plant they’re building in Sweden, the technology and cost curve, and who their initial customers will be. She’ll also share what she views as the most promising opportunities among the many technologies needed to scale green steel to make it the dominant form of steel around the world.

Here's my interview with Maria Persson Gulda from H2 Green Steel.

Mike Toffel:

Maria, thank you so much for joining us here on Climate Rising.

Maria Persson-Gulda:

Thank you for having me.

Mike Toffel:

So let's begin with an introduction, so a bit about yourself and your role and how you got there.

Maria Persson-Gulda:

I was born and raised in Sweden in a small town called Halmstad that happened to be a golf town, and that took me over to United States. I got a golf scholarship to play for University of Colorado in Boulder.

Mike Toffel:

Beautiful place.

Maria Persson-Gulda:

It is indeed, great skiing opportunities as well and I had a fantastic time. I did my bachelor in science in engineering physics at Boulder and then I was going to try to make it as a professional golfer, so I went to Q-school for the LPGA and didn't get the card the first try, but a lot of people try for an average of five years before they get in, and so I thought I'll try another one. But I also applied for grad school at the same time and I got into my favorite place, which happened to be Harvard.

Mike Toffel:

Yeah. We were lucky to have you here.

Maria Persson-Gulda:

And I did applied physics at Harvard.

Mike Toffel:

Why did you decide to go into applied physics?

Maria Persson-Gulda:

When I had the opportunity, I had studied engineering physics as a bachelor and then when I was doing my year of professional golf, actually driving to one golf tournament I came in a car accident and the whole car crashed and needed to go to the graveyard. And right there and then I was thinking why isn't it that we could produce steel that can take the full collision and buckle out again in an elastic way? So I decided to look at that type of research and found here at Harvard with Frans Spaepen and that there was a research group that actually was looking into similar type of topics and decided that that's where I wanted to do my PhD.

Mike Toffel:

So to provide more protection to passengers and drivers of vehicles when they got into crashes.

Maria Persson-Gulda:

Yes, and also allowing you to not needing to go to the mechanical to fix your car, but actually that it fixes itself, self-healing.

Mike Toffel:

Oh. And so from applied physics, did you do that with the intention of going into industry or going to become an academic? What was your goal of doing the PhD?

Maria Persson-Gulda:

I believe my goal was to go into industry. I don't think I could see myself being in an academic world for a long period of time because I'm too restless, too impatient, and really want to have impact fast, which the academic route is absolutely having huge impact, but much more long-term impact.

Mike Toffel:

Right. I think that's very fair. So you went from there to McKinsey?

Maria Persson-Gulda:

I did

Mike Toffel:

I think a lot of folks won't know what the connection is between being a physicist and working at a strategy consultancy. What was that interview like?

Maria Persson-Gulda:

Oh, it was a great interview. It was just like the same interview for me as any MBA student, so it was quite a lot of preparation before going into that interview because as a physicist you are very trained to do bottom-up communication and be sure of every decimal that you have, and consultancy world is much more top-down and estimates. And so a big change, and actually a big struggle also the first year in order to get into that sort of mode of working and thinking, but a great training. And given my physics background and combining it with that training made it very, very strong in terms of strategies.

Mike Toffel:

So you spent some time at McKinsey and how did you go from there to H2 Green Steel?

Maria Persson-Gulda:

I was four years in the office of New York City, and then I decided to move back home to Sweden. my parents' health unfortunately started to go downhill and I wanted to be closer to home, so decided to transfer to the Stockholm office, which I was very happy about because a few years later, they both passed away. And during that time when I was in the Stockholm office, I was actually on maternity leave for my second child and I get a phone call from one of the founders of Northvolt.

Mike Toffel:

The battery producer.

