Based on legislated climate targets, CO2 emissions in Germany are set to fall quickly and dramatically. To reach the goals requires the development and production of countless steel-intensive technologies and products — from wind turbines and hydrogen pipelines to heat pumps and electric cars. The steel industry is set to play a central role in the German green transition. Ist networks of suppliers and customers represent the most important sectors of the German economy. Together with its extensive value chain, the steel industry accounts for a considerable share of domestic value-added and generates more than a fifth of Germany’s gross domestic product (GDP).
A foundation for transformation
The more the German steel industry decarbonizes, the more Germany itself decarbonizes. Thus, its essential for steel production to be converted to low-emission technologies to help Germany meet its climate targets. While this will require considerable investment, the steel industry in Germany has taken up this challenge, investing far beyond what state subsidies would demand. Producers are making a bet that this commitment will pay off in a decarbonized Germany.
But many things must fall into place for the steel industry’s transformation to be possible. Sufficient quantities of green energy and green hydrogen must be available in good time and at competitive prices. In addition, sizable markets for low-carbon steel are started to emerge, although they need the appropriate regulatory and market conditions to support their development.
Consequences of a failed transition
Whether the transformation succeeds depends to a large extent on factors outside the steel industry’s control, and the next few years will be decisive in this regard. If the restructuring fails, it is not only the existence of the steel industry in Germany that would be at risk. With the loss of this industry, production and service networks that generate a considerable part of the GDP would dwindle. Germany would likely lose its leading role in the world for technology and research and development in the field of steel and metal processing. The snowball effect of such a loss could trigger an avalanche of deindustrialization and economic decline.
On the other hand, an effective transformation has the potential to become the first chapter of an economic-ecological success story that resonates globally. After all, a decarbonized steel industry will directly strengthen its supplier and customer networks. It will make a decisive contribution to maintaining and expanding the technological leadership of German companies and their leading position in research and development.
The entire value-added network of the steel industry, which produces, processes and recycles steel, can become a global pioneer while strengthening and stabilizing the German economy with a move to low-carbon steel. To realize this opportunity, all actors involved must be committed and consistent, work together with a willingness to innovate and the courage to take risks and, if necessary, readjust decisively when implementation falters.
Policymakers must support the industry effort
Policymakers have a decisive and indispensable role to play in a successful transformation. For example, there are shortages in capacity in renewable energy, battery storage, and electrical grids that governments need to urgently address with policies and incentives that support their immediate expansion. The same is true for green hydrogen. Without these sources of power, steel cannot move from carbon-intensive to low-carbon.
All these projects will require enormous, long-term investments. Here is where policymakers must step up with public funding or public projects to build the needed infrastructure and production capacity or legislation that will help ensure private-sector success. Such state guarantees may be the only way to get private investors and steelmakers to make the necessary investments.
