Green Hydrogen Dead End: Why Europe’s Heavy Industry Must Move Upstream to Survive

Europe’s energy-intensive industries are facing an uncomfortable truth: the green transition, as currently imagined, may not be possible at home. A new study published in the Journal of Industrial Ecology by Sven Colen and Alwine Mohnen of the Technical University of Munich argues that for steel and chemical producers located in regions poor in renewable energy resources, both local green hydrogen production and large-scale hydrogen imports are strategically unviable in the long term. Instead, the research points toward a radical reconfiguration of global value chains, in which Europe imports green intermediates such as hot-briquetted iron and green urea from renewable-rich regions while consolidating its own high-value downstream production. The findings are based on 66 semi-structured interviews with experienced managers and experts drawn from the steel, chemical, and renewable energy sectors worldwide, all analyzed from a distinctly European perspective.

The intellectual engine behind the study is what scholars call the renewables pull effect, a concept first introduced by Samadi and colleagues in 2023. The idea is deceptively simple: because renewable electricity is far cheaper in some regions of the world than in others, and because transporting energy itself is expensive, industries that consume enormous quantities of energy may be economically compelled to move their production to where the sun shines and the wind blows hardest. Previous techno-economic modeling had quantified this pull with striking precision. Egerer and colleagues calculated that relocating entire steel value chains to renewable-rich sites could cut costs by up to 19 percent, while for urea the savings could reach 30 percent. Verpoort and colleagues arrived at similar figures, reporting savings of 18 percent for steel and 32 percent for urea. Yet both teams cautioned that cost models alone could not capture the full picture, and that strategic considerations might ultimately determine which parts of a value chain are worth moving.

Colen and Mohnen set out to fill exactly that gap. Their methodology was deliberately qualitative, reflecting the hypothetical and fast-moving nature of green relocation decisions. The researchers conducted two rounds of interviews between January and April 2025, totaling 2,827 minutes of transcribed material. The first round involved 28 European experts, drawn from both renewable-rich and renewable-scarce countries, while the second round gathered perspectives from 32 experts in nearly all non-European regions identified as potential relocation destinations, including Canada, the Middle East, Australia, and parts of Africa and South America. All participants were required to have at least ten years of professional experience in or closely connected to the relevant industries and to be positioned near strategic decision-making processes. The researchers then applied an abductive thematic analysis, deriving 25 first-order codes that were condensed into nine second-order codes, and supplemented the interview data with trade statistics from the World Steel Association and the World Integrated Trade Solution database.

The interviews revealed three powerful global tendencies reshaping green value chains. The first is a sustainable transition that continues but has visibly decelerated. Experts described green projects being cancelled or postponed, particularly in the United States under a revived fossil fuel agenda, while European climate regulation also shows signs of easing. One expert noted bluntly that many current political leaders care only about cheap electricity, not how it is produced. Economic fundamentals compound the slowdown: renewable-based industrial production typically remains more expensive than fossil-based alternatives, and several interviewees observed a shift toward natural gas-based direct reduced iron and blue hydrogen with carbon capture. The second tendency is rising cost pressure, driven by global overcapacities, especially China’s expansion in low-cost steel, and by recession fears in key downstream sectors such as automotive, which had previously been willing to pay a green premium. The third tendency is a growing political ambition for energy and resource independence, with experts reporting that international dependencies are increasingly viewed as strategic risks in the wake of the Russia-Ukraine war and protectionist trade policies.

Against this backdrop, the strategic assessment of relocation scenarios produced a clear verdict. The experts overwhelmingly rejected two options that cost models had treated as plausible: producing green hydrogen locally in renewable-scarce Europe, and importing green hydrogen at scale. Local production fails because of fundamental physical constraints. As one expert put it, there is simply not enough space for sufficient renewable energy installations to cover all future, even growing, demand, and lower capacity factors keep energy prices uncompetitive. Importing hydrogen fails for a different reason: hydrogen’s physical properties make transport so costly that, in the words of one interviewee, the transportation of green hydrogen is, and very likely will always be, too expensive. Long-term subsidies to bridge that gap were judged politically unsustainable, with one expert concluding that taxpayer money per saved job simply cannot be justified in the long term. The recent decision by ArcelorMittal to halt plans for direct reduced iron production in Germany, despite 1.3 billion euros in pledged government support, illustrates how even substantial subsidies cannot offset structural energy-cost disadvantages.

