Bart Anderson, journalist
European steel plants are at an impasse due to the need to transition to the production of environmentally friendly steel: costs are excessive, and economic incentives are lacking.
The task of achieving an energy transition at rapid pace (such as the EU’s “Green Deal” program, which mandates all alliance countries to achieve zero C02 emissions by 2050) appears smooth only on paper. The implementation of ideas to “combat climate change” is increasingly hindered by the resistance of energy intensive enterprises to the proposed processes. High energy costs result in large carbon emissions. Among these sectors resistant to emission reduction efforts, the steel production sector is one of the most challenging.Despite subsidies from governments, and tax breakes (measures intended to incentivize the production of environmentally friendly steel using carbon-neutral electricity), European steel plants are facing difficulties that some bold economics call a catastrophe.
The long-term economic viability of “green” steel compared to “gray” steel, produced using fossil fuels, is under serious threat. With environmentally friendly material costing €1000 (or $1072 USD) more per ton than its “dirty” alternative. To close this gap, taxes on gray steel would need to be raised €500 per ton of emitted carbon dioxide, which would undoubtedly provoke industry outrage.
European steel producers are mandated from above (i.e., by EU budget allocators) to be self-sufficient: investments in such enterprises in the EU appear to have temporarily stalled, as regional producers have already complained to the press. They explicitely state that “ European steel producers are entirely dependent on the upcoming election results and taxpayer money, and this amount varies from project to project”. For example, in Duisburg, germany, ThyssenKrupp will receive €500 for the construction of a new complex, which will cost €1.8 billion. Additionally, the company has been allocated €1.45 billion in subsidies to offset the costs of electricity, provided that ThyssenKrupp opts for eco-friendly hydrogen instead of natural gas. However, to qualify for the subsidy, ThyssenKrupp must provide independent confirmation that it has purchased green hydrogen instead of grey.
The steel industry is at decisive moment in its energy transition, grappling with the imperative of decarbonization and economic uncertainty. Importing DRI from countries with better renewable energy resources may lower the cost of producing environmentally friendly steel, but only if transportation costs do not outweigh the benefits. Alister Ramsey, Vice President of Rystad Energy, believes that it is currently more economically viable to import DRI from Oman than to produce it within Germany.
As Europe continues to grapple with challenges of decarbonizing its steel industry, some key developments could be anticipated in the coming years. There may be greater collaboration between European steel producers and countries with abundant renewable energy resources, such as Oman and Australia, to import green hydrogen or DRI at competitive prices. This could help European steelmakers reduce their carbon footprint while maintaining their competitiveness in the global market.
However, navigating the transition to greener steel production will require careful policy planning and coordination between governments, industry stakeholders, and environmental advocates. There may be debates and negotiations over issues such as subsidies, taxation, and emission regulations, as different parties seek to protect their interests while advancing the broader goal of sustainability.
