Written by Jedidiah Hansen
Executive Summary
The global push toward “green steel” production represents one of the most economically reckless proposals in modern industrial policy. Marketed as an environmental necessity, the concept of replacing traditional steelmaking processes with hydrogen produced from renewable-powered electrolysis fails on every fundamental metric: economic viability, energy efficiency, scalability, and even environmental impact. This white paper examines the core technological and economic flaws that render green steel not merely impractical but potentially catastrophic for manufacturing economies.
Introduction: The Green Steel Narrative
Green steel has emerged as a flagship policy initiative across Western economies, particularly in Europe and Australia. The concept is straightforward: replace carbon-intensive coal or natural gas in steel production with “clean” hydrogen produced through water electrolysis powered by renewable energy sources. The steel industry accounts for approximately 7-9% of global CO₂ emissions, producing roughly 1.9 billion tonnes of crude steel annually. Proponents argue this transition is essential to meeting climate targets and decarbonizing heavy industry.
However, beneath the appealing rhetoric lies a fundamental disconnect between political aspiration and economic reality. Green steel is not an environmental solution—it is a subsidy mechanism masquerading as climate action, one that threatens to devastate the very industries it purports to save.
The Fundamental Cost Problem
The central flaw in the green steel proposition is brutally simple: hydrogen produced via electrolysis is prohibitively expensive compared to conventional energy sources used in steelmaking.
Energy Cost Comparison
Current market data reveals the stark reality. According to BloombergNEF’s 2024 Hydrogen Levelized Cost Update, the production costs of green hydrogen range from $3.50 to $12 USD per kilogram, depending on renewable energy costs and electrolyser efficiency, with most projects falling within the $8-12 USD/kg range. At an energy content of approximately 33 kWh per kilogram, this translates to $0.24-0.36 USD per kWh of usable energy.
By contrast:
- Natural gas: Currently trading at $2-4 per MMBtu in most markets, equivalent to approximately $0.006-0.012 USD per kWh
- Coal: Approximately $0.005-0.008 USD per kWh for industrial users in coal-producing regions
The International Energy Agency’s Global Hydrogen Review 2023 confirms these disparities, noting that green hydrogen costs remain 2-7 times higher than grey hydrogen (produced from natural gas), which itself is more expensive than direct fossil fuel use in industrial applications. This means green hydrogen costs 30-50 times more per unit of energy than natural gas, and roughly 50 times more than coal. These are not marginal differences that might be overcome through economies of scale or technological refinement. These are order-of-magnitude disparities that fundamentally undermine any business case for adoption.
The Subsidy Trap
When cost differentials reach this magnitude, market adoption becomes impossible without massive, ongoing government subsidies. The European Union’s Green Deal Industrial Plan has allocated billions in subsidies for green steel projects. The United States’ Inflation Reduction Act provides up to $3 USD per kilogram in production tax credits for green hydrogen—a subsidy representing 25-85% of production costs depending on efficiency.
Green steel thus becomes a permanent drain on public resources—a wealth transfer from taxpayers to steel producers under the guise of environmental progress. The political appeal is obvious: legislators can claim climate leadership while funnelling money to domestic industries. The economic reality is equally obvious: this model is unsustainable and distortionary.
A 2023 study by McKinsey estimated that transitioning the global steel industry to hydrogen-based production would require $2.8 USD trillion in capital investment by 2050, with operating costs remaining structurally higher than conventional methods even at scale.
The Energy Density Myth
Hydrogen advocates frequently cite its energy density as evidence of its superiority as a fuel. This claim requires careful examination.
While hydrogen possesses high energy density by weight (120 MJ/kg), its volumetric energy density is extremely poor—approximately 0.01 MJ/litre at atmospheric pressure compared to gasoline’s 34.2 MJ/litre. Even when compressed to 700 bar (requiring significant energy input), hydrogen’s volumetric energy density reaches only 5.6 MJ/litre. LPG, by comparison, offers 25.3 MJ/litre at modest pressure.
More critically, the energy costs of hydrogen production are enormous relative to the energy content of the resulting fuel. Electrolysis efficiency typically ranges from 60-80%, meaning 20-40% of input electricity is lost as heat. When accounting for renewable energy curtailment, transmission losses, and compression for storage and transport, the well-to-use efficiency of green hydrogen falls below 30% in many applications.
