This blog post presents strategic insights from pioneering green-steel innovation taking place in the Northern regions of the Nordic countries, which are rich in both renewable resources and innovative capacity.
The complexity of achieving large-scale industry decarbonisation creates a lot of risk that industry ventures need to overcome in their climate transition strategies. The steelmaking industry alone accounts for around 8% of global carbon dioxide emissions, and despite increasing public pressure and industry commitments, global progress has been modest in the race to fully and persistently decarbonise steelmaking.
Yet, the progress of pioneering ventures demonstrates that breakthrough innovation in so-called hard-to-abate sectors (ie industries that use carbon as integral parts of the production process, such as steel, cement, and petrochemicals) is achievable at a large industrial scale.
A global hotspot for these ventures has emerged in the far north of Europe, in the resource-rich and population-sparse industry regions of Sweden, Finland and Norway. There you can find a range of ventures for decarbonising industry, such as electric-vehicle batteries, critical raw materials, biofuels, hydrogen-based energy systems, as well as the two most advanced ventures for ‘green’ steelmaking (ie with near-zero emissions) to be found anywhere in the world.
From my research and associated case studies, three learnings in particular stand out from on-going Nordic green-steel innovation processes. First, there are several possible pathways for industry decarbonisation, and different ventures choosing different strategies may support each other’s success. Second, navigating the business risks of industry decarbonisation hinges on aligning commitments across and beyond the entire value chain. Third, innovation strategy and value-chain alignment are shaped not only by industry ventures themselves but also the stakeholders around them, particularly at the regional industry level.
These insights give hope for increasing ambition and action to decarbonise industry, but also point to crucial strategic pillars that can make or break venture success.
1. The co-opetition view: More than one road to decarbonisation
Viewing sustainability strategy as ‘co-opetition’ (ie competing and collaborating at the same time) rests on two interconnected insights. Firstly, rather than looking for a silver bullet for green-steel innovation, research indicates that there are several viable paths that may prove to be successful strategies. Secondly, these different paths may strengthen each other.
Co-opetition is illustrated particularly well by the simultaneous success of two very different green-steel business models in Northern Sweden. The first large-scale venture to emerge for green-steel innovation was the HYBRIT consortium of three Swedish legacy industry companies (SSAB in steel, LKAB in mining, Vattenfall in energy). In 2016 they formed a jointly-owned R&D company for breakthrough innovation into pelletising and reducing iron ore using sustainably produced hydrogen instead of coal and coke. In 2021 they were the first in the world to produce a test batch of fully carbon-free steel, and currently the parent-companies are applying the resulting process-model to decarbonise their entire operations. While this was happening, another venture entered the scene not 100 miles away from the bulk of HYBRIT’s activities: the H2 Green Steel startup, initiated by newly-financed ventures rather than incumbent industry companies.
H2 Green Steel has outsourced much of its R&D in order to instead keep in-house focus on scale-up. It is on track to complete the world’s first purpose-built plant for hydrogen-powered direct-reduction steelmaking, made possible by a creative fundraising strategy that involves the entire value chain.
As both ventures have set up a successful business case on their own terms, it is clear that there are pathways for both startups and incumbents to push the formation of a viable market for green steel. This is in line with earlier research findings suggesting the key for companies is not to follow one silver bullet but to select the right differentiation strategy for decarbonisation and sustainability. Moreover, the two green-steel innovation strategies are intertwined, both for local resource coordination and global market legitimacy. The HYBRIT strategy is R&D intensive and has spearheaded the technological proof of concept for large-scale hydrogen-powered steelmaking, and the H2 Green Steel startup has also benefited from this legitimacy. In return, the faster scale-up of H2 Green Steel paves the way for HYBRIT incumbent-companies to review this progress when adapting their own industrialisation strategy. The proximity of the two ventures has led to periodic concerns about competition for available resources, infrastructure capacity, and skilled workforce. Yet remarkably, when viewing the bigger picture of innovation and market-building for green steel, neither of the companies’ executives who we interviewed for our research project agreed to characterise the other venture as a competitor.
2. The value-chain view: Aligning partners to overcome risks
Taking the value-chain view uncovers how risks are mitigated through different strategies. Hard-to-abate sectors like steelmaking are characterised by heavy reliance on immovable physical resources and material infrastructures. Making commitments and investments for acquiring those resources and infrastructures presents a high level of risk as the markets and premiums for decarbonised industry output have not yet settled, and more stringent regulation has not yet taken effect. Innovators therefore need to find ways to mitigate the high risk of these scale-up investments in order to progress from test-scale R&D to industrial-scale production.
