Green steel in 2026, why the three billion euro project in Duisburg hangs in the balance

The short version

• Financing is being renegotiated for a green steel project in Duisburg worth around three billion euros.
• The assumption that enough green hydrogen would be available at workable prices has proved unrealistic.
• Free certificates in European emissions trading were cut from 1 January 2026, and for steel the free allocation ends in 2034.

Why steel is a special case

In the blast furnace, iron ore is heated with coke. The carbon from the coke takes the oxygen out of the ore, which produces liquid pig iron. Carbon dioxide forms inevitably, because the carbon is not a fuel but part of the reaction. Green electricity therefore does not help on this route. The process itself has to go.

Scale adds to the problem. Once started, a blast furnace runs continuously until a relining is due after ten to twenty years. Those points are the moments of decision. Anyone who does not switch then commits to the old technology for decades.

The alternative is direct reduction. Hydrogen takes the oxygen out of the ore, and water vapour arises as a by product. The solid intermediate is melted in an electric furnace. How clean that is depends on how the hydrogen and the electricity were made.

What the calculation rests on

Green hydrogen comes from electrolysis, the splitting of water with renewable electricity. Much of the electricity put in is lost along the way. Hydrogen is therefore a detour, worthwhile only where processes cannot be electrified directly. Steel making is such a case.

The calculation rests on two figures, the available quantity and the price. Both assumptions were too optimistic. Production plants were built more slowly than planned, pipeline networks are missing, and costs lie above expectations. As a transition, such plants usually start on natural gas and switch later. That cuts emissions but does not reach the goal.

Why the plant is hard to justify

First, the investment. Around three billion euros for one plant exceeds the earning power of a steel maker for years. Second, the running costs. Production with hydrogen stays dearer than with coke for as long as hydrogen is dear.

Third, sales. Steel is traded worldwide and its price is set internationally. A higher production price cannot be passed on, because buyers compare with regions without comparable climate rules. Hence the border adjustment, a levy on imports matching the domestic carbon price.

Fourth, time. Experts expect a long phase in which old and new processes run side by side. Converted plants pay off only at ambitious carbon prices, and the same prices burden the existing stock that has to carry the transition.

Support and timetable

Investment grants lower the initial costs but not the running ones. Contracts for difference do that. The state makes up the extra costs for as long as they exist. If the carbon price rises so far that the new process is cheaper, the company pays back. Lead markets create demand for clean goods deliberately, for instance through requirements in public contracts, so the producer earns a price premium.

The fourth instrument is emissions trading itself. On 17 July 2026 the Commission proposed a review aligning the system with the climate target for 2040, a net emissions reduction of 90 percent against 1990. Planning certainty stands high on the agenda of the reform, alongside investment incentives, protection against production moving away, affordable energy and infrastructure.

2034 looks far away, but not for plants with useful lives of decades. Anyone renewing a blast furnace now fixes the technology of the 2040s. The electricity price counts too. The German forward market price for baseload power in 2027 is holding the mark of 100 euros per megawatt hour, and the wholesale gas price recently stood around 30 percent above the level of the end of June.

Frequently asked questions

What is green steel

Steel made not in the blast furnace with coke but through direct reduction with hydrogen. Water vapour rather than carbon dioxide arises as a by product. How clean the result is depends on how the hydrogen and the electricity were made.

Why does the Duisburg project hang in the balance

The assumption about the availability and price of green hydrogen has proved unrealistic. Plants and pipeline networks are coming more slowly than planned and costs are higher. Financing for the project of around three billion euros is therefore being renegotiated.

Why does green electricity not help in the blast furnace

The carbon there is not a fuel but part of the reaction that takes the oxygen out of the ore. Carbon dioxide arises inevitably, whatever the energy source.

What role does emissions trading play

A central one. From 1 January 2026 fewer free certificates were allocated, and for sectors in the border adjustment, among them steel, the free allocation ends in 2034. On 17 July 2026 the Commission proposed a reform aligned with the climate target for 2040.

Which support instruments are there

Investment grants, contracts for difference for the extra running costs, lead markets through deliberate demand for clean goods, and emissions trading itself, which is meant to narrow the price gap between old and new technology.

This analysis is for information only and is not investment advice.