What remains are two scenarios that involve relocating energy-intensive production steps to renewable-rich regions and shipping the products back to Europe. For green steel, the experts favored the shallower option: relocating only iron production, in the form of direct reduced iron or hot-briquetted iron, while retaining steelmaking in Europe. The reasoning is strategic rather than purely economic. Keeping steelmaking close to customers safeguards quality control for high-performance applications, protects proprietary production expertise, and preserves the ability to incorporate recycled steel scrap, a resource several experts expect to become the object of a looming global fight. Political considerations reinforce this choice, since steel’s importance for infrastructure and defense makes governments more likely to subsidize domestic production, and steelmaking employs substantially more workers than iron production. For green urea, by contrast, the balance tilts toward the deeper option of relocating both ammonia and urea production entirely. Urea is a standardized, transportable fertilizer with little need for customization, quality control and intellectual property concerns are weaker, and the cost savings from full relocation are larger. As one expert observed, for politicians, losing steel simply feels emotionally harder than losing chemicals.

From these findings the authors derive a novel value chain positioning model that classifies regions by their position along the value chain, distinguishing upstream, downstream, and full positions, and marking whether regional demand exceeds or falls short of local production. Applied to the global landscape, the model yields a tripartite strategy for European energy-intensive industries: consolidate high-quality downstream production at home, maintain minimal full value chain capacity in renewable-rich European regions such as the Nordics and Iberia, and globally diversify upstream imports through green relocation. Canada emerges as a prime target, offering vast hydropower resources, high-grade iron ore, small domestic demand, and an active search for new markets. The Middle East combines strong renewable potential with financial capability, and Qatar and Saudi Arabia are already developing gas-based direct reduction plants as a bridge to hydrogen, though experts warn that over-reliance could create new dependencies. Most developed countries in Africa and South America offer high potential but require investment, infrastructure, and stability, with Brazil combining high-grade ore and hydropower alongside high energy costs and slow industrial uptake.

Equally revealing is the list of regions the experts consider unattractive. The United States, China, and India are all consolidating toward full value chain positions driven by domestic industrial ambitions, making them unreliable long-term suppliers for European markets. The United States seeks self-sufficiency in steel and urea supported by abundant gas and large scrap availability, while China is expected to become greener but only for its own supply chains, constrained by entrenched blast furnace capacity and limited scrap. India is expanding toward a full position but will likely redirect capacity toward its own growing markets over time. Australia, though rich in renewables and raw materials, faces high costs and geographic proximity that favors Japan and South Korea as natural customers. The experts’ warning is pointed: although there is no Saudi Arabia of renewables, European policymakers must work to prevent the replacement of old energy dependencies with new ones.

The broader implications stretch well beyond steel and fertilizer. The study documents a fundamental tension between the cost-efficiency imperative that governs globally competitive firms and the autarky-resilience ambitions of nation-states, a tension that is likely to shape industrial location decisions across a wide spectrum of sectors. The authors propose three preliminary propositions for future quantitative research: that strategically favorable relocation depth differs systematically by product type, that rising geopolitical volatility causes market access and resilience to override pure cost efficiency, and that upstream-oriented, export-focused regions make more attractive relocation partners than full value chain consolidators. For practitioners, the guidance is concrete: European steelmakers could phase out domestic direct reduction while upgrading electric arc furnace capacity, secure scrap domestically through circular economy models, and pursue hot-briquetted iron imports, while urea producers face relocation to co-located green hydrogen, ammonia, and urea sites abroad as the most viable path absent stronger political intervention. For policymakers, the prescription includes stable climate frameworks, support for shifting uncompetitive upstream plants toward renewable-rich European regions, expanded partnerships through instruments like the EU’s Global Gateway, and harmonized definitions of what counts as green. In an era when, as one expert put it, you cannot trust even your alliances anymore, strategies that preserve optionality, even at higher short-term cost, may prove to be the most valuable asset of all.

Subject of Research: Strategic green relocation of energy-intensive industrial value chains in response to renewable energy resource distribution

Article Title: Strategic considerations for green relocation in energy-intensive global value chains

Article References: Colen, S., & Mohnen, A. (2026). Strategic considerations for green relocation in energy-intensive global value chains. Journal of Industrial Ecology, 30(4), 1951-1969. https://doi.org/10.1007/s44498-026-00133-w

Image Credits: AI Generated

DOI: 10.1007/s44498-026-00133-w

Keywords: green relocation, renewables pull effect, green hydrogen, green steel, direct reduced iron, hot-briquetted iron, green urea, global value chains, industrial ecology, energy-intensive industries, energy security, decarbonization