Introduction
According to a recent article on Hydrogen Insight titled “‘Green hydrogen-based steel can be competitive in Europe from 2026’: study”, the European steel industry is approaching a pivotal turning point. The piece highlights findings from a study published in Nature Communications suggesting that steel production using hydrogen-based direct reduced iron (DRI) could become cost-competitive in Europe by 2026. This shift carries profound implications for the steel value chain, industrial competitiveness, and Europe’s decarbonisation goals.
Key Findings of the Study
- The study estimates that hydrogen DRI followed by an electric arc furnace (H₂-DRI-EAF) is the only viable low-emission pathway for primary steel production in the timeframe up to 2035.
- With recent reforms to the EU Emissions Trading System (ETS) and the forthcoming Carbon Border Adjustment Mechanism (CBAM), the modelling indicates that green hydrogen-based steel in selected cost-advantaged locations could match the cost of conventional blast furnace/basic oxygen furnace (BF-BOF) steel in Europe from approximately 2026.
- The competitive edge arises particularly in locations with access to low-cost renewable electricity, abundant iron ore resources, and favourable policy treatment, such as free allocation of allowances for certain inputs under the ETS.
- The modelling suggests that unless Europe acts, its steel industry could lose competitiveness to regions with cheaper renewable energy and less carbon-intensive production. Outsourcing the DRI step or importing hot briquetted iron (HBI) is highlighted as an alternative strategic option.
Drivers of Competitiveness
Policy frameworks. From 2026, the revision of ETS benchmarks allows free allocation of emission allowances for pelletising, DRI reactors, and green hydrogen production, lowering the effective cost of H₂-DRI-EAF routes. At the same time, the CBAM, which begins applying from 2026, will impose carbon costs on imports, effectively levelling the playing field for green steel imports.
Production cost structure. Conventional BF-BOF production in Europe faces mounting pressure from high carbon prices and escalating energy costs. In contrast, H₂-DRI-EAF in favourable locations can capitalise on low-cost renewables, declining electrolyser and hydrogen costs, and policy support.
Global trade and relocation. The shift to green steel may reshape where steel is produced. Regions endowed with cheap renewables and rich iron ore deposits will have a comparative advantage. Europe might increasingly relocate the energy-intensive ironmaking step abroad, while retaining downstream finishing and value-added processing domestically.
Challenges and Assumptions
- The competitiveness of green steel depends on large-scale, affordable supplies of hydrogen — especially green hydrogen — and on renewables remaining cheap and abundant. The modelling assumes favourable conditions that may not apply universally.
- Infrastructure for electrolysers, hydrogen transport, direct reduced iron plants, and electric arc furnaces must be deployed rapidly. Delays or cost overruns could push true cost parity beyond 2026.
- Market demand for green steel, customers’ willingness to pay any potential premium, and global trade dynamics — particularly around steel imports — will influence whether production shifts occur as forecasted.
- Global steel overcapacity remains a challenge. The green transition must be managed carefully to avoid worsening capacity imbalances or fuelling new trade tensions.
Implications for the European Steel Sector
- For European steel producers: They face a strategic decision point. They must invest rapidly in H₂-DRI-EAF technology, secure green hydrogen supply, and restructure operations or risk losing market share.
- For policymakers: Supportive frameworks — spanning hydrogen strategies, renewables rollout, infrastructure planning, and ETS/CBAM calibration — will be critical to unlocking the projected competitiveness of green steel. Policy misalignment or delays could leave Europe lagging behind.
- For supply chains: The geographical distribution of raw materials, renewable power, hydrogen, DRI/HBI trade, and finishing operations may be reshaped. Europe may increasingly import low-carbon iron or semi-finished steel from regions with better fundamentals.
- For decarbonisation: Achieving deep emissions cuts in steel — a sector responsible for roughly 8–10% of global CO₂ emissions — will depend heavily on technologies like H₂-DRI-EAF. The study underlines that green steel pathways are technically feasible and increasingly economically viable.
Conclusion
The findings summarised by Hydrogen Insight, based on the underlying Nature Communications study, point to a potential turning point: green hydrogen-based steel production in Europe could become cost-competitive starting around 2026, provided key enabling conditions are met. For Europe’s steel industry, this presents both an opportunity and a risk. Those that move quickly to adopt H₂-DRI-EAF, secure green hydrogen, and adapt their business models may gain a first-mover advantage in a low-carbon future; those that delay may see their competitiveness erode.
Ultimately, the broader transition will depend not only on technology, but also on aligned policies, coordinated supply chain development, timely investment, and evolving global trade dynamics.