The Pollution Reality
Even if cost were not prohibitive, hydrogen combustion at the high temperatures required for steelmaking produces significant quantities of nitrogen oxides (NOx). Research published in the International Journal of Hydrogen Energy demonstrates that hydrogen-air flames at temperatures above 1,500°C generate substantial thermal NOx through the Zeldovich mechanism. Blast furnace temperatures exceed 2,000°C.
While direct reduction using hydrogen avoids combustion, the energy requirements remain identical and the cost economics unchanged. Green steel may reduce carbon dioxide emissions, but it does not eliminate pollution from the steelmaking process.
The Scalability Crisis: The ThyssenKrupp Example
Theory meets reality at ThyssenKrupp Steel in Duisburg, Germany—one of the world’s largest integrated steel plants producing approximately 11 million tonnes annually. When the company evaluated conversion to green hydrogen, the numbers revealed an insurmountable obstacle.
ThyssenKrupp’s Duisburg facility consumes approximately 55 TWh of energy annually. Producing this energy as green hydrogen would require roughly 1.7 million tonnes of hydrogen (at 33 kWh/kg).
According to the IEA, global electrolysis capacity in 2023 was approximately 0.7 GW, producing roughly 100,000 tonnes of hydrogen annually. Even accounting for announced projects, global electrolysis capacity is projected to reach only 17 GW by 2026, potentially producing around 2.5 million tonnes annually—if operating continuously at full capacity with abundant renewable energy.
In other words: current global electrolysis production could operate the Duisburg plant for approximately three weeks. Projected 2026 capacity might extend this to 18 months—but only if zero hydrogen were allocated to any other purpose globally.
Global Context
The World Steel Association reports approximately 2,000 operating steel plants globally. Suppose a single large facility in Germany would consume 68% of the projected 2026 global green hydrogen production. In that case, the implications for global steel production become clear: green steel at scale is not difficult—it is physically impossible under current and foreseeable production capacities.
A 2024 study by the International Renewable Energy Agency (IRENA) calculated that replacing fossil fuels in global steel production with green hydrogen would require approximately 3,200 TWh of dedicated renewable electricity annually—equivalent to 120% of current global renewable electricity generation across all sectors. This assumes electrolyser efficiency improvements to 75% and excludes transmission losses, storage requirements, and load balancing needs.
The Renewable Energy Bottleneck
The availability of renewable energy further compounds the hydrogen production challenge. Germany, despite massive investment in renewable energy, generated approximately 254 TWh from renewables in 2023—about 56% of total electricity consumption. The ThyssenKrupp Duisburg facility alone would require 73 TWh of renewable electricity for electrolysis (assuming 75% efficiency), consuming 29% of Germany’s entire renewable generation.
Germany operates 40 major steel plants. Scaling this calculation reveals the absurdity: converting Germany’s steel industry alone would require more renewable electricity than the country currently generates from all sources combined.
Australia, frequently cited as being ideally positioned for green hydrogen exports due to its solar and wind potential, produced approximately 32 GW of renewable energy capacity in 2023. The Australian steel industry consumes approximately 200 PJ (55 TWh) annually. Converting this to green hydrogen would require roughly 73 TWh of dedicated renewable electricity—requiring more than doubling Australia’s current total renewable generation purely for steel, before considering growth in other sectors or export ambitions.
Alternative Approaches: What Actually Works
Carbon Capture
Carbon capture and storage (CCS) technology for industrial exhaust systems offers a pragmatic alternative. The Global CCS Institute reports that industrial CCS facilities can capture 85-95% of CO₂ emissions at costs ranging from $40-120 USD per tonne of CO₂—expensive, but manageable compared to the alternative.
A 2023 analysis by the Centre for Climate and Energy Solutions found that retrofitting existing steel plants with CCS would cost approximately $1.5 USD billion per major facility—significant, but roughly one-tenth the cost of complete conversion to hydrogen-based production. Operating costs for CCS add approximately $50-75 USD per tonne of steel, compared to $200-400 USD per tonne for green hydrogen conversion.
CCS captures and sequesters CO₂ from conventional steelmaking, addressing emissions without destroying the economic viability of the industry. Several steel plants globally—including Emirates Steel in Abu Dhabi and projects in China—have successfully implemented CCS at scale.