Maria Persson-Gulda:

Exactly, in Sweden. And they had gotten into discussions with their customers of Northvolt and the customers, the automotive industry, was basically saying that now they had electrified the user phase and got rid of all the CO₂ there and they would like to start looking at the rest of the CO₂. And they noticed that a lot of it comes from steel in the value chain, and they had approached the steel industry to try to see if they could produce green steel somehow. They wanted it by 2025 or somewhere close there, and the answer they got from the steel industry was that it's possible, but it won't happen until 2035 and it won't happen without doubling the price of steel.

Mike Toffel:

Whoa. So slower and more expensive than I imagine the automakers were hoping for.

Maria Persson-Gulda:

Exactly. They were not very content with that answer, and so they just bounced this with Vargas Holding then, that is the co-founders of Northvolt, and that sparked the phone call to me with the same question; why?

Mike Toffel:

Yeah. So they found you, a rare physicist at McKinsey in Sweden, so you had some interesting collection of experiences and what did they ask you to do?

Maria Persson-Gulda:

Actually, it was Harald Mix that called me and he wanted me to jump over into Vargas Holding and become the project manager of this new idea, which was to create green steel at scale in the north of Sweden by 2025.

Mike Toffel:

And that was in what year?

Maria Persson-Gulda:

That was in 2020.

Mike Toffel:

Yeah. So if permitting is anything like what permitting is here, that seems like an impossible task just from the permitting process, much less the technology curves that one needs to go through in the design of a plant. What was your reaction to that request?

Maria Persson-Gulda:

I sort of smiled because I thought it was quite a cocky request, bold request, and I asked Harald what the business case looked like and he said, "Well, that's why I'm calling you. You need to make it." And then I asked him what technology he was going to use and he said, "I have no idea, but I think it's possible because the steel industry says it's possible, it's just a question about time." And then I asked him how he was going to get the permit, just like you said. And he convinced me that Northvolt had gotten it within a short period of time, 18 months from turning it in, and he thought that if we used the same approach, we would be successful here too.

Mike Toffel:

Great. That’s the permit part. Now let’s talk about the technology. One way to understand steel production is to think about it in two steps. The first is in actually getting iron ready and then the second step is actually in the steelmaking. let's just talk through these one at a time. So the ironmaking process, what does that look like?

Maria Persson-Gulda:

Today a lot of ironmaking is made in blast furnaces and what you get out is pig iron, but it is a huge amount of CO2 that is made in that process. It uses coke as a fuel.

Mike Toffel:

Which is made from coal

Maria Persson-Gulda:

Yes. If you take a ton of steel, it's two tons of CO2 per ton of steel. 85% of that is actually from the blast furnace, so if you do find a way to substitute the blast furnace route that is green, then you'll come a long way. There is a substitution to the blast furnace today, and that is called DRI production, and it's a direct reduction furnace where you use natural gas which you reform into hydrogen and carbon monoxide. Both of these gases will reduce the iron ore, but the hydrogen one can only do it if it receives energy, which it does from the carbon monoxide. So the carbon monoxide reduction is exothermic, gives away energy, and the hydrogen reduction of the iron ore takes the energy, so it's endothermic, and the hydrogen one is giving away water and the carbon monoxide reaction is giving away CO2, so you're not reducing your CO2 down to zero, but you're getting some along the way.

Mike Toffel:

So either way, now we have iron that's ready to enter the steelmaking process. And that's the second step?

Maria Persson-Gulda:

Correct.

Mike Toffel:

Okay, so in this step, I think you’re heating up the pig iron or the direct reduced iron or DRI, maybe adding in some scrap steel?

Maria Persson-Gulda:

Yes. So if you have a blast furnace and you have a basic oxygen furnace where you're putting in your pig iron, you can add some scrap, but the absolute maximum that you can add of scrap is like 20%, and that's a lot. And then you make steel in that process. If you are using DRI, you use an electric arc furnace today, and there you can put in any type of scrap as you wish. So you can go from almost 100% just scrap down to much higher percentage of DRI and less scrap. The limitation of the DRI is really about how easily you can melt it in the electric arc furnace.

