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How Germany’s steelmakers plan to go green

In the depths below every iron-producing blast furnace lurks a salamander — an angry black and yellow mix of boiling iron, slag and coke, so named owing to the ancient belief that the amphibians were born in fires.

“It’s the heart,” explains René Rockstroh, operations director of the blast furnaces at German steelmaker Salzgitter, as he wanders around an eerily quiet oven that would normally be filled with liquid iron at 1,500C.

This will probably be the last time that Rockstroh, a three-decade veteran of the company, will oversee a full furnace refurbishment. By 2033, the steelmaker plans to have shut down each of its three units for good.

The transition towards green steel will overhaul how the main raw material for everything from washing machines and cars to skyscrapers is made, gradually abandoning a coal-based process whose basic mechanisms have changed little since the 1850s.

Global steel production today accounts for at least 7 per cent of global greenhouse gas emissions. In Germany, it emits more than a quarter of the country’s total industrial carbon dioxide.

The cost of that pollution is set to increase in coming years, because the price of carbon credits that energy-intensive sectors buy to offset their emissions is widely expected to rise.

“Society has decided, rightly so, to go carbon neutral,” says Gunnar Groebler, Salzgitter’s chief executive. “If society wants a carbon neutral world, then we as a CO₂-intensive industry will have to follow.”

Groebler is overseeing one of the industry’s most ambitious plans and Salzgitter — which carries the name of the Lower Saxony city on whose outskirts its integrated steelworks is based — will by the end of 2026 be one of Europe’s first producers of low-carbon steel.

Rene Rockstroh, operations director, is overseeing the refurbishment of one of Salzgitter’s three blast furnaces © Julian Stratenschulte/picture-alliance/dpa/AP

Europe’s abundance of coal has so far discouraged its steel industry from transitioning to electric arc furnaces, a method that makes up around 70 per cent of US steel output and mostly uses scrap metal rather than iron ore. Now Salzgitter, which produces a small proportion of steel through recycling, and its German rivals are betting on an existing technology known as direct reduction allied to sustainably-produced hydrogen.

Salzgitter has said that once its revamped steel plant is run entirely on green hydrogen, its annual CO₂ emissions, which currently stand at 8mn tonnes, will drop by a staggering 95 per cent.

German authorities have pledged more than €6bn in subsidies to steelmakers in a bid to shore up Europe’s largest industrial base, which is already struggling with high energy prices and falling global demand for its cars and machinery.

The full implementation of the EU’s carbon border adjustment mechanism, a tariff regime intended to give Europe’s basic industries protection from cheaper, dirtier imports while they decarbonise their own operations, has opened a window of opportunity for such heavy investment.

But many in the industry have significant reservations about the ambitious transition to green steel. Bernhard Osburg, chief executive of Germany’s largest steelmaker Thyssenkrupp Steel, says energy companies will need certainty about future demand for green hydrogen in order to draw up production plans. Unless they can work out how to produce it cheaply and at scale — an issue that has yet to be addressed — he predicts “this transformation will fail”.


Traditional integrated steelworks convert ore to pig iron in a blast furnace, of which there are currently about 1,400 in the world, then removing the excess carbon and other impurities to produce steel.

The key chemical reaction in the furnace is catalysed by coking coal, which burns and combines with the oxygen in the iron ore to form CO₂ — isolating the iron, but releasing the greenhouse gas into the atmosphere.

Direct reduction plants, which emit only water steam when run on hydrogen, create an intermediate product known as iron sponge that — at least in Salzgitter’s case — will then be turned into crude steel using an electrically-powered arc furnace.

Direct reduction plants, which can use natural gas, hydrogen or a mix of both to strip the oxygen from the iron ore, have been around for decades but were largely dismissed in Europe due to relatively high gas prices and scarcity of hydrogen compared to abundant coal.

“From a cost point of view, it could not compete with a blast furnace [in Europe],” says Thomas Hansmann, chief technical officer for the Düsseldorf-based SMS Group, which builds plants for the metal industry.

The technology was partly developed in Germany but “found its niche in places where you don’t have coal but very cheap natural gas, such as in the Middle East”, Hansmann explains.

