Like some superhero channelling the power of lightning, Algoma Steel Inc. has started using the heat cast off by the arcs of powerful electric currents to make greener steel.

Electric arc furnaces are nothing new — the technology is more than a century old, and there’s already a few in Canada — but Algoma is calling the achievement of production from its first of the kind furnace last month a win as it faces an existential threat from U.S. tariffs.

“We have reached a truly pivotal milestone for Algoma and the Canadian steel industry,” said chief executive Michael Garcia on a recent earnings call.

“Despite the uncertainty that the trade war has unleashed, this achievement reinforces our confidence in our transformation strategy.”

Part of that strategy has been to dramatically reduce emissions in an attempt to differentiate its products; it even trademarked Volta as the name for its cleaner steel that it plans to produce from a mix of low-emission iron feed and scrap metal.

But experts say the project is coming online as the market for green steel, and the metal more generally, faces turmoil from tariffs and price pressures, making it unclear what financial advantages producers may get from the big upfront investments needed.

“The question is, will the demand be there? Is there going to be sufficient demand in North America for green steel?” said Chris Bataille, who researches the steel transition as an adjunct research fellow at Columbia University’s Center on Global Energy Policy.

“The U.S. was starting to move fairly quickly in terms of moving to electric vehicles and to cleaner steel and everything else under the last administration, but now we’ve got a complete U-turn.”

Steel emissions had been a priority in the U.S., and remains one in Canada, because using coal to produce steel is so emissions intensive. Globally, steel production makes up about eight per cent of carbon emissions, according to the International Energy Agency.

But while it makes sense from an emissions perspective, buyers willing to pay a premium for the more eco-friendly steel have mostly been limited to the auto sector, said Bataille.

European automakers have been paying a premium of as much as 40 per cent for the cleaner material, since they can use it for marketing while only adding a little to the end cost of a car, but the more important building sector has been more hesitant, he said.

There is still demand in Europe, a region Canada has looked to diversify its exports, but with tariffs causing disruption there too it’s not clear how much potential there is, said trade expert Tommaso Ferretti.

“There is a structural demand in Europe, but to what extent that structural demand will remain in place, it’s a big question mark,” said the assistant professor at the University of Ottawa’s Telfer School of Management.

Garcia himself has warned that Algoma doesn’t see much potential to sell to Europe, or anywhere else internationally.

“We can put our steel on an ocean-going ship here in Sault Ste. Marie, but getting it to an export customer in Europe or elsewhere, there just aren’t those opportunities right now. I don’t think that there’ll be a lot of those opportunities going forward, to be frank,” he said.

The challenges help explain why the other flagship green steel project in Canada, at ArcelorMittal’s Hamilton, Ont., operations, is stuck in neutral.

The company made a big show of announcing in 2022 that it was moving ahead with a $1.8-billion project to move to green steel — but the last updates show the project is still at the engineering stage, with a spokesperson confirming there are no new milestones to report.

Wider oversupply issues in the industry that have pushed down prices is part of the problem, as are doubts about policies like carbon pricing, said Bataille.

“There’s some uncertainty about how fast the transition will go. … It’s just a difficult business to make a buck, to be honest.”

ArcelorMittal said in its latest sustainability report in April that it doesn’t expect green steel projects to be economical until the 2030s, and that policies will be needed to address the high capital and operational costs.

Federal and provincial governments in Canada have already stepped in to help out with capital costs. Algoma received $420 million to help cover the more than $880 million cost of its project, while ArcelorMittal was offered $900 million to help ease its overall costs.

But unlike Algoma, ArcelorMittal’s plans also include building a plant in Hamilton to remove oxygen from iron ore using hydrogen, rather than coal — a process that remains expensive, leading to several recent project cancellations.

ArcelorMittal itself just cancelled two green steel projects in Germany in June, citing high electricity prices, while last year it noted the future of several other of its European steel projects is unclear because “there is limited willingness among customers to pay premiums for low-carbon emissions steel.”

Cleveland-Cliffs, which bought Hamilton-based Stelco Holdings Inc. last year, recently shelved plans for green steel conversion at a U.S. plant that already had US$500 million in government funding secured.

Lourenco Goncalves, chief executive of Cleveland-Cliffs, cited the lack of clear hydrogen supply as part of the reason for cancelling the project. He said on a July earnings call that plans to revamp the operation using existing resources, including “beautiful coal,” generates a very good conversation with the current U.S. Department of Energy.

Ferretti worries that the pressures the industry is facing will also mean less investment in research and development to try and bring costs down.

He said there needs to be even greater collaboration between the public and private sector for the critical industry to chart a path forward.

“The real question in fact is to see … the collaboration between the companies, the steel manufacturers, Canadian government, and their ability to reinvent themselves.”

For Bataille, that path could include using Canada’s vast renewable energy and iron ore deposits to build a direct reduction plant for processing closer to the source, and then shipping the already oxygen-reduced iron around the world.

“You could triple the value of those exports,” said Bataille.

“So on the one hand we face headwinds and the Chinese overcapacity continues, but on the other hand, I think there’s new possibilities open in shipping green iron places that, you know, we hadn’t considered before.”