Green Steel in Europe: Ambitions Collide with Regulatory Chaos and Market Realities

Europe’s push for green steel—a "linchpin" of its decarbonization strategy—is hitting a wall. Flagship projects by ArcelorMittal and Thyssenkrupp, despite substantial subsidies, are stalled or abandoned. Even Sweden, often touted as a model for green steel, faces mounting challenges with its H2 Green Steel and HYBRIT initiatives. The European Union’s vision for a carbon-neutral steel industry appears increasingly disconnected from economic, regulatory, and global realities.

ArcelorMittal: Subsidies Without Certainty

ArcelorMittal, Europe’s steel giant, has put two major green steel projects on hold, laying bare the gaps between ambition and practicality.

Dunkirk, France:

The €1.7 billion plan to replace two blast furnaces with hydrogen-powered direct reduced iron (DRI) facilities received €850 million in subsidies from the French government. The plant was projected to cut emissions by 8 million tons annually. However, ArcelorMittal has indefinitely delayed the project, citing regulatory uncertainties, including the EU’s evolving Carbon Border Adjustment Mechanism (CBAM).

While CBAM is intended to protect European industries from cheaper, carbon-intensive imports, its implementation remains unclear. Without stable policy frameworks, companies hesitate to invest billions, highlighting how the EU’s regulatory ambitions are undermining the very transition they aim to promote.

Gijón, Spain:

In Spain, ArcelorMittal halted its €1 billion DRI plant, which had secured €450 million in government subsidies. The company cited a lack of demand for green steel and overcapacity in global markets, especially driven by China, which floods the market with cheap, high-emission steel.

The Gijón project reflects a fundamental flaw: subsidies alone are insufficient if the economics of green steel production remain uncompetitive. High costs for hydrogen, energy, and production create a scenario where green steel cannot match the price of traditional steel, leaving investments stranded.

Thyssenkrupp: Energy Costs Erode Feasibility

Thyssenkrupp’s €3 billion plan for a green steel DRI facility in Duisburg, Germany, is similarly at risk. Supported by €700 million in subsidies, the project was meant to produce low-carbon steel using hydrogen.

However, the company is reassessing the project, citing skyrocketing energy costs, high hydrogen prices, and logistical hurdles. The energy crisis exacerbated by Europe’s dependence on imports has made green steel uneconomical, even with significant government backing. If the project is scrapped, Thyssenkrupp may need to repay €500 million in subsidies—a stark reminder of how quickly Europe’s green ambitions can unravel in the face of financial realities.

Sweden: A Fraying Success Story

For years, Sweden has been showcased as the beacon of green steel innovation, with initiatives like H2 Green Steel and HYBRIT leading the charge. But recent developments suggest even these pioneering projects are struggling to maintain momentum.

H2 Green Steel

Located in Boden, Sweden, the H2 Green Steel project aims to produce 5 million tons of hydrogen-based steel annually by 2025. However, construction delays, escalating costs, and difficulties in securing sufficient renewable energy have cast doubt on its timeline and profitability.

The project relies heavily on Sweden’s renewable energy resources, but competition for green electricity from other sectors has driven prices up. Critics argue that scaling hydrogen-based steel production without addressing energy availability risks turning these projects into high-cost experiments.

HYBRIT

The HYBRIT initiative, a joint venture between SSAB, LKAB, and Vattenfall, was one of the first to showcase the feasibility of fossil-free steel using green hydrogen. While a pilot plant has been operational since 2020, scaling up to commercial production has proven far more complex.

HYBRIT faces challenges in securing affordable hydrogen and ensuring steady production costs. Additionally, the global steel market remains price-sensitive, with low-carbon steel struggling to compete against cheaper, emissions-heavy alternatives, particularly from China.

Sweden’s struggles highlight that even with abundant renewable resources and strong policy frameworks, green steel remains a costly and complex endeavor.

Structural Issues Holding Back Green Steel

Across Europe, the challenges facing green steel projects share common themes:

1. Energy Costs and Supply: Green steel depends on affordable, abundant hydrogen and renewable energy. Europe’s fragmented energy policies and reliance on expensive imports make these inputs prohibitively costly.

2. Weak Market Demand: Green steel carries a price premium that the current market is unwilling or unable to bear. Without mandatory low-carbon procurement policies or stronger carbon pricing mechanisms, demand will remain insufficient.

3. Regulatory Uncertainty: The EU’s CBAM and emissions trading system (ETS) are plagued by delays and ambiguities, creating an unstable investment climate for companies planning capital-intensive projects.

4. Global Overcapacity: China’s steel industry, which accounts for over half of global production, continues to flood markets with cheap, high-emission steel. This distorts global pricing and undercuts the economic case for green steel in Europe.

A Path Forward or a Roadblock?

Europe’s green steel agenda is at risk of collapsing under its own weight. The EU has prioritized decarbonization targets but has failed to address the structural and economic realities facing its steel industry.

? Policy Reform: The EU must accelerate CBAM implementation and strengthen its emissions trading system to provide a clear and stable regulatory framework.

? Demand Creation: Governments must drive demand for green steel through public procurement mandates and incentives for private buyers willing to pay a premium for low-carbon materials.

? Energy Infrastructure: Europe needs massive investment in renewable energy and hydrogen infrastructure to reduce input costs and ensure supply reliability.

? Global Cooperation: Addressing global overcapacity requires stronger trade policies, including stricter tariffs on carbon-intensive imports, and international agreements to level the playing field.

Sweden’s Cautionary Tale

Even Sweden, with its abundant renewable resources and advanced green steel projects, illustrates the fragility of the transition. Delays and cost overruns in Boden and HYBRIT underscore the scale of the challenge. If these flagship projects falter, it will send a chilling signal to the rest of Europe’s green steel industry.

Europe’s decarbonization goals are laudable, but without coherent policies and a realistic assessment of market dynamics, green steel risks becoming another well-intentioned failure. The industry needs not just ambition but actionable solutions to bridge the gap between vision and viability.

Luigi Villani is the owner of GTG Consulting and specializes in analyzing industrial trends in materials science. For more insights, visit www.gtgcons.com.