Mike Toffel:

Got it. So pig iron plus as much as 20% steel scrap, or DRI with as much steel scrap as you like.

Mike Toffel:

And so scrap, like many things when you use recycled materials, reduces the carbon footprint of it, but one is constrained to have the availability of that scrap in the first place. And so it seems to me like there's two journeys the steel industry has to go on. One is how do we maximize the use of scrap steel in the production of new steel, and the other is when scrap steel is not available or when you need products that can't be produced with high levels of scrap steel, you need to figure out alternative ways to produce I'll call it virgin steel, steel not made with scrap. And so which pathway is H2 Green Steel on in its own production processes?

Maria Persson-Gulda:

We definitely believe that you can’t decarbonize the steel industry on a global basis and large scale if you are only going to do it with scrap because just as you mentioned, there won't be enough scrap. And so in order to decarbonize and really make a big difference, you need to make the green iron. And so that is certainly the route that we are taking.

Mike Toffel:

So let's talk about the green iron that H2 Green Steel is producing. What's that process look like?

Maria Persson-Gulda:

It's basically taking the DRI facility, we keep the furnace, but before that we do not have a reformer that is reforming natural gas into hydrogen and to carbon monoxide. Instead, we have a huge electrolyser park, 700 megawatts of electrolysers, and then we have a big heating system because as I mentioned, it's an endothermic process with hydrogen, so it actually needs the energy in order to reduce the iron ore. So if we heat up the hydrogen 2,000 degrees before it enters the furnace, then it will reduce the iron ore. And it's actually a process that is 10 times faster than the carbon monoxide reduction, and so it's more efficient as long as you have that heat in it.

Mike Toffel:

So this is the technology that converts electricity into green hydrogen.

Maria Persson-Gulda:

Correct. You take water and electricity and you get hydrogen and oxygen, yes.

Mike Toffel:

And in order for it to be green hydrogen and not just any hydrogen, the electricity itself has to be produced with renewables-often by wind power.

Maria Persson-Gulda:

Correct.

Mike Toffel:

So green electricity is used to create green hydrogen, and H2 Green Steel will use this green hydrogen to produce direct reduction iron or DRI in order to produce steel in a way that results in roughly 95% less greenhouse gas emissions than conventional steel?

Maria Persson-Gulda:

Correct.

Mike Toffel:

And to produce the green hydrogen you’ll, where will you get the renewable electricity?

Maria Persson-Gulda:

Yes. So in order to understand this, we need to look at the electricity and how it's provided in Sweden. So Sweden has four regions of electricity. the two in the north are very well-connected and two in the south are very well-connected, but in between there is a bottleneck. So you have a ton of electricity being provided and produced in the north of Sweden that is both from hydropower, which is a great base load, but also from wind power. And this great amount of abundant electricity cannot travel all the way down to the south when it's produced in large quantities, and so we are using that electricity and the surplus in our production.

Mike Toffel:

So how uniquely positioned then is your plant in Sweden in terms of scaling this technology? If you need access to renewables on a massive scale. Is that a generalizable thing or are you looking to ship steel around the world from your Swedish location?

Maria Persson-Gulda:

Yes, I think that is a great question because it really is about finding the right locations in the world where you have ideally a base load of green electricity at a low cost in order to have the same sort of integrated facilities. If you don't, then you can either try to ship hydrogen, which has proven to be very difficult and it has its own challenges, or you can ship iron, so the HBI. So you produce the DRI, direct reduction iron, and you are bricking it, pushing it together, compressing it together to become hot-bricked iron and that you can ship. If you want to decarbonize the steel industry at a large scale, we most likely are going to see that you divide up your value chain and don't have ironmaking and steelmaking on the same sites, but you have iron making where you have a lot of abundant green electricity and you have steelmaking where you have today, the knowledge and the customers close by.

