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Europe’s biggest steel producer has abandoned plans to convert two German steel plants to green production and warned that it could also close a flagship biofuels plant in Belgium in a blow to Europe’s plans to decarbonise its heavy industry.
ArcelorMittal said it would turn down €1.3bn in public subsidies aimed at supporting it in adapting facilities in Bremen and Eisenhüttenstadt to use hydrogen rather than coal in its steel furnaces.
It has also warned that it could shut its flagship green ethanol plant in Belgium because of restrictive EU regulation defining biofuels and emissions reductions that means that it would have to sell its output at a loss.
Germany had hoped that subsidies would encourage ArcelorMittal to convert its existing steel plants to use hydrogen to fire its furnaces as part of ambitious plans to decarbonise its industry.
However ArcelorMittal said it was “just not competitive” to go ahead with the plants as energy costs in Germany were too high and there was too much uncertainty about its future energy mix.
Geert van Poelvoorde, chief executive of ArcelorMittal Europe, said: “Even with the financial support, the business case for moving ahead with this transformation is not strong enough, which shows the scale of the challenge.”
High energy costs have been one of the biggest complaints of Germany’s struggling manufacturers, which have also been facing tough competition from China and, more recently, suffered the blow of hefty tariffs imposed by US President Donald Trump.
Along with the carmakers that form the backbone of the export-driven economy, the steel industry has been among the sectors suffering the most pain after the country was forced to rapidly wean itself off cheap Russian gas in the wake of the full-scale invasion of Ukraine in 2022. Steel giant Thyssenkrupp said in November that it planned to slash its steel workforce by 40 per cent.
New German Chancellor Friedrich Merz has pledged to boost the country’s competitiveness after years of stagnant growth and fears of widescale deindustrialisation by bringing down energy costs for businesses as well as slashing red tape and pumping money into infrastructure.
But Germany, which is Europe’s largest emitter of greenhouse gases, also faces the challenge of meeting a pledge to become carbon neutral by 2045.
The German economy ministry said it regretted ArcelorMittal’s decision but that it was an isolated case that also related to the company’s own commercial situation. “The important thing here is that no funds had yet been transferred,” said a spokesperson. “And so no repayment is required.”
The German government has approved subsidies of about €7bn for steelmaking projects that support its climate goals, including the sum for the abandoned ArcelorMittal projects. The ministry said three other projects remained under way.
In Brussels, the European Commission has also made industrial decarbonisation a priority as it seeks to simultaneously pursue ambitious climate targets and prevent a widescale cut in industrial production.
It has set a bloc-wide target of 10 per cent of renewable hydrogen in its energy mix by 2050, but many fear this is unrealistic.
Frederik Van der Velde, chief executive of ArcelorMittal Belgium, told the Financial Times that there had been excessive focus on hydrogen in Europe, which would take “many more years to become economically viable”.
He also said the company’s Ghent ethanol production was at risk because of European legislation that did not allow production to qualify as “green” and so prevented the steelmaker from charging a premium for the product to cover the cost.
The project, announced in 2017, is predicated on new technology that makes ethanol out of waste carbon dioxide from the steelmaking process. The plant, intended as a pilot for others across the group, is meant to produce 60,000 to 65,000 tonnes of ethanol per year.
“It’s probably the biggest first facility that was made in Europe to decarbonise,” he said. “And in the end, in the worst scenario, we will have to stop because it’s not possible to survive given the new context that was created by Europe after we had taken the decision [to go ahead],” he said.