Europe Wants Green Steel but Can't Afford It

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The European Union has pledged billions in rearmament spending. It also just pledged billions in higher NATO spending. Steel is a crucial part of the rearmament drive. Without it, you can't build tanks and make weapons. But Europe does not just want any steel—it wants it green. And green steel is so expensive, companies are walking away from green steel projects in droves.
This week saw one of the world's largest steelmakers, ArcelorMittal, ditch its plans for the conversion of two plants in Germany to green hydrogen as an energy source because the costs were exorbitant. Importantly, the German government had promised the steelmaker $1.5 billion in subsidies for the conversion projects. Still, they turned out to be too expensive.
Germany's ThyssenKrupp, meanwhile, is sticking with its green steel plans, although it noted the 'crisis' in the industry. At the same time, ThyssenKrupp is laying off 40% of its workforce and slashing production capacity by a quarter, the Financial Times reported at the end of 2024.
'The first electric arc forges are being built in countries that can offer competitive and predictable electricity provision,' ArcelorMittal said, as quoted by Reuters. 'Electricity prices in Germany are high both by international standards and compared to neighbouring countries.'
There are two ways to decarbonize steelmaking, which is an important point on the EU's net-zero agenda. One way is hydrogen, and more specifically, green hydrogen, produced through electrolysis, enabled by wind and solar power. The other way is swapping blast furnaces fueled by coal to electric arc furnaces, fueled by, once again, wind and solar. Those electric arc forges that ArcelorMittal was referring to are being built in nuclear-heavy France. Because nuclear is cheap and reliable. Wind and solar appear to be the opposite of that.So-called green hydrogen is several times costlier than any other variety. The reason is that electrolysis is, somewhat ironically, an energy-intensive process that uses electricity generated by wind or solar installations to split water molecules. Despite its net-zero desirability, the process cannot violate the fundamental laws of physics, meaning that the end product, in terms of energy, is considerably smaller in volume than the amount of energy expended on producing it—which is why green hydrogen's cost is unlikely to come down anytime soon. It is that cost that is sapping industrial appetite for making the switch from hydrocarbons to green hydrogen.
'The business case for green steel is not there in Europe,' the head of Eurofer, the EU's steel industry association, told the Financial Times. Some still had hopes for the future, Alex Eggert noted, but others had given up with 'I don't have time for this.'
Europe itself does not really have time for this. Europe has stated quite clearly it plans to build a lot of things that require steel to replenish its depleted reserves after sending most of its inventory to Ukraine. And it needs to do that fast, based on its own claim that Russia is about to invade. But at the same time, Europe wants to do its rearmament in a green way—which is at odds with the need for speed.
The problem becomes even bigger in the context of broader steel production. Steel is not only essential for weapons production. It is essential in construction, too, and a myriad other industries that feature the construction of something or other, up to and including wind turbine installation. Europe, then, needs a lot of steel—and it wants to reduce its import dependence by producing more of it locally, but also cheaply.
Once again, the EU is trying to do two mutually exclusive things at the same time. The cost of electricity in the countries with the highest portion of wind and solar in their energy mix should proof enough that the transition is anything but cheap, and yet this fact continues to be overlooked in favor of ever more subsidy commitments and claims that ultimately this low-carbon energy will become cheap.
The steel industry clearly does not have time to wait for this to happen. The steel industry is prioritizing energy affordability over emission footprints. Because the steel industry has realized that there is no other way to survive, especially with cheap, emission-heavy imports from China flooding the market.
The EU introduced the carbon border adjustment mechanism to stem that flood. In fact, it introduced the carbon border adjustment mechanism to stem the flood of all sorts of cheap imports that undermine the competitiveness of European products—because of high energy costs. The EU is using CBAM to treat a symptom, and not the root cause of the energy cost disease. That root cause is the urgent transition.
'In the end, we will also have to discuss how quickly the transformation can take place, because the speed largely determines the cost,' RWE's Markus Krebber said this week, as quoted by the FT. It was this speed that prompted the conversion of 40% of Europe's steelmaking capacity to electric arc furnaces. It was this speed, and the lack of any desire for long-term planning that prompted talk about green hydrogen as replacement for coal. Now, the jig is up. Europe must decide between rearming and net zero.
By Irina Slav for Oilprice.com
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