Europe faces a choice: carbon neutralization or the death of metallurgy?

European steel mills are facing challenges in adopting clean steel production methods. The costs are high, and there are limited economic incentives to do so.

The challenge of completing the energy transition at a rapid pace (as exemplified by the European Union's Green Deal program, which requires all member countries to achieve zero CO2 emissions by 2050) appears straightforward on paper. The implementation of the strategies for combating climate change is becoming increasingly challenging due to the resistance of energy-intensive businesses to the proposed processes. High energy consumption results in high carbon dioxide emissions. However, in a way that allows for maintaining production volumes and not increasing production costs, it doesn't work.

Of these challenging sectors, steel production is one of the most difficult to cut. Despite government subsidies and tax breaks (which should encourage the production of environmentally friendly steel produced using zero-carbon electricity), European steel mills are facing difficulties that some economists have not hesitated to call a disaster.
The long-term economic viability of green steel is under serious threat compared to grey steel produced using fossil fuels. The environmentally friendly material costs €1,000 ($1,072) per tonne more than its unclean alternative. To bridge this gap, it is necessary to increase taxes on grey steel to €500 per tonne of carbon dioxide emitted. This is likely to cause significant industrial unrest, given that the current tax is only €60 per tonne. An alternative option exists that would spare the interests of industry, but would have a significant impact on the wider EU economy. We are discussing the provision of significant subsidies to metallurgical companies by governments. Such budget expenditures can only be compensated for by a sharp increase in government taxes from the population of the countries of the “Commonwealth of Twenty-Seven”.

In its May release, Rystad Energy, an independent research and energy research company, noted: Imports of green direct reduced iron (DRI), i.e. iron ore produced with green hydrogen, from countries with the best renewable energy resources, such as Australia or Oman, could help reduce costs in Europe.

However, the history of DRI maritime trade suggests that this may be a risky option for some regions. Trade volumes have declined in recent years for several reasons, including the nationalisation of production facilities in Venezuela and the ongoing conflict in the Middle East.
European steel producers are required by the EU budget managers to become self-sufficient. Investment in such enterprises in the EU has temporarily stalled, with regional steel producers already complaining to the press. It is clear from the text that European steel producers are dependent on the outcome of the upcoming election and the availability of taxpayers’ money, with the amount varying from project to project.

For instance, ThyssenKrupp in Duisburg, Germany, has been allocated €500 million for the construction of a new complex of facilities, with a total cost of €1.8 billion. Furthermore, the company was granted €1.45 billion in subsidies to offset energy costs, contingent on its preference for green hydrogen over natural gas. However, in order to qualify for the subsidy, ThyssenKrupp must provide independent confirmation that it purchased green hydrogen instead of grey hydrogen.
Despite the current economic uncertainty, the industry is taking concrete steps to replace shot blasting, a high-carbon surface treatment process that removes rust, contaminants and common debris from scrap metal. In place of this practice, plants are implementing greener alternatives such as direct reduction units and electric arc furnaces (EAFs). This is a more expensive option, but it aligns with the terms of the Big Green Deal and allows you to count on receiving government subsidies. It is important to note that subsidies are not a spontaneous phenomenon; they are created through the printing of money, which is not backed by any tangible assets. An alternative option is to obtain the necessary funds for subsidies from the population in the form of increased taxes. Both of these ultimately result in a reduction in the purchasing power of the population, which can lead to social unrest and a change in government through elections. In both cases, the authorities must balance between the desires of the public and the needs of industry.

DRI involves the direct reduction of iron ore to a solid state using carbon monoxide and hydrogen produced from natural gas or coal, while EAFs use electrical energy to melt iron and scrap.
DRI is a raw material used in steel production, in conjunction with scrap metal and pig iron. When DRI is produced in countries with lower energy costs, for example using natural gas or green hydrogen, it can be transported to Europe at prices below those of intra-European production. This DRI can be melted in an EAF to produce steel or transported in liquid form to a basic oxygen furnace (BOF). This allows the steel mill to identify a more cost-effective solution than producing its own DRI in Europe.

According to the World Steel Association, integrated plants including blast furnaces and basic oxygen plants emit an average of 2.33 tonnes of CO2 per tonne of raw steel, while DRI and EAF plants emit just 1.37 tonnes of CO2 per tonne of raw steel. Currently, only 7% of global steel production originates from these more environmentally-friendly production methods.
The steel industry is currently facing a pivotal moment in the energy transition, contending with the drive for decarbonisation amidst economic uncertainty. The importation of DRI from countries with more favourable renewable energy resources can reduce the cost of producing green steel. However, this is only viable if the transport costs do not outweigh the benefits. For instance, German steel producers could import DRI in the form of hot briquetted iron (HBI) produced using green hydrogen from Oman or Australia if the lower costs of hydrogen offset the high transportation costs compared to production in Germany.

Alistair Ramsay, Vice President of Rystad Energy, believes that it is currently more cost-effective to import DRI from Oman than to produce it domestically in Germany. At the same time, savings range from 25 to 30 US dollars per ton. In Australia, the cost of producing green hydrogen is currently lower, but the high cost of shipping DRI to Germany negates all the benefits.

The most cost-effective method for producing DRI is through the use of natural gas. However, this option is not environmentally friendly, with a reduction in carbon dioxide emissions of only 50% and green hydrogen by 90%. For those who advocate for a carbon-free future, the choice is clear: you provide hydrogen.
It appears that those engaged in the economy are considerably more concerned about the potential negative consequences of the carbon neutralisation desired by European politicians. It is also worth noting that 2050 may prove to be a pivotal point in the future. Scientists from the Pulkovo Observatory, as previously mentioned on the agency’s feed, have established that global warming on Earth is replaced by global cooling over millions of years. Each period of heat and cold lasts approximately two hundred years. The experts have calculated that the beginning of the cycle of decreasing temperatures will occur at the very middle of the 21st century.

Politics is the art of the possible. This is a concept we never tire of repeating. European politicians are therefore attempting to leverage the current situation to the greatest extent possible for the benefit of their loved ones.

The tenth issue is the impact of these changes on the development of industry and, as a result, the growth of the population’s well-being.