Andreas Florissen, Maren Gießelmann
May 4, 2025
Lower-emission steel: How to make the transformation profitable?
While the transition to lower-emission steel production is imperative for achieving climate neutrality, European steelmakers are on an expensive learning curve, facing the highest production costs in the world. In a new whitepaper, Ramboll experts reflect on key challenges and strategic pathways to ensure long-term profitability and viability of lower-emission steel.
The steel industry holds immense potential to achieve climate neutrality by substituting their high-emission blast furnace technology from the early age of industrialisation. New technical solutions exist, but they require substantial and costly interventions.
A new whitepaper by Ramboll looks at the main challenges facing European steel producers face in the green transition and how they can overcome them whilst remaining profitable.
The sector is slowly progressing towards lower-emission technologies, with European steel producers kicking off their investment plans, building direct reduction plants and electric arc furnaces.
Yet the journey towards lower-emission steel is uncertain and complex. Recent dynamics around the transformation – be it geopolitical tensions, trade tariffs, or evolving policies – are immense. A wide range of factors and uncertainties influence its future viability and business case.
Major European steel producers have re-considered or delayed their decarbonisation strategies due to these challenges. Even with substantial subsidies from the European Union and national governments, making a solid business case for lower-emission steel remains difficult.
“Driving EU lower-emission steel production while securing global competitiveness requires the sector to overcome uncertainties both on the supply and demand side and to assume strategic foresight with regard to new solution pathways along the value chain.”
Navigating uncertainty
The transition to lower-emission steel introduces new uncertainties, both upstream and downstream. Considering the capital-intensive transformation ahead, this can cause considerable hurdles and delays. To scale action for a sustainable steel industry, producers must strategically navigate the evolving landscape to overcome the lower-emission steel dilemma.
How to secure cost-competitive supply
On the upstream side, producers face cost pressures both now and in the foreseeable future. Challenges include volatile commodity markets with risks to price and supply (e.g. for steel scrap and Direct Reduced (DR)-grade iron ore), significant regional disparities in green energy availability and cost, and increasing carbon pricing amidst uncertainties about the effectiveness of the EU Carbon Border Adjustment Mechanism (CBAM).
How to pass on the green premium
On the downstream side, there is uncertainty about the green premium that customers are willing to pay for lower-emission steel. A report by Ramboll and Climate Group, surveying more than 250 companies across 42 countries and 21 industries, shows that steel off-takers are ready to pay a price premium, though cost is still a barrier to large-scale adoption of lower-emission materials.
Securing competitiveness
The lower-emission steel transformation remains a daunting challenge for European producers. Key requirements encompass substantial policy support, including carbon pricing mechanisms, coupled with effective CBAM to prevent carbon leakage, ongoing subsidies, and above all, access to large quantities of low-cost green energy.
There are several potential pathways that may enable European steel producers to secure both their decarbonisation ambitions and competitiveness against global producers – all of which come with advantages and disadvantages to be closely assessed. Strategies will differ based on whether producers follow the DRI-EAF (direct-reduced iron - electric arc furnace) or scrap-based EAF production route.
- Accessing low-cost green energy: Securing low-cost hydrogen is crucial for local, low-emission direct reduction. Mitigating uncertainties on cost-competitive supply of hydrogen might involve investment in local electrolysis capacities, access to the European hydrogen backbone, and the exploration of global Power-to-X opportunities.
- Leveraging new value chains: New steel value chains with separated production of iron and steel are evolving. With strong regional differences in green energy supply and prices, the production of direct reduced iron (DRI) and hot briquetted iron (HBI) could shift to non-EU countries and become an import option. Considering geopolitical risks, the build-up of European clusters for hydrogen-fueled production of DRI or HBI could be strategically advantageous.
- Embracing circularity: Reinforcing recycling efforts holds promise for lower-emission steelmaking both for producers on the DRI-EAF and scrap-based EAF route. Scrap-based steel production offers a less energy-intensive alternative and can also complement EAF utilisation next to pellets or briquettes. Considering rising volatilities in commodity markets and the need to comply with EU recycling requirements, a diverse raw material mix, including scrap, is advisable.
Moving forward
This decade, action towards lower-emission steel is needed. It is time to advance and operationalise investment plans while securing long-term profitability. By strategically navigating the evolving landscape, European producers can drive the future of profitable, lower-emission steel and thus write a new chapter in industrialisation.
Want to know more?
Andreas Florissen
Industry & Manufacturing Global Industry Lead
+49 172 1519779
Maren Gießelmann
Senior Consultant
+49 171 8162155