Most African nations grapple with steel consumption rates below one tonne per capita, a stark contrast to the far higher levels in industrialized countries. This gap is a significant bottleneck hindering vital infrastructure expansion. Nearly 600 million Africans still lack access to electricity, and more than 400 million are without clean water—shortfalls directly linked to insufficient steel-dependent facilities for power generation and water distribution. Meeting the Sustainable Development Goals and fostering broad-based economic development requires sustained, local steel production capacity that can underpin decades of infrastructure build-out.

Traditional steelmaking practices, heavily reliant on coal-fueled blast furnaces and integrated production systems, present formidable obstacles to decarbonization. These integrated facilities must be collocated with resources, constraining location flexibility and limiting comparative advantages. The emergence of hydrogen-based direct reduced iron (H2-DRI) technology disrupts this paradigm by allowing the production of solid iron—specifically Hot Briquetted Iron (HBI)—which can be transported globally and utilized at separate steelmaking sites equipped with electric arc furnaces. This disaggregation opens unprecedented pathways to scale green steel globally.

For European steelmakers, the H2-DRI technology crystallizes a critical strategic choice. Should they produce green iron domestically by importing iron ore and hydrogen separately and performing reduction onsite (Route B), or should they import HBI from geographically advantageous “sweetspot” locations, where renewable energy and iron ore are abundant, shipping the solid iron to Europe for finishing (Route A)? This dichotomy cuts to the heart of efforts to balance economic viability with environmental ambition.

Route B, while maintaining complete production within Europe, confronts severe economic and logistical hurdles. Hydrogen’s physical properties challenge its transport; conversion to carriers like ammonia, combined with shipping and reconversion logistics or pipeline infrastructures, imposes high costs and geopolitical dependencies. Importing hydrogen at high cost only to combine it with iron ore onsite at high-cost European facilities renders green steel production potentially uncompetitive and stymies investment incentives.

Conversely, Route A leverages the inherent advantages of HBI’s stability and transportability. Producing green iron in locations such as South Africa, North Africa, and Brazil—regions with unparalleled access to renewable energy and iron ore reserves—ensures lower production costs and enhanced supply security. Solid HBI can be shipped affordably using established maritime logistics without the infrastructural and security vulnerabilities linked to hydrogen transport. Recent quantitative analyses estimate a 27% cost advantage for German steelmakers sourcing HBI from these “sweetspot” areas, compared to crafting green iron domestically.

Moreover, the employment concern often posited against Route A—that outsourcing iron production bleeds critical jobs from Europe—does not withstand analytical scrutiny. Ironmaking constitutes only about 10% of steel sector employment, with over 90% employed in steel refining, product manufacturing, and downstream industries, all of which remain anchored in Europe regardless of iron feedstock origin. By lowering iron input costs, Route A can invigorate the entire value chain, preserving and potentially enhancing European steel jobs through amplified competitiveness.

Industrialized nations themselves are shifting their steel production frameworks towards secondary steelmaking routes that rely increasingly on scrap metal recycling rather than primary iron. For instance, the United States now recycles steel through electric arc furnaces for 70% of production, with the European Union close behind at 43%. This transition is gradually contracting domestic demand for primary iron production, creating risks that newly built green iron facilities could become stranded assets in shrinking markets.

Yet, current subsidy mechanisms complicate the scaling of overseas green iron production. Policies are often biased towards domestic production, rendering export-oriented green iron projects financially unfeasible. This barrier arises not from cost competitiveness—new producing regions hold clear cost advantages—but due to the absence of accessible policy instruments capable of underwriting early project financing through mechanisms like carbon contracts for difference centered on imported intermediates such as HBI.

The implications extend beyond economics to encompass a profound developmental dynamic. Developing countries possess the natural resources and renewable energy capacity necessary for green iron production but lack bankable long-term offtake agreements to secure investment. Without such foundational commercial partnerships, these nations are caught between untenable choices: enduring the “green premium” of costly imports or persisting with carbon-intensive steelmaking that jeopardizes climate goals and community health.

The new conceptual framework proposed involves adaptation of consumption-based Carbon Contracts for Difference (CCfDs) to support green steel producers exporting HBI from sweetspot regions. Under this model, European steelmakers commit to purchasing competitively priced, decarbonized iron inputs, receiving financial support linked to decarbonization outcomes. This arrangement facilitates long-term offtake agreements that de-risk investments in developing country production, thus unlocking crucial capital flows.