The Nordic cases of emerging large-scale innovation show us that the way to move forward and navigate these risks is value-chain alignment. The two pioneering green-steel ventures in northern Sweden are seeking to ensure strong value-chain alignment in order to make their business case viable, but both are using different strategies. The HYBRIT consortium is financing a dedicated R&D department and embedding its breakthrough innovation into the operation of incumbent companies, thus anchoring the green-steel transition in existing value-chain commitments. The H2 Green Steel startup is achieving the needed commitment and risk-mitigation through a network of agreements with upstream and downstream partners (including for R&D) to finance and support a vertically integrated green-steelmaking process. Both green-steel ventures benefit from combining the collaboration structures of traditional Swedish process-industry at the local level, with global stakeholder engagement for market building, talent attraction, and external finance.
Elsewhere in the world, comparable ventures generally have a lower degree of value-chain alignment than the Nordic first movers in green steel. Different parts of the value chain are innovated separately, with the expectation that new markets will gradually form and integrate the separate elements into full value chains. An example of this is the proliferation of ‘hydrogen ready’ facilities for steelmaking and other energy-intensive processes: in the absence of existing capacity and markets for green hydrogen, industry production is being transformed so that the shift to renewably produced hydrogen as an energy source is as smooth as possible in the future when such capacity and markets are available. Yet, in order to push the transition to that stage, there is a need for more pioneering ventures that manage to align the entire value chain on their own initiative.
3. The stakeholder view: Venture location shapes strategy
Taking the stakeholder view gives insights into how solving resource dependencies in order to succeed in industry transitions hinges on stakeholder relations at a venture’s location. This case study of the Swedish green-steel pioneers shows this clearly. With planned investments in the Nordic industry transitions already up in the hundreds of billions of euros, the subsequent urgency for ramping up everything from training and workforce attraction to housing and energy capacity has created an unprecedented growth momentum, with some formidable challenges to sparsely populated local communities close to the Arctic Circle. Many of these challenges are place based and specific to the venture’s immediate surroundings, and these can make or break the long-term success of industry transformations. Faced with society-wide sustainability transitions, some regions are experimenting with entirely new kinds of coordination processes in order to make sure all parts of society are supporting each other in the transition.
In the Nordic context, the northernmost regions of Sweden have emerged as a ‘sweet spot’ for sustainability transitions in industry, where ventures have found ways to combine the availability of renewable energy with a strong local industry tradition. But these conditions alone do not automatically guarantee successful sustainability innovation. The momentum to host large-scale transformations such as green-steel ventures has been enabled by over a decade of conscious actions by local stakeholders (especially by regional energy companies) to redefine industry processes and pave the way for sustainability transition. For example, the design of hydroelectricity production has been consciously restructured in order to align with the needs of new energy-intensive ventures. Without these and many other crucial steps taken by regional and national stakeholders the industry transformations will not develop as planned.
Indeed, beyond foresight and preparation, navigating the challenges of scaling up innovative industry takes a lot of coordination over time. In the north of the Nordic countries, the long-term success of new ventures hinges not only on the sustainable use of natural resources but also the resilience of local communities and their livelihood (across all sectors), as well as safeguarding the heritage and rights of the indigenous Sami population. Other regions in the world will face different local coordination needs based on their own societal context – but in the same way, the initiative and support of all involved stakeholders and the coordination between industry ventures and broader society (termed by the Swedish green-steel ventures as ‘society-building’ efforts) remain a substantive element of a successful long-term strategy for industry transformation. After all, system-level sustainable development is about much more than decarbonisation alone. A previous Oxford Answers research article on renewable energy policies in sub-Saharan African is a good example of this regional differentiation.
Many regional solutions fuel global momentum
To a regrettably large extent, global sustainability transformations like the one facing the steel industry are still at a stage of unsettled markets and high uncertainty. Only strong commitments of action and coordination will create the pathways needed for new markets to form and industry-wide transformation to follow. This is because, as in any innovation process, markets will take time to evolve and settle – especially in hard-to-abate industry sectors that are used to evolving through incremental steps rather than frequent full-scale transformation. This innovation looks very different than in most other sectors today, especially when comparing to our usual benchmark examples like the Silicon Valley. There is ambitious breakthrough innovation, but no shortcuts or silver bullets that can solve all challenges everywhere at once.
This means that for the next few years, we are likely to see partial and region-specific solutions for decarbonised industry value chains. The solutions developed by industry first movers and their project partners are unique, but that does not mean their success cannot inspire similar developments elsewhere in the world. The evolving green-steel story in Northern Sweden gives us hope that rapid transition is possible when the stars are made to align: When both startups and incumbents complement each other’s developments, when value chains are being aligned from the start to reduce uncertainty and support the building of new commercial markets, and when both policymakers and regional stakeholders take active and coordinated steps to support system-level transformation.
Background
This post is based on Viktor’s doctoral research project that explores innovation strategies for sustainability transitions in hard-to-abate sectors, with case studies across green steel and hydrogen innovators in the Nordic region. The research includes interviews, field visits and document analysis in the period 2021-2024, with supplementary data collection dating back to 2018.
Viktor is being supervised by Richard Cuthbertson, Senior Research Fellow at Saïd Business School and Professor Xiaolan Fu at Oxford University's Department of International Development.
