Europe’s steel industry risks falling short of its ambitious climate targets, despite billions of euros in state aid pledged by regional governments, environmental campaigners warn.
Subsidies Granted, But Targets Missed
Since 2022, the European Commission has approved over €8 billion in grants for some of the bloc’s largest steel producers to invest in less carbon-intensive production, according to Aria, a non-profit research organization. ArcelorMittal, the world’s second-largest steel producer and Europe’s biggest, has received €3 billion in commitments for decarbonization projects to phase out coal in favor of natural gas and, eventually, hydrogen. Thyssenkrupp, the German industrial conglomerate, has received €2 billion in commitments, while other groups like Salzgitter have received €1 billion. Tata Steel has received £500 million in UK state support as part of a £700 million investment agreement.
Despite these subsidies, climate research groups argue that European steelmakers are still not on track to meet science-based emissions reduction targets, ideally limiting global warming to 1.5°C above pre-industrial levels, as outlined in the 2015 Paris Agreement.
“The steel groups have set quite ambitious targets, but if we look at how they are performing at this point in time, they are not going to meet these,” said Vicky Sins of the World Benchmarking Alliance (WBA), which measures companies’ progress on UN sustainable development goals. WBA’s research found that carbon emission intensities from heavy industries like steel need to fall three times faster than the current rate in the next five years to align with a 1.5°C trajectory.
Growing Demand and Decarbonization Challenges
With global steel demand projected to rise over a third from 2020 levels by 2050, according to the International Energy Agency, industry analysts stress the need for a faster shift towards greener technologies. “The truth is that we are more on a 2.5°C warming trajectory,” said Rachna Mehta, principal analyst for steel and raw materials at Wood Mackenzie.
The iron and steel sector is the largest industrial producer of carbon dioxide after power generation. Steel alone accounts for 7% to 9% of all direct fossil fuel emissions, according to the World Steel Association. Wood Mackenzie estimates it will cost about $1.4 trillion to decarbonize the global iron and steel industries by 2050.
Technology Investments and Transparency Concerns
Most European steel groups are investing in electric arc furnaces, which melt down recycled steel and emit a fraction of the CO₂ of traditional blast furnaces. However, to achieve net-zero emissions, the industry is relying on “direct reduced iron” (DRI) plants combined with electric arc furnaces. DRI plants use natural gas, and potentially green hydrogen, which is currently not available at scale, to extract pure iron from iron ore.
Climate campaigners criticize not only the slow progress but also the lack of transparency, making it difficult to determine how much money is spent on R&D for lower-carbon alternatives. SteelWatch, a campaign group, calls on ArcelorMittal to adopt more ambitious climate targets and timelines for phasing out coal and gas.
ArcelorMittal’s Response and Funding Challenges
Nicola Davidson, vice-president for sustainable development at ArcelorMittal, defended the company’s efforts, stating they couldn’t “credibly set a 2030 target according to the [science-based targets initiative] methodology.” The group plans to publish an updated climate report before the end of the year.
Despite the state aid pledges, ArcelorMittal notes it hasn’t yet drawn on any funds, as they become available only when project construction starts and are conditional on “transitioning to green hydrogen.”
Industry Perspectives
Thyssenkrupp and Salzgitter affirm their commitment to the Paris Agreement and science-based targets, while Tata Steel plans to establish such targets. Adolfo Aiello, deputy director-general at Eurofer, defended European companies, saying they have been the “most ambitious” in emission reductions. He emphasized the need for affordable green electricity and hydrogen to achieve success.
The road to decarbonizing the European steel industry remains complex, requiring technological advancements, policy support, and industry collaboration to accelerate the transition to a greener future.