But now, with the cost of carbon taxes and emission permits set to rise as the EU scrambles to ditch its reliance on fossil fuels, the technology is starting to make inroads in Europe. Almost 50 low-carbon steel projects are planned to be up and running by 2030 compared to just two in the US, according to the lobby group Leadership Group for Industry Transition.

But the point at which steelmakers will actually be able to run their new direct reduction plants on green hydrogen — made using renewable energy rather than more abundantly available blue and grey hydrogens that come from natural gas — remains a big question mark.

Thyssenkrupp Steel, which operates two of Europe’s largest blast furnaces, has been less bullish than Salzgitter when it comes to the industry’s green future and has not yet committed to a date at which it will close its coke-based plants.

In December, the company sent out a supply tender for up to 143,000 tonnes of low-carbon hydrogen to be delivered from 2028 for use at the direct reduction plant that it is currently building at its main site in Duisburg.

This volume alone represents almost 15 per cent of all the hydrogen that Germany has said it aims to produce domestically by 2030, according to Osburg. Generating the power needed for this amount of hydrogen would require 500 wind turbines, highlighting the challenges ahead.

Hansmann of SMS, which is building Thyssenkrupp’s new direct reduction plant, also questions whether Europe will be able to produce enough green hydrogen, which requires ample sources of renewable energy such as solar or wind.

“Hydrogen will be produced where renewables are available at low cost,” he says, adding that shipping the stuff from sunnier countries to Europe or converting it to ammonia and then back again would be costly both from a price and energy perspective.

“It is not clear how it will work . . . the main problem is that the availability of hydrogen is not there,” Hansmann says, adding that SMS, Thyssenkrupp and several other traditional players are investing in companies that are trying to develop hydrogen technology.

In 2022, barely 2 per cent of Europe’s energy consumption was satisfied by hydrogen, according to the EU — and 96 per cent of that was produced using natural gas, releasing significant amounts of CO₂. The bloc has laid out a plan to produce 10mn tonnes of green hydrogen and to import a further 10mn by 2030.

Marie-Theres von Schickfus, deputy director of energy and climate issues at the Munich-based Ifo Institute, points out that according to Berlin’s energy plans, 7 per cent of Germany’s current electricity needs will by 2030 have to be devoted to producing green hydrogen. “That’s a lot,” she says.

Although solar panel systems and wind turbines have expanded significantly in recent years, energy market intelligence firm Cornwall Insight in January warned that Germany was expected to miss its goal to phase out coal by 2030 by eight years. “Germany is certainly going green, but the question is how fast,” the report states.

While Salzgitter is committed to closing all its blast furnaces by 2033, there is some doubt about when it will be able to run its direct reduction plants entirely on hydrogen © Carsten Brand/Salzgitter AG

Osburg says the reason Berlin is handing so much money to steelmakers — and why Brussels, usually wary of Europe’s largest economy subsidising its industry, has given its stamp of approval — is that “it’s a ticket to help scale the German and European hydrogen infrastructure”. Thyssenkrupp Steel alone is set to receive €2bn from federal and local authorities for its green steel plans.

Even Groebler says he is not sure if Salzgitter will be able to run its plants entirely on hydrogen by 2033, when the company will have closed all of its blast furnaces. “I think the likelihood is north of 50 per cent,” he says. But with the cost of carbon emission permits set to rise alongside the price of fossil fuel energy there is simply “no other option for the steel industry in Germany” than to decarbonise.


The debate over how to reduce emissions from steel plants reflects wider questions about decarbonising Germany’s manufacturing industry, which accounts for a fifth of the country’s overall economic output — almost double the proportion of countries such as the US, France and the UK.

Manufacturers, ranging from giant corporations to smaller companies in the country’s famed Mittelstand, have already been hit by rising inflation and a rapid increase in interest rates. But it is the loss of relatively cheap gas from Russia that has plunged the country into a crisis that last year made it the world’s worst-performing major economy.

Even after the government announced the accelerated closure of the country’s nuclear power plants in 2011 and Russia invaded Crimea in 2014, German industry failed to prepare for a future with alternative power sources.