Mike Toffel:

Got it. That's super interesting. So that could lead to quite a shake-up of the industry of what's produced where.

Maria Persson-Gulda:

Absolutely. It's a huge transition for the whole steel industry.

Mike Toffel:

Yeah. So you'd mentioned earlier that when the conventional steelmakers were asked by the auto industry to create green steel, they said not for at least a decade or a decade and a half and it would be twice as expensive. So you mentioned you're on a much more aggressive timetable. What's the cost side looking like?

Maria Persson-Gulda:

So for us, when we are looking at our operational costs, then we are on the lower side of the European steel-making cost curve for flat steel. So we actually have a very good cost position, that is due to the fact that the hydrogen becomes quite cheap with the electricity that we have in the north of Sweden. Now, it is more expensive, the ironmaking, still than compared to a blast furnace, but if we couple that with the mini mill, we get out that cost efficiency. In particular, then also if we have a digitalization vision and strategy, an infrastructure that allows us to connect all the data and drive AI at certain process steps, then I think that we could drive down the cost even more. So for that reason, I think it is a wonderful. But we do, however, have an investment that is quite large, $6.5 billion, $2 billion of equity and $4.5 billion of debt. And that amount is requiring a green premium. So we have sold more than 1 million tons of steel in take-or-pay contract that are five to seven years, which is unheard of in steel industry. No one has ever signed steel contracts of that length in modern time.

Mike Toffel:

Take-or-pay meaning pre-commitments to purchase it.

Maria Persson-Gulda:

Yes. So either the customer takes the steel or they just pay without taking it, and that is really the base for the financing. Huge de-risking and an enabler for the financing, I should say.

Mike Toffel:

Right. What's the proportion of your capacity that has been pre-purchased or pre-committed through these take-or-pay contracts?

Maria Persson-Gulda:

It's more than 40%.

Mike Toffel:

Wow. And when does that start? When does the green steel begin rolling off your production process?

Maria Persson-Gulda:

So we did not quite make 2025, but it will be 2026.

Mike Toffel:

Got it. And so these take-or-pay contracts, these are from the auto companies who came to you in the first place? Is that where your initial customer base lies?

Maria Persson-Gulda:

Yes, but it's not only the automotive industry that is in the portfolio of H2 Green Steel. There are sustainability leaders in each sector that have signed up for these types of contracts because they really see the opportunity to decarbonize their value chain and lead their industry in producing green products.

Mike Toffel:

Got it. And  how are they justifying to their chief financial officers and their CEOs and so on that a green premium is worthwhile?

Maria Persson-Gulda:

I think there are two reasons. One is the science-based targets that they have signed up for. They need to show how they're not only reducing their scope one and two, but also reducing their scope three, and steel is a big portion of that.

Mike Toffel:

Their upstream scope three here.

Maria Persson-Gulda:

Yes. And the other reason why was when Tesla came into the European market and showed that electrified cars was viable, then the European Commission was introducing large penalties on the automotive industry if they did not electrify their fleet and they were not given much time to do so, so this was very costly and quite stressful for the automotive industry and they didn't want to re-go through that pain. And they were looking at threats that could come directly or indirectly in such a penalty scheme, there were discussions on an EU level about CBAMs, which is carbon border taxes. And there were discussions whether this would apply for the steel industry, which would make the steel industry start to actually phase in ETSs and start to pay for the CO2 emissions. In the past, they had gotten allowance free allowances that they could sell when they didn't produce as much as they had done historically, so they earned a lot of money on it, the steel industry, and now it was potentially going to be transformed into starting to actually pay for the CO2. And since there were two tons of CO2 per ton of steel, and if you could imagine an ETS market where you have 100 euros per ton of CO2, which we actually have been very close to and reached in the past two years-

Mike Toffel:

That's the trading price per ton of greenhouse gas emissions and CO2 equivalent in the ETS, the European Trading System?

