Berlin: Steel is the backbone of German industry, but it is also a major source of greenhouse gas emissions, accounting for nearly 7% of Germany's CO2 emissions. As Germany has pledged to become carbon-neutral by 2045—five years earlier than the rest of the European Union—the steel industry must cut up to 55 million metric tons of CO2 annually, which is roughly 30% of all industrial emissions, according to the German Steel Federation lobby group.
According to Deutsche Welle, in order to make German steel production significantly more sustainable, the previous government comprising the Social Democrats, the environmentalist Greens, and the pro-business FDP had embarked on policies encouraging the use of hydrogen with substantial state subsidies. The German government supported the plan, offering £1.3 billion ($1.5 billion) in subsidies to facilitate the transition to hydrogen-based steelmaking. However, in June, ArcelorMittal announced it was halting its decarbonization plans at its sites in Bremen and Eisenhüttenstadt and would return the subsidy grant.
"There has been slower than expected progress on all aspects of the energy transition, including green hydrogen not yet being a viable fuel source and natural gas-based DRI production not being competitive as an interim solution," ArcelorMittal Europe stated. The company's Europe CEO, Geert Van Poelvoorde, added that the European steel market is under "unprecedented pressure, with weak demand and high levels of imports."
The withdrawal of ArcelorMittal from the German green steel plan highlights the risk for companies fully committing to a green transition. The £1.3 billion in German state money was primarily intended to cover the massive upfront costs of building new production facilities. However, using green hydrogen in steel production—produced by the electrolysis of water using renewable electricity mainly from wind and sun—is still more expensive than grey hydrogen based on natural gas or coking coal.
While global coal prices affect all steelmakers equally, switching to hydrogen-based production means "entering a completely different market," says Stefan Lechtenböhmer from the University of Kassel. Green hydrogen requires large amounts of electricity, meaning local power prices directly impact its cost.
Germany's National Hydrogen Strategy aims to build up 10 gigawatts (GW) of electrolyzer capacity by 2030 to produce green hydrogen. However, as of February 2024, Germany had just 0.066 GW of installed electrolyzer capacity, according to the government's Energy Transition Monitoring Report. "It's almost impossible to meet the 2030 target now," Martin Wietschel, energy expert at the Fraunhofer Institute for Systems and Innovation Research, told German ARD public television recently.
Energy experts agree that most of the hydrogen Germany needs will have to be imported. Consequently, Berlin is working to ensure that foreign production capacity and extensive transport infrastructure will be in place by 2030. At the European Union level, various hydrogen infrastructure projects are scheduled for completion by 2030, including repurposing natural gas pipelines to carry hydrogen and constructing new ones. However, progress is hampered by setbacks, such as delays and cancellations of several pipeline projects.
Despite these challenges, some German steelmakers remain committed to green steel. Companies like Thyssenkrupp and Salzgitter AG have reiterated their dedication to producing green steel in Germany, calling for faster infrastructure development and better energy price safeguards. Unlike ArcelorMittal, their operations are solely based in Germany, limiting their flexibility to relocate production.
Public procurement could support green steel production, but the government must be willing to pay higher prices for it. In the long run, steel prices in Europe are likely to rise due to a new EU emissions trading system starting in 2027, potentially making conventional steel economically unviable in Europe after 2030, as projected by a study from the Boston Consulting Group.