Over the last several weeks, major steelmakers have telegraphed a global pullback from the burgeoning "green steel" industry – until the last several months, a promising effort to produce steel that is lower-emitting and, eventually, cheaper. Recent developments include a major German producer declining Berlin's offer of €1.3 billion in subsidies and halting development of new green steel projects, and signals from US producer Cleveland-Cliffs that a planned project would not go forward. These setbacks come amid broader headwinds for green industries that are coping with a retreat from renewable and ESG efforts in both the US and Europe, to varying degrees, and heightened economic risks stemming from an unpredictable tariff war. The faltering trajectory of green steel – simply put, lower-emissions production of steel, typically utilizing green hydrogen – comes amid regulatory uncertainty for green industries throughout the globe, as well as the mounting unlikelihood of meeting Paris decarbonization goals.
How to "Green" Steel
Essentially, green steel is the production of steel without the use of fossil fuels. In both of the predominant systems used to produce fuel – blast furnace, which uses coal byproducts as a fuel and reagent, and the more modern scrap electric arc furnace - iron ore is superheated, sometimes with other materials, to remove impurities and create a stronger finished product. The process is extremely emissions-intensive; steel is the highest-emitting heavy industry (followed by cement) and accounts for 8% of all global emissions. To meet Paris Climate Accord targets, the International Energy Agency (IEA) estimates that emissions from steel production must be reduced by 50% by 2050 – a goal that is only getting more difficult as global demand grows, albeit unevenly – US demand is set to grow 40% by 2050, for example, while projected declines in Chinese demand is expected to rock the industry.
There are two main types of green steel, corresponding to the two existing methods of production. Most green steel is made by replacing coal byproducts in the blast furnace process (called "coke" or "coking coal") with hydrogen, an alternative fuel source produced via a number of processes. Hydrogen fuel itself has various tiers of climate friendliness – "green" hydrogen, produced by using clean energy from surplus renewable energy sources, such as solar or wind power, to split water into hydrogen and oxygen atoms through a process called electrolysis, is the only climate neutral process, and currently makes up less than 2% of global hydrogen production. Green steel projects typically aim to use green hydrogen, although steel produced using "grey," "turquoise" or "blue" hydrogen (produced via gasification with methane or coal, via pyrolysis with methane, or via gasification with methane or coal and carbon capture, respectively) are sometimes also considered green. Green steel via the electric arc furnace process is less often discussed, given that electrified production processes using renewable electricity sources is a fairly straightforward path.
Global Headwinds for the Burgeoning Industry
The summer has brought several sobering updates for the green steel industry: in early August, a major German steelmaker declined over €1 billion in subsidies from Berlin and fully cancelled its plans to produce green steel. In early June, major US producer Cleveland-Cliffs scrapped a green steel plant in Middletown, Ohio that had previously secured $500 million in government funding.
The retreat from green steel comes amid well-covered global headwinds, including an American heel-turn away from renewable efforts and broader economic upheaval as US tariffs precipitate bilateral trade wars. In May, Washington announced its intention to claw back $3.7 billion in awards from the Office of Clean Energy Demonstrations, $1.5 billion of which were directly intended for clean steel projects, with some other grants going to hydrogen plans that would have supplied green steel plants.
President Trump's efforts to recenter coal in US heavy industry has also hampered the progress of American green steel, which seeks to replace coking coal with hydrogen. Several April executive orders were intended to boost production of "beautiful, clean" American coal, lifting environmental regulations and providing targeted support – further squeezing the economic feasibility of switching from coal to hydrogen for American producers. Further obstacles may emerge from Washington's so-called "golden share" in US Steel, negotiated as part of the Trump administration's approval of the company's acquisition by Japan-based Nippon Steel. The setup, which essentially gives the US government consent rights over a variety of strategic decisions, could grant the Trump administration new powers to shape the direction of the domestic steel industry from the helm of one of the country's largest producers.
Despite more consistent structural support in other major steel markets, like China, global economic instability has put pricing and demand in flux. President Trump's 50% Section 232 tariffs on imported steel places new pressures on the global steel industry, creating thinner profit margins for American consumers of steel, like the construction industry, while redirecting trade flows and creating surpluses and price dips elsewhere. The influx of lower-cost Chinese steel into Europe and Canada, which has imposed countermeasures against American goods, limits opportunities for domestic producers with green steel ambitions. At the same time, India has implemented stricter import licensing requirements to limit Chinese imports, aiming to manage potential oversupply and support its growing domestic steel sector. In the EU, high electricity costs, compounded by low-cost Chinese steel and bloc-wide emissions targets, have led major producers to publicly ask Brussels to do more to support the green steel industry, lest it be entirely unable to compete.
Protectionism is on the rise elsewhere, as well. In the last several months, Japan and South Korea have intensified anti-dumping measures against China in a bid to protect domestic producers, which threatens a critical export corridor for Beijing and increases costs on downstream industries in South Korea and Japan. The impact on pricing has been immediate, in addition to creating significant uncertainty as to the cost, and origin, of future supply for steel-consuming industries – further reducing incentives to move ahead with green steel, which is more expensive, less plentiful, and has a longer road to feasibility.
That said, some producers are sticking with their green steel gamble: in Germany, Thyssenkrupp has promised to move ahead with a €3 billion green steel plant, and Salzgitter has broken ground on a 100MW green hydrogen plant, which will supply 9,000 tons of H2 a year for its low-carbon steel. Canada-based Algoma in July announced that its first electric arc furnace was up and running. Two of the EU's most advanced green steel projects are making progress in Sweden (where plentiful hydropower will fuel electric arc furnace), albeit with delays.
The Risks
The global retreat from green steel poses upside and downside risks for the steel industry, and the global economy more broadly. While the abandonment of green steel projects represents a loss for companies invested in the renewable technology, more traditional producers – especially in the US, where protectionist policies will ease the use of low-cost coal, and in China, where production remains very cost effective despite new trade barriers – stand to benefit. On the other hand, those, like Thyssenkrup and Algoma, that are forging ahead with green steel production could end up on top if sentiments and regulations reconsolidate around low-carbon solutions as the global political and economic landscape changes. For consumers in jurisdictions where the use of green steel is incentivized or required, like the EU, reduced access to green steel as production declines will complicate supply and drive up prices, harming competitiveness.
Industry decisions to cancel or postpone current green steel projects risks new investments to extend the lifespan of high-emission technologies, further slowing transition opportunities. Cleveland-Cliffs, for example, is expected to use $200 of the $500 million earmarked for green steel to reline its coal-powered blast furnace, a technology that accounts for 70% of global steel CO2 emissions. Relined blast furnaces are typically operable for another 20 years, reducing incentives for the producer – or others who choose to make the safer, lower-cost investment in updated blast furnaces – to transition to lower-emissions manufacturing. Efforts to reduce emissions, too, will be harmed by the slowdown of green steel; the UN's IEA estimates that global steel emissions must fall by 50% by 2050 to achieve Paris Climate Accords targets and avoid worst-case climate outcomes – a goal that is appearing increasingly unreachable.
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