Maria Persson-Gulda:

Correct. And then you would have a price increase of 200 euros per ton of steel. And at the time that we talk about, a hot roll of coil was sold for five, 600 euros, so that is a price increase of 30 to 40%. So for the automotive industry to sign our long-term contracts with a premium of 20 to 30% that is for green steel, that was quite easy decision I believe.

Mike Toffel:

So in a way, of course the whole purpose of pricing carbon, whether it's through taxes or a trading scheme like the ETS, is to impose a bit of a penalty on browner products to create more of a level playing field for green products, and the story you've just told is a classic example of that working out.

Maria Persson-Gulda:

Yes

Mike Toffel:

I've talked to some automakers and other companies that talk about trying to essentially spur the market on the supply side of these greener products that they require, and it seems like this take-or-pay is one of those ways that they're actually doing it, by making these pre-commitments to make it cheaper for their suppliers, companies like yours, to get financing, which reduces the cost and takes away some of the otherwise exorbitant risk that it would incur. Right now you have 40% of your capacity already spoken for. As you go through learning curves, the other 60%, the hope, is to get that gobbled up as well. And then there'll be other companies out there who didn't act soon enough and might get locked out of this, and might have to wait for the next plant in another five years or so before they can start procuring. Is that part of the story as well?

Maria Persson-Gulda:

I certainly believe that there is a first-mover advantage here, both in terms of locking in the locations that are very few in the world where this can be done in a cost-efficient way, and then as you are mentioning here, locking down the customers in these contracts to secure the financing. Now, we could pre-sell more of our total capacity, but it is our strategy to not do so. One reason is because we do believe that the price, the green premium will increase with time, as I mentioned, with the ETS system. If let's say that the ETS price goes from not only 100 but 150 euros per CO2, then it's even more of a premium than 30 to 40%. And right now we only have 20 to 30%, so we believe that that premium will increase which time. The other reason is because with these customers, they have agreed to a portion of their total needs. And so if we are producing towards them with the high quality that we expect, then we will be able to sell even more than what is in the take-or-pay contracts with the current customer base.

Mike Toffel:

So you're leaving room for that as well at potentially higher prices.

Maria Persson-Gulda:

Correct.

Mike Toffel:

Yeah. So who are the other players in the green steel space? You mentioned the incumbents are on a 2035 maybe strategy, you're a startup. Who else is out there?

Maria Persson-Gulda:

So I believe that since we announced, which was in February 2021, a year later after we started, we have managed to accelerate the green steel transition. And so today, there is quite a lot of players out there that are trying to make green steel by the timeline that we have or just a few years later. Those are both incumbents like ThyssenKrupp and Salzgitter, as well as newcomers, both on the iron side and on the steel side.

Mike Toffel:

Interesting. So a space to watch.

Maria Persson-Gulda:

Absolutely it is.

Mike Toffel:

So we mentioned a bit about public policies earlier when we talked about the carbon pricing through the ETS and the CBAM, the Carbon Border Adjustment Mechanism, which basically imposes a carbon price on imported products to match the domestically produced products' carbon price. Other policies that are hindering or promoting the growth of green steel?

Maria Persson-Gulda:

What is happening right now is that we see quite a lot of public funding when it comes to actually enabling the investment. We ourselves have gotten the innovation fund. We actually applied three years in a row and third time is a charm, then we achieved it and that is great. It's about 5% of our total investment need. But you do see huge subsidies in Germany in particular, but also other big European nations where it's more than 50% of the total investment that are being subsidized by state money, state aid.

Mike Toffel:

Of green steel production.

Maria Persson-Gulda:

Correct.

Mike Toffel:

Wow, that's huge.

