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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.

An electric arc furnace supplies heat through an electric arc between electrodes and the charge or molten bath. In steelmaking, it melts and refines material that can include recycled steel and direct reduced iron. It provides a different heating route from the internal oxidation heat central to basic oxygen steelmaking.^[ref]

The electrical input does not by itself determine the product's chemical composition. The charge, additives, slag and refining reactions must also be controlled. Similarly, the route's carbon dioxide emissions depend on how its electricity and metallic feed were produced; melting scrap and reducing fresh iron ore are different system boundaries.

Steelmaking produces steel by controlling the carbon content, other alloying elements and unwanted constituents of iron. A blast furnace first produces carbon-rich pig iron; a basic oxygen furnace then refines the molten material by oxidation and composition adjustment. An electric arc furnace instead supplies heat electrically to melt a charge that can include recycled steel, direct reduced iron and pig iron.^[ref]

The distinction between iron extraction and steelmaking matters: converting an iron oxide to metallic iron and adjusting an existing iron-based alloy to the required composition are different tasks. The Bessemer process is an important historical example of refining pig iron by an air blast; modern basic oxygen steelmaking uses an oxygen supply rather than ordinary air.