There was pride and optimism in Dennis Grimm’s voice as the head of Thyssenkrupp’s steel division officially inaugurated the company’s new production facilities in Duisburg in early July. In the presence of North Rhine-Westphalia’s Economy Minister, Mona Neubaur, the first slab was rolled in what Grimm calls „the most advanced production network in Europe’s steel industry.“ Thyssenkrupp Steel has invested 800 million euros in a new continuous casting line, a hot strip mill and fully automated slab logistics – one of the largest investments in the company’s history. „This is a strong signal for steel and the Duisburg location – the future is being created here" said Grimm.

However the acute challenges facing the company – and the broader industry – are far from resolved. Ever since ArcelorMittal announced it would abandon plans for a direct-reduced iron (DRI) plant in Bremen and not use 1.3 billion euros in approved government funding, the future of Germany’s energy- and emissions-intensive steel sector has once again come into sharp focus. The Federal Ministry for Economic Affairs and Energy was quick to downplay the move, stressing that Salzgitter, Thyssenkrupp, and Stahl-Holding-Saar were continuing with their own DRI plans.

Still, the signal is hard to ignore: the world’s second-largest steelmaker – active across the globe – has effectively shown Germany the red card. Crucially, ArcelorMittal had not yet begun construction, meaning no subsidies had yet been paid. For the three German players, by contrast, halting their projects is not an option: it would mean repaying subsidies and facing steep penalties from equipment suppliers.

„We are convinced that green steel will be economically viable“, says Salzgitter CEO Gunnar Groebler. Among the three, his company is furthest along in building its DRI plant, where oxygen is removed from iron ore using natural gas or hydrogen. The plant is scheduled to go online in the first half of 2027 – but green hydrogen won’t be available at that point. In Salzgitter, the core hydrogen network is not expected to arrive until 2029 or 2030.

Even so, switching from blast furnace to DRI would already reduce CO₂ emissions significantly, notes Groebler – by 60%. The DRI process yields sponge iron, which is then processed into green steel. Initially, green steel will be more expensive, he concedes – but over time, it will become cheaper than steel made via the traditional blast furnace route.

One reason is the phasing-out of free emissions allowances under the EU’s Emissions Trading System. From 2026 onward, Europe’s steelmakers will see these allowances reduced each year, with the free allocation ending altogether by 2034. As the total number of available certificates declines, carbon prices are expected to rise sharply. According to Boston Consulting Group (BCG), the cost of one EU allowance will climb to 195 euros per ton of CO₂ by 2040—up from about 70 euros today. The firm expects this to drive up production costs by 38% by 2030 alone.

Even so, Nicole Voigt, who leads BCG’s global metals practice, warns against slowing down decarbonisation: „We cannot afford to lose our lead over the rest of the world“, she states. Europe’s steel sector today stands out with highly specialised grades. But within five years, others may catch up. „That’s why we need to give steel an additional attribute – and that is green.“ The fact that blast furnace steel will no longer be competitive by 2034 is not in itself proof that green steel made in Germany will succeed internationally, she adds.

„There is no business case for green steel in Europe“, says Axel Eggert, director general of the European Steel Association (Eurofer), in a sobering assessment. But Voigt insists Europe cannot afford to let the industry collapse: „We need a domestic steel sector – otherwise, deindustrialisation is inevitable.", she says. The warning is not unfounded: two-thirds of Germany’s industrial production relies heavily on steel.

Even today, European steelmakers face intense global competition – driven by high energy costs, weak demand and global overcapacity. Groebler, who also chairs the German Steel Federation, outlines what’s needed to make green steel viable: lower electricity prices, the creation of lead markets to spur demand, access to competitively priced green hydrogen at scale, and protection from cheap imports. In short, sustained state support will be essential.

„We have to accept that subsidies are needed to make the green transition work“, adds Voigt. Yet even if steel remains at the core of many industrial supply chains, Germany may need to let go of the idea of integrated steelworks. „There will be a decoupling of iron and steel production“, predicts Voigt. In Central Europe, hydrogen costs – on a 24/7 basis – are expected to remain nearly twice as high as in the Middle East. Given that hydrogen accounts for 60% to 70% of sponge iron production costs, producing it competitively in Europe will be difficult. Most of the sponge iron needed for green steel will likely have to be imported.

That, however, raises another question: how quickly – and at what scale – can global capacity be built up? According to Voigt, the necessary volumes are not currently available on world markets. And the gap is likely to widen: „By the 2030s, demand for green steel will outstrip supply. If the climate targets of downstream industries are to be taken seriously, the price of green steel must rise“, she predicts – offering the steel sector a glimmer of hope.

For now, there is little steel boss Grimm can do but hope the prophecy proves true. Yet with its new downstream facilities, Duisburg is well equipped – whether or not the DRI plant ultimately materialises.