Maria Persson-Gulda:

I think this imposes a few questions and food for thoughts, One, if we take the innovation fund, it is great that we have such a fund in Europe, and I believe now with the IRA there is also funds available through the DOE. My encouragement to the decision-makers, is that this type of money is required for the beginning of these type of journeys. There is a lot of engineering and a lot of big costs of engineering that are happening in order to get the permit and in order to get uncertainty down on your CapEx, both which are required in order to get a huge loan like ours, 3.5 billion euros. Actually, being able to develop such a project and get to a final investment decision is quite large, and that's where I believe that state aid money would have the most impact. But something like the innovation fund, you can't get unless you have a permit, so you're a little bit in a Catch-22 there.

Mike Toffel:

Interesting.

Maria Persson-Gulda:

So that would be one of my encouragements. The other one is that we really now need to make sure that when we are transforming the steel industry, that we do it in a sustainable way, not only from a decarbonization point of view, but also from an economical point of view. Steel production today is where there were large amount of coal mines because coke was such an important ingredient for the blast furnaces, and still is today. Now when we're making this transition, it's about the renewable green electricity. It is really, a relocation game for the ironmaking.

Putting up electrolysers and DRI facilities in the middle of Europe where we don't have a large amount of green electricity, and definitely not to a cost that is feasible really in order to make green steel at a viable cost, is quite dangerous for the steel industry in my opinion. And so as we spoke about before, I do think that we need to look at it holistically, break up the value chain, make iron in certain places and bring into Europe and drive it that way. So when it comes to state aids, looking it more as one region than specific countries.

Mike Toffel:

Right, right. Interesting.

Maria Persson-Gulda:

As a European Union.

Mike Toffel:

What advice do you have for those interested in learning more about this space?

Maria Persson-Gulda:

I think it's a fantastic place to go into right now where you can make a huge amount of impact. I think you need to decide whether you would like to go into the traditional companies and make the transition that they very much need, which would be extremely exciting by itself, or whether you want to go more towards the startup space and drive new technologies in order to decarbonize the steel industry. If we look at, for example, the H2 Green Steel, we have three different platforms as we've spoken about. We have hydrogen-making, we have ironmaking, and we have steelmaking. Each of these different platforms will have huge technology improvements and development in the next coming years. And we will see more movements there as well in a lot of academic efforts, so we will see a lot more startups coming in. You can look at infrastructure for hydrogen. So piping and you can look at storage for hydrogen, also a lot of startups in this space.

Mike Toffel:

So in all of these spaces there's scientific challenges to be met, engineering and R&D challenges, and then permitting, government relations, sales, procurement. It seems like the whole gamut of all of these emerging technologies. Very interesting. One other thing you'd mentioned with H2 Green Steel, you've mentioned of course the green aspect we've discussed at length. There's also diversifying the workforce. Can you talk a little bit about that piece?

Maria Persson-Gulda:

If you look at steel production today, it exists globally all over the world. Anywhere where you have a big economy, you also have steelmaking. But every single steel plant in most cases looks very homogenous. What happens if you bring the best from South Korea, from Japan, from South Africa, from Europe, from North America, from South America into one team? Imagine the type of best-in-class and productivity and continuous improvements that you can get out of that team.

But also attracting not only from 50% of the population, but actually from 100% of the population. Today in Europe, many steel companies has 2% women in it. And you might say that it is due to the fact that steel is very, very heavy to lift, so it is not suited for physical reasons for women. However, the steel product is like 25 tons each, so not a single man or even a team of 10 men can lift it. So there's really no reason why we wouldn't seek the best talent in both pools into the team. And I think the culture that brings not only from a problem-solving perspective, but also just culture in the vibe that we have in the office and so forth is making it an extremely fun place to actually work.

Mike Toffel:

Maria, thank you so much for joining us here on Climate Rising. It's been a real pleasure talking to you.

Maria Persson-Gulda:

Thank you very much.

Mike Toffel:

That was my interview with Maria Persson Gulda, Chief Technology Officer at H2 Green Steel. This was our second episode in our series on decarbonizing the roots of value chains. If you haven’t yet, you can check out our prior episode for a discussion on green concrete.