Study: Green steel in Germany can compete under the right conditions

Germany's steel industry can remain internationally competitive while transitioning to climate-friendly production, provided supportive industrial policy measures are implemented, according to a new study by economists from the University of Mannheim funded by the Hans Böckler Foundation.

The study argues that a resilient German and European economy requires a strong domestic steel industry and warns against excessive dependence on imports. The researchers estimate that Germany could lose up to €50 billion in annual value added in the event of a major disruption to global steel supplies.

Energy prices key to competitiveness

The authors propose a package of measures aimed at making investments in low-carbon steelmaking economically viable. Central recommendations include a guaranteed electricity price of €60/MWh and a green hydrogen price of €140/MWh for energy-intensive industries until 2035. Additional price reductions are suggested for companies covered by collective bargaining agreements.

The study also calls for investment subsidies or low-interest loans covering up to 50% of capital expenditures for steelmakers investing in climate-neutral production facilities and committing to maintain sites and employment. Public equity participation in strategically important companies is proposed as a further option to reduce financing costs.

Using a levelised cost of steel (LCOS) approach, the researchers calculate production costs for direct reduced iron (DRI)-based primary steelmaking at around €590 per tonne under these conditions. This compares with an average European flat steel price of approximately €640 per tonne over the past three years. Secondary steel production via electric arc furnaces (EAFs) is estimated at €464 per tonne, below a conservative reference price of €480 per tonne for long products.

Buy-European rules and tariffs proposed

The study suggests that Germany should target annual production of 40 million tonnes of low-carbon steel by 2050, split equally between DRI-based primary steel and scrap-based secondary steel. However, currently announced investments would provide only around 8 million tonnes of DRI capacity, while existing EAF capacity amounts to approximately 15 million tonnes.

To secure demand for green steel, the economists advocate mandatory Buy-European or local-content requirements in public procurement, combined with the EU's Carbon Border Adjustment Mechanism (CBAM). They also argue that protective tariffs could be justified during a transition period to offset competitive disadvantages resulting from lower environmental and labour standards in countries such as China, India and Turkey.

Source: Universität Mannheim, Photo: marketSTEEL