Thyssenkrupp’s coke-based plant in Duisburg. Bernhard Osburg, chief executive, says the steel industry is fortunate to have a green alternative to make the same product © Krisztian Bocsi/Bloomberg

Von Schickfus of the Ifo Institute says that while discussions about decarbonising heavy industry such as steel were “not at all on the table” a decade ago, Russia’s invasion of the rest of Ukraine in 2022 has forced existential questions.

“Would you rather let go of energy-intensive industries in Germany, or would you try to decarbonise them?” she asks. It is a question very much on the minds of policymakers and investors alike.

“It’s a lot of luck [ . . .] that we have technologies that are able to produce the same outcome, the same steel,” says Thyssenkrupp’s Osburg. “Many industries such as cement, concrete and glass do not have alternative technologies that allow them to produce the same goods in a more carbon friendly way,” he explains, adding that these industries have been betting on carbon capture technologies.

Some are contemplating producing more abroad. According to a closely watched annual survey by the German Chamber of Commerce and Industry, nearly a third of German industrial companies last year had plans to boost production outside Germany amid growing concern over the country’s future without Russian gas. The figure compared to 16 per cent the previous year.

Speaking at a steel plant visit last year, German economy minister Robert Habeck stressed how supporting steel companies was about much more than the industry itself.

“If steel production were to disappear from here, [Germany] would not only lose steel, but also the automotive industry and the supplier industry,” he said, expressing a widespread fear of creeping deindustrialisation.

Salzgitter says its annual CO₂ emissions, which currently stand at 8mn tonnes, will drop by 95 per cent after its transition from blast furnaces to a revamped steel plant run entirely on green hydrogen © Carsten Brand/Salzgitter AG

Russia’s invasion of Ukraine is not the only factor pushing the cost of gas and other fossil fuels higher. The EU’s overhaul of carbon pricing is set to make greenhouse-gas emitting production increasingly expensive.

Currently, Thyssenkrupp does not pay for around 80 per cent of the carbon permits that it needs each year to cover the emissions from producing 11mn tonnes of steel, says Osburg.

But that will change gradually from 2026 to 2034, when the provision of free carbon credits to European companies will be phased out. Once they are obliged to pay for emissions permits, steelmakers’ cost per metric tonne produced using blast furnaces will jump significantly. Companies such as Thyssenkrupp expect that it will eventually be cheaper to produce green steel.


The push to reduce carbon emissions from Europe’s steelmakers brings with it huge costs, substantial risks and comes with major social ramifications given that the industry employs 90,000 people in Germany alone.

“If one would say: ‘I’d like to turn the world into a better one and do it at my own cost’ the simple truth is you would have been way off [in terms of production costs] compared to any competition — that is why nobody has done this earlier,” says Osburg.

The carbon border adjustment mechanism is intended to reduce this competitive disadvantage. Companies looking to export goods into Europe will have to pay a fine if those products are made from emissions-intensive steel.

That means decarbonisation is “not [just] a European topic”, says SMS Group’s Hansmann. “Once production of green steel becomes reality, those who are not following will have a problem.”

In China, which produces more than half of the world’s steel, direct reduction plants are also being built as Beijing tries to reduce the carbon emissions of an industry that contributes 17 per cent of the country’s total. Hansmann warns that China’s state-directed producers “are much faster than what we want to believe” in adopting new technology.

Salzgitter chief executive Gunnar Groebler says that being a first mover in green steel puts the company ‘in a position to design the market to some extent’ © Krisztian Bocsi/Bloomberg

However, Groebler sees the transition as an opportunity. “Being a first mover puts you in a position to design the market to some extent,” he says. While the EU has not yet formulated an exact definition of green steel, he believes that being among the world’s first commercial producers of it will allow Salzgitter to reap a “green premium” for years before international rivals catch up.

Several European companies such as Mercedes-Benz and BMW have already pledged to introduce green steel into their cars in the near future in order to lower their own carbon footprint.

Groebler and other steel executives feel the world is watching to see how Germany’s green steel projects evolve. “If we prove that we can actually do it, then that’s a clear signal to the world that it can be done,” he says.

“But then also, if we don’t succeed, then what will that actually mean?”

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