Crucially, this export-orientated production does not preclude domestic industrial advancement. Rather, the scale and bankability arising from export markets create the critical mass for developing country producers to simultaneously build domestic green steel capacity aimed at local infrastructure demands. Accordingly, the export partnership becomes the linchpin—the “anchor investment”—that unlocks sustainable industrial development trajectories that would otherwise remain inaccessible.

From a policy standpoint, no wholesale reinvention is necessary. Many European jurisdictions, such as Germany, already permit imported hydrogen as feedstock eligible for CCfD support. Extending this logic to encompass imported HBI constitutes a pragmatic, low-barrier adjustment to existing frameworks. Technology readiness is proven, cost advantages are quantitatively validated, and infrastructural pathways for scaling are established. Adoption hinges primarily on political will and coordinated industrial strategy.

Time is of the essence. Steel infrastructure projects inherently involve multi-decade timelines, underscoring the imperative for immediate action. Delays in establishing green iron production capacities push back decarbonization pathways across Europe and defer critical infrastructure development in the Global South, perpetuating energy poverty and inadequate water access. Mobilizing the proposed cross-continental production and trade model today can accelerate emission reductions and simultaneously spearhead sustainable industrial growth where it is most needed.

In conclusion, the decarbonization of steel presents interconnected challenges and opportunities spanning the developed and developing worlds. Embracing hydrogen-based direct reduced iron technology and unlocking new economic models built on cross-border collaboration can yield a win-win: Europe achieves cost-effective green steel production supporting its industrial legacy, while developing nations secure the foundational industries needed for inclusive, low-carbon development. This future demands integrating industrial policy with climate ambition, transcending protectionist subsidies, and embodying a shared global responsibility to green one of humanity’s most essential materials.

Subject of Research: Decarbonization strategies for the steel industry and their implications for both European steelmakers and developing countries.

Article Title: How could steel industry decarbonisation benefit the global south?

News Publication Date: 30-Dec-2025

Web References: 10.26599/TRCN.2025.9550016

Image Credits: Design and Graphics: Ivan Pharabod. Concept: Author.

Keywords: Green steel, hydrogen direct reduced iron, Hot Briquetted Iron, steel decarbonization, European steel industry, developing countries, renewable hydrogen, carbon contracts for difference, industrial development, infrastructure, sustainable steel production, global carbon emissions.

At the heart of the European climate strategy lies the EU ETS, a pioneering cap-and-trade system that imposes costs on carbon emissions from major industrial sectors, including steel production. By setting a gradually decreasing emissions cap and allowing market trading of allowances, the EU ETS creates a robust financial incentive for steel producers to innovate and decrease their carbon intensity. This mechanism has prompted steel manufacturers within the EU to explore and adopt low-carbon technologies—such as electric arc furnaces powered by renewable electricity and hydrogen-based direct reduction methods—that can yield what is termed “green steel.” However, transformation is neither uniform nor universal within the EU steel sector due to technological, economic, and infrastructural disparities.

Complementing the EU ETS, the Carbon Border Adjustment Mechanism (CBAM) aims to level the playing field by imposing carbon costs on imports of carbon-intensive products, thereby reducing the risk of “carbon leakage” where production—and emissions—shift outside EU borders to evade stringent regulations. CBAM’s implementation threatens to reshape global steel markets by incentivizing exporters to match or even exceed the EU’s environmental standards, pushing manufacturers in non-EU countries toward decarbonization. Early signals indicate that CBAM is encouraging international steel producers to develop green steel offerings to maintain market access and competitiveness in Europe’s environmentally conscious market.

The confluence of the EU ETS and CBAM is fostering a dynamic marketplace where green steel is increasingly demanded and supplied. This emerging green steel market does not exist in isolation; it is intimately tied to broader energy transitions, raw material availability, and geopolitical factors. For instance, ramping up green steel production necessitates substantial green hydrogen supplies and renewable energy infrastructure. The complexity and capital intensity of these requirements favor regions with abundant clean energy resources and supportive policy frameworks, thereby influencing the geographical distribution of green steel production hubs.

Moreover, the nature of market signals from the EU regulatory frameworks is stimulating innovation across the steel value chain. Steelmakers are investing in novel technological pathways such as direct reduction of iron using green hydrogen, enhanced scrap recycling with electric arc furnaces, and carbon capture and storage integrations. Each technological trajectory involves distinct advantages and challenges in terms of scalability, energy requirements, and cost efficiency. The resulting diversification of production mechanisms highlights the complexity facing policymakers and industry leaders in defining sustainable pathways.

