Steel on the Brink: Europe’s Fight to Decarbonise and Survive

07/07/2025

By Robert Davies (Updated Version – June 2025)

Europe’s steel industry stands at a precipice, facing a perfect storm of mounting decarbonisation pressures, fierce global competition in green subsidies, and weak domestic demand. Industry forecasts warn that without urgent action, 60,000 direct jobs, and millions more across supply chains could vanish by 2030.

The ramifications of an industry collapse would cascade across Europe’s industrial heartlands, deepening economic stagnation in regions already weakened by industrial downturns. To fulfil the European Green Deal’s Net Zero 2050 ambition, a substantial investment of approximately €400 billion would be required, directed principally towards scaling up renewable energy generation.

Steelmaking accounts for 25-30% of Europe’s industrial CO₂ emissions, a central target of the European Green Deal, alongside cement, chemicals, and energy-intensive manufacturing.

The EU Emissions Trading System (ETS) is no longer a remote threat and is now an expensive reality for steel producers. Previously protected by free allowances, the industry now grapples with the full impact of escalating carbon costs as these measures are rapidly phased out. Simultaneously, the Carbon Border Adjustment Mechanism (CBAM) is in its final transitional phase, with the first financial obligations set to begin in January 2026. The complexity of emissions data collection and the prospect of imminent costs are placing unprecedented pressure on industry. The Carbon Border Adjustment Mechanism (CBAM) is designed to shield low-carbon European steel producers from unfair competition and to prevent carbon leakage. However, because many raw-material supply chains are yet to switch to low-carbon sources, they will inevitably face additional costs.

Central to decarbonisation is a transition from coal-based blast furnaces to electric arc furnaces (EAFs), powered by renewable energy. When paired with high-quality scrap steel or low-carbon direct reduced iron (DRI), EAFs can produce steel with near-zero emissions, thus avoiding the escalating carbon costs.

EAFs rely on two primary inputs: high-quality scrap steel, which can reduce emissions by up to 70–80% compared to traditional methods, and direct reduced iron (DRI), which, when produced using green hydrogen, enables virtually carbon-free steelmaking.

Feedstock Bottlenecks

Europe’s supply of EAF-compatible scrap steel is falling short amid soaring global demand. According to the European Steel Association (Eurofer), Europe currently generates just 100 million tonnes of scrap annually, well below the 165–180 million tonnes required to meet the demand for EAF-driven steel production. With 337 million tonnes of new EAF capacity under development globally, competition for scrap is intensifying. The growing deficit underscores a hard reality: scrap alone cannot supply the volumes needed to decarbonise Europe’s steel industry.

Direct reduced iron (DRI) presents a vital pathway to lower emissions. Using natural gas as a reductant can reduce CO₂ emissions by around 50% per tonne of liquid steel. Achieving near-zero emissions, however, depends on replacing natural gas with green hydrogen. Unfortunately, Europe still lacks the renewable energy infrastructure to scale green hydrogen production to the required levels, a challenge that could take decades to overcome.

Brazil’s Ready-Made Solution

In Brazil, over 84% of the electricity generation capacity is from renewable sources, according to Brazil’s National Electric Energy Agency (ANEEL). In states like Bahia, renewables account for around 93 % of installed capacity and exceed 95 % of actual generation during the peak wind season (April to September). Coupled with its vast, high purity iron ore reserves that can produce direct reduction grade iron concentrates, Brazil is uniquely positioned to produce low carbon DRI at scale.

Companies like Brazil Iron Ltd, in Bahia state, are advancing DRI production facilities powered by renewables. The company plans to produce hot briquetted iron (HBI), a compact, transportable form of DRI. Innovations such as Midrex’s Flex MegaMod technology allow plants to initially operate on natural gas, significantly reducing emissions, while providing a seamless transition to green hydrogen as it becomes economically viable. This pragmatic approach allows European countries to maintain sovereign primary steel production near end markets while leveraging Brazil’s renewable energy capacity to reduce emissions in their supply chain.

The Geopolitical Landscape and the Green Trade War

The geopolitical dynamics have shifted from traditional tariff disputes to a full scale green trade war. The US Inflation Reduction Act has unleashed billions of dollars in clean energy subsidies, triggering a global subsidy race that inflates project costs and distorts competition. At the same time, China’s chronic steel overcapacity, now marketed as state backed green washed steel, threatens to flood international markets with so-called low-carbon steel products, often lacking transparent verification of emissions claims.

European steelmakers are squeezed between rising carbon levies under the EU Emissions Trading System and intense state support abroad. As free allowances are phased out and the EU’s Carbon Border Adjustment Mechanism nears its first settlements, the sector must navigate volatile price signals, shifting trade policies and fierce subsidy battles. Meanwhile, President Trump doubled Section 232 tariffs on steel and aluminium imports to 50 per cent, effective 4 June 2025. Without a coherent EU strategy to counter subsidy dumping and tariff threats, European producers risk ceding market share, undermining the bloc’s net zero ambitions and eroding strategic industrial autonomy.

