Green steel offsets? How Stegra's new deal with Microsoft will actually work

On Wednesday, Stegra – the Swedish company building a factory in Northern Sweden to produce more climate friendly steel – revealed not one, but two separate deals with Microsoft.

The US tech giant is facing soaring demand driven by AI models and cloud services, thus scaling up to build 50–100 new data centres every year. To meet this need, it has struck a seven-year offtake agreement with Stegra. Through this deal, Microsoft commits to buying future volumes of Stegra’s low-carbon steel via its data-centre equipment suppliers.

"It’s strategically very important – our first contracts for data centres," Stegra’s head of climate, Johan Reunanen, told Impact Loop, declining to say how big the deals are.

Selling a 'green premium'

The second deal is less conventional – and, according to Stegra, unprecedented in the steel sector. Put simply, the company is decoupling the "green premium" of its steel and selling it separately to Microsoft.

Here’s how it works:

1. Stegra produces green steel at its plant in Boden, Sweden.

2. The "green value" of that steel is stripped off and sold to Microsoft as a kind of credit called a Environmental attribute certificate (EAC).

3. The physical steel left behind is then sold on the European market, but buyers are banned from marketing it as "green" – that label has already been claimed by Microsoft.

4. Microsoft, which says it cannot always source low-carbon steel in certain regions, continues buying conventional "brown" steel for some of its data centres. By using Stegra’s certificates, however, it can offset those emissions.

'Pushing out brown steel'

More than 95% of Microsoft’s emissions stem from materials such as steel and cement used in its buildings. This deal, the company argues, is one way of cutting that footprint.

“Microsoft sees that we need a green steel market globally. If green steel were available everywhere, they’d buy it. Since it isn’t, they want to help build that market," Reunanen said.

"The climate benefit comes from us pushing brown steel off the market. Microsoft gets to claim the green attributes, but those attributes are always tied to actual production."

No money has yet changed hands. Transactions will only start once Stegra begins production, slated for late 2026.

Microsoft is already an investor in Stegra – a stake that Impact Loop first revealed back in December 2023.