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Direct reduced iron is metallic iron produced by removing chemically bound oxygen from iron ore without melting the iron. Its porous structure gives rise to the name sponge iron. Gas-based processes can use hydrogen and carbon monoxide as reducing agents; the product can subsequently be melted during steelmaking.^[ref]

For the idealized hydrogen reaction $\mathrm{F}{\mathrm{e}}_2{\mathrm{O}}_3+3{\mathrm{H}}_2\to 2Fe+3{\mathrm{H}}_2\mathrm{O}$, the removed oxygen leaves in water. This reaction changes the direct chemical product relative to a carbon-based reduction, but the full environmental comparison also depends on how the hydrogen, process heat and electricity are supplied. Solid-state reduction and final steel melting remain distinct operations.