Economic modeling within recent studies projects that the green premium—the additional cost associated with producing environmentally friendly steel—will initially constrain demand. However, as climate regulations tighten globally and green technology costs decline, green steel is expected to transition from niche markets to mainstream production. Importantly, stringent regulatory environments like those orchestrated by the EU serve as bellwethers influencing policy reforms in other jurisdictions, potentially leading to a cascading global adoption of carbon pricing and offsets.

Trade dynamics are another arena dramatically transformed by the advent of green steel markets. Countries lacking stringent environmental regulations face dual pressures: adapt swiftly or risk market exclusion. This dual pressure is reshaping trade alliances and compelling bilateral negotiations on climate standards embedded within trade agreements. The cost structures introduced by CBAM also provoke strategic reassessments among multinational steel corporations, some of which contemplate relocating production to jurisdictional spaces offering renewable energy competitiveness and technological synergies.

Social considerations stem from these industrial transformations. The steel sector employs millions globally, and shifts toward green technologies demand a rethinking of workforce skillsets, job compositions, and community impacts. Policymakers must orchestrate just transition frameworks that mitigate negative social consequences while maximizing new green employment opportunities. The ratcheting up of carbon constraints can produce uneven economic effects, influencing local economies dependent on traditional steel manufacturing.

Importantly, the analysis reveals that the interaction between the EU ETS and CBAM is creating a ripple effect beyond immediate borders. Neighboring countries and key steel-exporting nations are increasingly aligning their policies with the EU’s green ambitions, spurred by both regulatory pressures and opportunities within emerging green steel markets. This alignment may facilitate international cooperation on carbon accounting standards and technology transfers, ultimately accelerating the global steel sector’s decarbonization.

However, significant challenges remain. A key obstacle is the current insufficiency of robust measurement, reporting, and verification (MRV) systems capable of tracing the carbon footprint throughout complex steel supply chains. Accurate MRV is essential to ensure the integrity of green steel labels and to facilitate trust in cross-border trade mechanisms. The development of standardized carbon content certificates and transparent blockchain-based tracking systems is underway but demands rapid scaling and international harmonization.

Furthermore, investment risks associated with pioneering green steel technologies and infrastructure are high due to technological uncertainties and fluctuating policy landscapes. Financial institutions and governments are called upon to develop de-risking mechanisms and innovative financing models to mobilize private sector investments. Public-private partnerships and international climate finance initiatives could play critical roles in bridging financing gaps for green steel deployment, especially in emerging markets.

The urgency of global climate goals anchors the importance of this research. Steel’s decarbonization pathway is emblematic of broader industrial transformations needed to achieve net-zero ambitions. The European Union’s regulatory frameworks serve as a laboratory for systemic shifts, illustrating how market mechanisms combined with border adjustments can influence industrial behavior on a global scale. Yet, the success of green steel markets depends not only on regulatory stringency but also on international dialogue, cooperation, and inclusive economic strategies.

Lastly, consumer awareness and procurement policies are gaining traction as powerful levers in green steel market development. Buyers in construction, automotive, and machinery sectors increasingly demand responsibly produced steel, compelling supply chain actors to prioritize decarbonized inputs. Voluntary corporate commitments, backed by third-party certification systems, augment regulatory pressures, cultivating an ecosystem where sustainability drives competitiveness.

As industries, governments, and researchers navigate this complex landscape, this emerging consensus on green steel markets underscores a broader realization: climate resilience and economic prosperity are intertwined. The integration of emissions trading, border carbon adjustments, and technological innovation reveals a multifaceted strategy poised to redefine one of the world’s most foundational industrial sectors. The coming decade will be critical to watching these nascent markets mature, evolve, and potentially transform global climate trajectories through sustainable steel production.

Subject of Research: Emerging green steel markets influenced by the European Union Emissions Trading System and Carbon Border Adjustment Mechanism.

Article Title: Emerging green steel markets surrounding the EU emissions trading system and carbon border adjustment mechanism.

Article References:
Johnson, C., Åhman, M., Nilsson, L.J. et al. Emerging green steel markets surrounding the EU emissions trading system and carbon border adjustment mechanism. Nat Commun 16, 9087 (2025). https://doi.org/10.1038/s41467-025-64440-9

Image Credits: AI Generated