The push to decarbonise European steelmaking suffered a fresh blow last week as ArcelorMittal turned down more than €1bn in public subsidies to convert its German plants to run on greener hydrogen.
The company blamed the prohibitively high cost of energy, just as Swedish steel producer SSAB also admitted to delays at its flagship low-emission steel mill inside the Arctic Circle, citing issues with reliability of the power grid.
Energy costs are among the myriad challenges faced by manufacturers that have looked to “green steel” as a way of cutting their emissions, with others ranging from the billions in upfront capital required to a lack of hydrogen infrastructure and underwhelming demand for costlier low-carbon products.
“The business case for green steel is not there in Europe,” said Axel Eggert, head of steel industry body Eurofer. While some were “hoping and betting” on a bright future for the product, others were saying: “I don’t have time for this,” he added.
Indeed, some leading executives privately admit that having committed to projects, they must continue regardless of the cost.
Thyssenkrupp is sticking with its green steel plans despite the “crisis” in the industry that “makes it even more difficult to make big investment decisions”, the German steel producer’s chief transformation officer Marie Jaroni told a Financial Times event this week.
Steel is a critical industry for Europe, accounting for about 7 per cent of world production, with revenue of €191bn and employing more than 300,000 direct jobs.
But it is also one of the continent’s biggest emitters, with EU steel plants pumping out 200mn tonnes of CO₂ every year. This is bigger than the annual emissions of the Netherlands and roughly 5 per cent of the bloc’s total emissions.
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Under the EU’s emissions trading system launched 20 years ago, steel companies must buy permits to cover carbon dioxide emissions, pushing prices up and theoretically incentivising greener production.
But executives say they have been brutally undercut by lower-cost, more carbon-emitting imports, mainly from China.
The overcapacity of last year’s steel glut, prompted by Chinese overproduction and a demand slump, equated to more than four times the EU’s annual steel production, according to European Commission figures.
Markus Krebber, chief executive of the German power giant RWE, said decarbonisation had fallen down the list of priorities in favour of affordability. “In the end, we will also have to discuss how quickly the transformation can take place, because the speed largely determines the cost,” he told a conference on Monday.
This week, Europe’s 10 largest steelmakers wrote to the commission to demand it do more to protect the industry, arguing that “our climate ambitions and dozens of EU steel decarbonisation projects are at risk” without urgent action.
Decarbonising steel production involves either converting the facility to run on hydrogen or electrifying the process to remove the need for coke or coal.
About 40 per cent of EU steel is made in electric-powered furnaces, but fewer than 1 per cent is fuelled by green hydrogen, and most of those are at the pilot phase. The EU wants the steel industry to cut emissions by at least 30 per cent by 2030, compared with 2018.
Cutting energy use will be critical to achieving this. Energy accounts for about 17 per cent of the production cost of European steel, according to the commission.
But here Europe is at a disadvantage, with EU electricity prices at least double those of the US, according to Brussels, squeezing the margins of electric furnace operators.
Of the $1.6tn pipeline of announced global clean industrial projects, such as green steel and ammonia plants, only 10 per cent are in the EU, according to a report this month from the non-profit Mission Possible Partnership.
Lord Adair Turner, who chairs the Energy Transitions Commission, a global coalition of businesses, investors, NGOs and experts, warned that this could lead to Europe one day losing its capacity to produce basic types of steel to countries such as Morocco, which has the capability to generate abundant solar power.
Sweden has attracted two of the EU’s most advanced green steel projects thanks to plentiful hydropower, but both have also run into difficulties.
Stegra, an industrial start-up backed by the likes of the Agnelli, Maersk and Wallenberg families as well as Spotify chief executive Daniel Ek and Mercedes-Benz, is aiming to start production in northern Sweden towards the end of next year, two years behind schedule.
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Hybrit, a rival project backed by three state-controlled groups LKAB, SSAB and Vattenfall, has also been hit by delays.
Henrik Henriksson, Stegra chief executive, said the green steel industry needed to “change the narrative” by underlining the “geopolitical . . . stability” and security of supply that came from not needing energy or iron ore from outside the region.
Brussels plans to announce export support for steelmakers in the coming weeks, which could involve changes to the bloc’s carbon border tax. On Wednesday, it laid out state aid guidance for the bloc’s governments that should incentivise carbon-cutting investments.
Steelmakers, including ArcelorMittal, say the carbon border tax fails to protect the EU’s energy intensive industries from being undercut by dirtier external competition such as China.
Europe is not alone is struggling with the switch to green steel. Todd Tucker, director of industrial policy and trade at the Roosevelt Institute, pointed out that US producers were struggling with similar problems, despite the cheaper cost of energy.
He said governments needed to pursue an “all of the above” strategy that encompassed climate, industrial and economic policy as a way of generating “the supply and demand needed to transition a highly emitting industry like steel”.
Eggert agreed, saying that policymakers could achieve a reversal of recent decisions to delay projects, but only through “swift and effective” action.
“We can still make it to green steel in Europe,” he said.
Additional reporting by Laura Pitel in Berlin