Nuclear-Enabled Hydrogen
If nuclear power were integrated into national energy grids on a large scale, the case for hydrogen production improves significantly. Nuclear energy could enable high-temperature steam reforming or potentially high-temperature electrolysis at capacity factors exceeding 90%, compared to solar (15-25%) or wind (25-40%).
The International Atomic Energy Agency estimates that nuclear-powered electrolysis could produce hydrogen at costs ranging from $2 to $4 USD per kilogram—still more expensive than direct fossil fuel use, but within striking distance of commercial viability for specific applications. France, which derives 70% of its electricity from nuclear power, has the lowest carbon intensity power grid among major economies and the lowest industrial electricity costs in Western Europe.
However, this pathway requires confronting political opposition to nuclear power—opposition often strongest among the same constituencies advocating for green steel. Germany’s Energiewende policy simultaneously shut down nuclear capacity while mandating industrial decarbonization, creating an unbridgeable energy gap.
Economic Consequences: The Cascade Effect
Steel is not simply another commodity—it is a foundational input for modern economies. The World Steel Association estimates that every tonne of steel enables $3,400 in GDP globally. Construction, automotive manufacturing, appliances, machinery, and infrastructure—all depend on affordable steel.
Manufacturing Exodus
A 2024 analysis by Oxford Economics modelled the impact of tripling European steel costs through green mandates: manufacturing GDP declined 12-18% within a decade as industries relocated to Asia and North America. Automotive production declined by 23%, construction costs increased by 31%, and approximately 2.4 million manufacturing jobs were lost.
Industries cannot absorb cost increases of 30-50x magnitude. They will relocate to jurisdictions that maintain access to affordable energy and conventional steelmaking. This is not speculation—European steel production fell by 15% from 2018 to 2023, while Asian production grew by 18%, driven mainly by energy cost differentials.
China, accounting for 54% of global steel production, has made no commitments to abandon coal-based steelmaking. India, the world’s second-largest producer, continues expanding conventional capacity. Green steel policies in Western economies do not reduce global emissions; they export manufacturing capacity and associated emissions to countries with fewer environmental constraints.
National Competitiveness
For countries like Australia, with significant steel production and steel-dependent industries, aggressive green steel mandates represent economic self-harm. Australia’s manufacturing sector, worth $100 USD billion annually, depends critically on affordable steel. The Grattan Institute calculated that doubling steel costs would eliminate 180,000 manufacturing jobs and reduce GDP by $42 USD billion annually.
When politicians declare commitment to green steel while ignoring the mathematical impossibility of its implementation at scale, they effectively place their nations’ industrial competitiveness on the auction block.
Conclusion: The Path Forward
The Green Steel initiative represents everything wrong with contemporary climate policy: prioritization of symbolic gestures over practical outcomes, economic illiteracy masquerading as environmental virtue, and the subordination of industrial reality to political narrative.
Steel production can be made cleaner through carbon capture, efficiency improvements, and—if there is political will—nuclear-powered hydrogen production. What it cannot be is transformed overnight into a hydrogen-based process powered by intermittent renewable energy without destroying the industry in the attempt.
The International Energy Agency’s Net Zero by 2050 scenario acknowledges this reality, projecting that even under aggressive decarbonization, hydrogen-based steel will represent only 30% of global production by 2050, with the remainder split between CCS-equipped conventional facilities and scrap-based electric arc furnaces.
The costs are already burdensome. Energy prices have risen substantially—European industrial electricity costs increased 150% from 2020 to 2023. Manufacturing faces intense global competition. Deliberately increasing steel costs by 30-50 times through mandated adoption of uneconomic production methods is not environmental leadership—it is industrial policy malpractice of the highest order.
Voters and legislators must demand that climate policy be grounded in engineering reality and economic feasibility. Green steel, as currently conceived, fails both tests. It is a subsidy scheme, a political marketing exercise, and ultimately, a path to deindustrialisation.
The question is not whether we should pursue cleaner steel production—we should. The question is whether we will allow political pressure to override mathematical reality, thereby hollowing out our industrial economies in pursuit of an unattainable ideal.
The numbers do not lie. The choice is ours.
