The European Commission’s European Steel and Metals Action Plan, coupled with its Clean Industrial Deal, offers strong support for the deployment of clean hydrogen in the metals sector.

The plan, released in March, said hydrogen is the most promising option to decarbonise steel production and that the fuel is also the “main contender” to provide high-temperature heat in replacement of natural gas in other metals industries.

Both renewable and low-carbon hydrogen will be needed to decarbonise heavy industry, according to the plan. To this end, the Commission has said it will shortly adopt a Delegated Act that will set out rules “that are as flexible as possible” for low-carbon hydrogen production and offtake in a move to provide more certainty for investors.

“We have the foundation of the house, but still the roof has some holes in it” Podesta, GravitHy

Yet there are missing pieces in the EU’s strategy, which comes as Europe’s energy intensive industries face immense pressure from foreign competition.

Delegates at a recent conference in Brussels heard that low-carbon or blue,  hydrogen projects are not eligible for funding under the EU’s Hydrogen Bank, for which the next auction is planned in Q3 2025. Moreover, some panellists also criticised the Steel and Metals Action Plan for not providing a clear timeline for phasing out the use of fossil fuels in industry.

The steel sector alone is responsible for around 5% of the EU’s emissions and more than a quarter of industrial emissions.

Moreover, over 50% of EU steel production still relies on coal-based blast furnace-basic oxygen furnace (BF-BOF) routes, according to a recent report released by NGOs including E3G and Beyond Fossil Fuels.

“Most blast furnaces are aged and due for reinvestment or retirement before 2035, so a decision must be made: reinvest in outdated, polluting technology or accelerate near-zero emission steel alternatives,” the report said.

Green or blue—or both?

The NGOs said decarbonised steel production will be driven by green hydrogen-based direct reduced iron with electric arc furnaces. As of the end of February 2025, 33 ‘near-zero’ emissions steel projects had been announced, but only a fraction were progressing as scheduled, the report said. It noted improving policy support, energy infrastructure and green hydrogen deployment will all be critical to the transition.

To this end, the report said The Clean Industrial Deal and the European Steel and Metals Action Plan present opportunities to drive the transition in the steel sector.

However, strict dates for phasing out fossil fuels in the steel sector are missing from the Action Plan, Boris Jankowiak, steel transformation policy coordinator at Climate Action Network (CAN) Europe, a coalition of more than 200 climate NGOs, told Hydrogen Economist.

Jankowiak said CAN Europe favours renewable-based green hydrogen, which he describes as the only technological solution that phases out fossil fuel dependencies. On the contrary, hydrogen made with natural gas and carbon-capture technologies raises issues in terms of upstream methane emissions and strengthens dependence on imported fossil fuels, he said 

“Any use of low-carbon hydrogen as a temporary solution if green hydrogen is not available in needed quantities quickly enough should come with a strict phase-out timeline and appropriate methodologies to account for upstream methane emissions. This is already the case in recent state aid decisions for steel projects, in which the help is conditioned on a gradual phase-in of green hydrogen,” said Jankowiak. 

Others say Brussels is putting too much emphasis on green hydrogen over other colours and call for a more technologically neutral approach.

"It is disappointing to see that the European Commission's industrial policy seems to prioritise certain technologies over others. Green hydrogen and electrification are prioritised. Green hydrogen is more costly than other technologies such as 'blue' or 'pink' hydrogen and electrification does not work for everything,” Peter Vis, senior adviser at Rud Pedersen Public Affairs in Brussels, told Hydrogen Economist. 

“Technology neutrality is a prerequisite to boost investment in the energy transition and looking at greenhouse gas [GHG] outcomes rather than the technologies used to achieve them would be a better strategy,” Vis added.

Funding gap

As for funding, Important Projects of Common European interest (IPCEI)—which are large-scale, EU-backed cross-border projects—last year mobilised €5.2b of public funds towards hydrogen for industrial decarbonisation. This is expected to unlock an additional €7b in private investments, Jankowiak said.

Additionally, in view of the future c.€100b Industrial Decarbonisation Bank, the EC plans to later this year launch a €1b pilot auction supporting industrial decarbonisation and electrification across various sectors, using a combination of existing resources under the EU’s Innovation Fund.

5% – Steel’s share of emissions

Yet public funding is no guarantee that hydrogen-driven decarbonisation projects will see the light of day.

In February 2024, for example, the Commission approved, under EU State aid rules, a €1.3b German grant to decarbonise steelmaker ArcelorMittal’s plants in Bremen and Eisenhuettenstadt. The new plant would initially operate, starting in 2026, with natural gas, which would gradually be replaced by low-carbon and renewable hydrogen. The new installation will is planned to ultimately operate using exclusively renewable hydrogen.

In November 2024, however, ArcelorMittal said it would review its decarbonisation strategy as green hydrogen is evolving "very slowly" towards commercialisation. Among several factors, the company noted there is limited willingness among customers to pay premiums for low-carbon emissions steel. 

Jankowiak agreed green steel purchasing had yet to take off at scale.

“We have already seen several offtake agreements between steel buyers and steel producers on the future production of greener steel, but it is still scarce, as only 2% of the global steel used by automakers is covered by green steel offtake agreements," he said.

Yet, both the Steel and Metals Action Plan and the Clean Industrial Deal suggest that the public sector will also support the scale-up for green steel demand via the revision of public procurement rules, Jankowiak added.

“The public sector is therefore already actively supporting both the switch towards green hydrogen in steelmaking in overhauling production processes, as well as the demand side with product policy targeting public procurement and eco-design.”

CBAM under review

Another key pillar of the European Commission’s industrial strategy is the Carbon Border Adjustment Mechanism (CBAM) which will take effect in 2026 and see free allowances under the EU ETS gradually phased out by 2034. Steel, iron, aluminium and cement, as well as fertilisers, electricity and hydrogen, are all included within the scope of the CBAM. The Commission will review the CBAM in the second half of 2025 and may propose an extension of the border tax in the first half of 2026 to cover more sectors as well as downstream products in steel and metals.

The Clean Industrial Deal also notes that the Commission will address CBAM circumvention, including so-called ‘shuffling’; this occurs when goods produced in low-carbon production facilities in third countries are redirected to European customers while carbon-intensive production continues for other markets.

“We have the foundation of the house, but still the roof has some holes in it,” Gwenael Podesta, public financing and policy manager at GravitHy, a French green iron producer, told the event in Brussels. “The extension of CBAM to downstream products is a good thing. The avoidance of resource shuffling, a strong point of concern, should be addressed […] to make CBAM more helpful.”

The Commission is expected to table a 90% target for GHG reductions by 2040 later this year, a target that seems impossible to meet without accelerating industrial decarbonisation.

Yet there is little mention of the 90% target in the Clean Industrial Deal and in the Action Plan. There is a possibility the target may be watered down, for example by allowing emission reductions in countries outside of the EU to count towards the 90%, which can be done thanks to Article 6 of the Paris Agreement. 

"The Commission has the option of including Article 6 in its proposal for a 90% GHG reduction target. I will be surprised if they don't consider this,’ said Vis.

“Article 6 of the Paris Agreement opens for international collaboration, for example with African countries, to reach the 90% target. This would add flexibility as not all the emissions reductions would have to take place on EU territory."

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Author: Andreas Walstad