Social Impact and the Future of Jobs

Steel production supports around 330,000 direct jobs in Europe and millions more across supply chains. Regions such as Germany’s Ruhr Valley, Spain’s Asturias, and France’s Lorraine face economic devastation should steelmaking collapse.

The UK’s steel sector, though outside the EU, faces parallel challenges, supporting around 39,000 direct Jobs and 180,000 in supply chains. The ongoing restructuring at Port Talbot, the UK’s largest steelworks, exemplifies the challenges of transitioning to a low-carbon economy, which can be mitigated through strategic supply chain partnerships and demand for green steel from original equipment manufacturers (OEMs).

A Path Forward

Europe’s steel industry needs a bold and pragmatic strategy. The continent cannot afford to wait for domestic renewable and hydrogen infrastructure to catch up, action is needed now. Transitional feedstocks such as hot briquetted iron (HBI) offer an immediate way to cut emissions while laying the groundwork for a fully renewable future. The priorities should be:

  • Strengthening the circular economy through large-scale investment in scrap collection, sorting and processing systems to maximise the use of high-quality recycled steel.
  • Forging strategic supply chain partnerships with producers of low-carbon feedstocks, such as Brazil’s renewable-powered HBI, to reduce emissions now while Europe scales up its own green hydrogen and renewable energy capacity.
  • Collaborating with original equipment manufacturers (OEMs) to create strong demand signals for green steel, using premium pricing models to support decarbonisation investment across the value chain.
  • Expanding green public procurement policies to prioritise low-emission steel in publicly funded infrastructure, transport and defence projects.

The alternative, delays, inaction and isolationist trade policies, threatens livelihoods, economic stability and climate goals. Europe must act decisively, leveraging solutions already within reach to ensure its steel industry’s survival in a decarbonised future. And Brazil has the potential to be a great ally for the old continent in this mission.

General Reference List

  • European Green Deal
    European Commission. “A European Green Deal.” European Commission, December 2019. Available at: https://ec.europa.eu
  • EU Emissions Trading System (ETS)
    European Commission. “EU Emissions Trading System (EU ETS).” European Commission, 2023. Available at: https://ec.europa.eu/clima/policies/ets_en

Deutsche Bank. Available at: “EU carbon market: more to come”

https://www.deutschewealth.com/en/insights/investing-insights/investing-themes/eu-carbon-market-more-to-come.html#:~:text=The%20EU%20Emissions%20Trading%20System,sectoral%20inclusions%2C%20and%20new%20regulations

Renewable Energy in Brazil
Source Aneel:  https://www.irena.org

  • Midrex Flex MegaMod Technology
    Midrex Technologies. “Flex MegaMod Technology Overview.” Midrex, 2023. Available at: https://www.midrex.com
  • Hydrogen Production and Green Hydrogen
    International Energy Agency (IEA). “The Future of Hydrogen: Seizing Today’s Opportunities.” IEA, 2021. Available at: https://www.iea.org
  • Job and Economic Impact of Steel in Europe
    World Steel Association. “Economic Contribution of the Steel Industry.” World Steel Association, 2023. Available at: https://www.worldsteel.org
  • Steel and Decarbonisation Challenges
    McKinsey & Company. “Decarbonizing Steel: A Net-Zero Pathway.” McKinsey, 2023. Available at: https://www.mckinsey.com
  • UK Steel Industry Challenges
    UK Steel. “UK Steel in Figures 2023.” UK Steel, 2023. Available at: https://www.uksteel.org

Data in the Article and Corresponding References:

  1. 60,000 direct jobs and millions of indirect jobs at risk by 2030
    • Source: European Steel Association (Eurofer). Eurofer highlights job risks associated with decarbonisation pressures. Verification needed from Eurofer’s latest reports.
  2. €400 billion investment required for Net Zero by 2050
    • Source: CRU Group and European Commission. Both CRU and EU Green Deal documents mention this figure. CRU specifically links the bulk of investment to renewable energy infrastructure.
  3. Steelmaking accounts for 25–30% of Europe’s industrial CO₂ emissions
    • Source: European Commission, Eurofer, and McKinsey. Consistent across multiple reports on industrial emissions.
  4. ETS compliance costs and free allowance phase-out
    • Source: European Commission. Phase-out details and cost implications are outlined in the EU ETS documentation.
  5. 100 million tonnes of scrap steel generated annually vs. demand of 165–180 million tonnes
    • Source: Eurofer. These numbers are widely reported in Eurofer’s publications on EAF adoption and scrap availability.

337 million tonnes of EAF capacity under development globally

  1. Source: World Steel Association and McKinsey. Both sources highlight global trends in EAF expansion and its implications for feedstock demand.
  2. CO₂ reduction of 47% using natural gas as a reductant
    • Source: Midrex and IEA. Supported by technology-specific data from Midrex and broader studies on DRI technologies.
  3. Brazil’s grid is 84,42% renewable
    • Source: National Agency of Electric Energy (Aneel).
  4. 330,000 direct steel jobs in Europe
    • Source: World Steel Association and Eurofer. Both confirm employment figures across the EU steel industry.
  5. UK’s steel sector supports 39,000 direct jobs and 180,000 in supply chains
    • Source: UK Steel. These figures align with the latest UK Steel reports.