The Energy Transition has an Iron Deficiency

You are likely surrounded by steel right now. The chair you sit on, the buildings around you, the car you just parked outside, the train beneath your feet, or a bridge crossing the Hudson—all of it is made of steel, and steel is more than 98% iron.

Iron accounts for an astonishing 93% of all metals mined globally. That means, nearly every piece of hard infrastructure – from city skylines to high voltage transmission towers – starts with iron. It is the metal behind modern life. Quietly and consistently, it is everywhere.

In 2023, the world produced 1.9 billion tonnes of it, with projections of up to 2.75 billion tonnes of annual production by 2050.

Iron has formed the backbone of industrial progress. It also acts as a key enabler and bottleneck in the global energy transition. Underpinning wind turbines, EV chassis, next-generation nuclear reactors, and geothermal plants, iron carries a heavy weight in the transition. But it is also one of the dirtiest industrial processes on Earth, responsible for 7–9% of global CO₂ emissions, more than all road freight combined.

To live within our planet’s boundaries, we need to reimagine how iron and steel are made and invest in practical ways to decarbonise the most consumed metal on the planet.

Rebuilding steel's production pathway

Steel’s value chain is long and layered. From geographical mapping and permitting to mining, pelletising, transport, smelting, casting, and final shaping, every link in the chain matters.  

To understand how we decarbonise steel, we must begin where it all starts — predominantly in iron ore mines located in Australia, Brazil, and China, which together account for about 70% of the world’s iron ore mining.

Once extracted through open-pit mining, the ore is crushed, ground, and enriched at the mine site using magnetic separation and high-temperature processing (between 1,250 °C and 1,340°C) to form iron-rich pellets. These are then shipped — typically via rail or ocean freight— to be made into steel.  

At steel mills, about 95% of these pellets are transformed in blast furnaces. Here, they are mixed with coke and limestone and heated to over 2,000°C. The coke acts as a reducing agent, pulling oxygen from the ore to produce molten iron. At the same time, limestone removes impurities, producing slag that can be recycled and is commonly used as an aggregate for construction materials such as concrete or asphalt. The resulting molten iron is fed into basic oxygen furnaces (BOFs), where high-purity oxygen is injected to remove residual carbon, leaving behind steel.

Despite its effectiveness, this process has a heavy environmental impact. That is where new technologies begin to make their case, if they can compete on unit economics.

An alternative production pathway is the electric arc furnace (EAF), which utilises recycled scrap steel or direct-reduced iron (DRI). EAFs can reduce CO₂ emissions by 75% compared to the blast furnace method. Yet they currently produce only around 20% of global steel, limited by scrap availability, high power requirements, and the cost of overhauling entrenched infrastructure.

DRI that utilises hydrogen offers another promising route. Hydrogen-DRI technologies replace coke with hydrogen gas to reduce iron ore, emitting only water vapour in the process. Steelmakers, such as ArcelorMittal, have emphasised this as a central pillar of their net-zero strategies. However, economic and policy challenges have led to the delay or cancellation of several multi-billion Euro hydrogen-DRI projects.

Some other emerging areas of steel decarbonisation that researchers, entrepreneurs and investors are dedicating time and capital to include thermal batteries, electrochemical processes, molten-oxide electrolysis, and plasma smelting, each with their own benefits and trade-offs.

At the centre of all these innovations is a common challenge: how do we retrofit or replace an industry built over centuries to meet the demands of the next 25 years? The answer will determine whether iron becomes a liability or a lever in the energy transition.

Helios and the sodium solution

One such leapfrog innovation comes from Helios, a KOMPAS VC portfolio company. Originally developed with the intention of making oxygen from moon rock, Helios’ sodium reduction method is redefining how iron can be produced.

Helios replaces coke and hydrogen with sodium as a reducing agent. Operating at significantly lower temperatures (400–550°C), the process emits only oxygen. It is compatible with low-grade ores and works in a closed-loop system, dramatically reducing energy intensity. The process is projected to reduce costs by 30% compared to traditional iron production.  

Unlike blast furnaces, Helios’ system does not require centralised, capital-heavy infrastructure. It is modular, decentralised, and aligns with renewable power sources, allowing for a process that is up to 100% emission-free. This makes it ideal for re-industrialising regions currently excluded from steelmaking while bypassing the high-cost barriers of legacy infrastructure. With modularity, feedstock flexibility, and zero-carbon emissions, Helios is reimagining how steel is made.  

While solutions like Helios signal what a cleaner and more distributed future for steel could look like, the path to get there is anything but linear. The sector still operates within a global system defined by price swings, policy uncertainty, and high capital intensity — all of which slow the pace of transformation.

Market volatility and capex uncertainty

Despite the long-term bullish outlook for clean materials, 2023 served as a reminder that transition markets are still vulnerable to short-term shocks. The global critical minerals market shrank by 10%, falling to $325 billion — its first contraction in years. This drop was driven by sharp price declines across lithium (down 80%), cobalt (down 60%), and nickel (down 45%) as supply surged ahead of demand. Softening EV sales, economic slowdown in key markets, and oversupply from China, particularly in battery metals, created an environment of volatility and uncertainty.

Iron and steel were not immune to these forces. China dominates the steel industry, producing over half of the world’s output, while India and Japan follow at a distant second and third. China’s construction sector — which historically accounts for nearly 60% of domestic steel consumption — cooled considerably, triggering excess capacity. As Chinese producers offloaded surplus steel onto global markets, prices dropped, competition intensified, and margins thinned. Steel mills outside China found themselves facing deflationary pressures while contending with growing demands for decarbonisation. The concentration of production exposes the steel industry to geopolitical risks and market manipulation, while also creating chokepoints in supply chains.

The consequences for upstream players have been severe. In 2023, global mining revenues declined by 10%, and operating profits dropped by over 35%. Capital expenditure slowed, with projects postponed or cancelled outright.

Transitioning steel production to net zero is estimated to require $2 trillion in capital investment. Without stable pricing, strong policy incentives, and long-term demand signals, producers are unlikely to make the leap. The risk is clear: an industry trapped in a high-emissions status quo, waiting for certainty that may never come.

Conclusion

At the start, we asked you to look around — at the chair beneath you, the buildings above, the infrastructure that frames your life. Nearly all of it contains iron. This metal quietly forms the bones of our world.

Despite being indispensable to modern life and essential to building a low-carbon future, steel remains one of the highest-emitting industries. Decarbonising it will not be easy. The process is complex, energy-intensive, and deeply entrenched — shaped by legacy infrastructure, geopolitical concentration, and volatile markets.

Yet progress is accelerating. Technologies like electric arc furnaces offer near-term relief. Others — including hydrogen-DRI, electrochemical reduction, molten oxide electrolysis, and sodium reduction processes — are reimagining the future of steelmaking.

The story of iron can no longer be just about being the building block of infrastructure. It needs to be about reinvention. The future of decarbonised industry depends on building new systems — not marginal improvements.

At KOMPAS VC, we believe climate progress starts with the materials that make our world. That means rethinking how we produce them — making it essential to invest in sustainable materials that aggressively compete with traditional materials on performance and unit economics.

So, where does that leave us?

The question is not whether iron matters to the energy transition. The answer lies in how fast we can decarbonise its production, develop more secure value chains, and scale solutions that make sense for industry.

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- by Summit Rosenberg, Senior Associate