According to the Stockholm Environment Institute (SEI), Europe’s ambition to lead in green steel production is at risk without stronger and more consistent policy backing. The institute pointed to continued uncertainty surrounding Sweden-based Stegra’s flagship hydrogen-based steel project during its ongoing funding round.
Although the Swedish government granted €37 million in state aid late last year, the support remains below the level previously approved by the European Commission. Additional public funding for associated port infrastructure was rejected, and financial write-downs have added to investor concerns, despite Stegra securing commercial customer agreements.
SEI argues that these developments raise wider questions about Europe’s readiness to deploy large-scale green industrial projects and maintain momentum in its decarbonization strategy.
Global race for green steel intensifies
The institute emphasized that Europe cannot afford hesitation, particularly in regions such as northern Scandinavia that possess strong potential for clean industrial transformation. Inconsistent political and financial backing risks undermining investor confidence and discouraging private capital.
SEI warned that Europe has previously lost leadership positions in sectors such as solar panels, battery cells and electric vehicles. Similar competitive pressures are now emerging in wind turbines, electrolyzers and green steel.
China’s rapid expansion in clean manufacturing was cited as a key example. The recent export of hydrogen-based low-carbon steel by Chinese steelmaker HBIS to a European buyer signals that global competition in green steel is already underway.
CBAM and ETS reforms could shift cost dynamics
The EU’s Carbon Border Adjustment Mechanism (CBAM) is identified as a central policy instrument capable of protecting European producers while encouraging global decarbonization. Beyond addressing carbon leakage, CBAM may reinforce the so-called “Brussels Effect,” prompting trading partners such as India, China, Turkey and South Korea to accelerate their own green steel and emissions trading initiatives.
Cost remains a major concern. Hydrogen-based green steel currently carries a 20-30 percent price premium compared with conventional blast furnace production. However, SEI noted that ongoing revisions to the EU Emissions Trading System (ETS) and the full implementation of CBAM could make green steel produced in renewable-rich regions such as northern Scandinavia, Portugal and Spain cost-competitive within the EU market as early as 2026.
Over time, economies of scale and declining renewable energy costs are expected to further narrow the gap, making price volatility comparable to fluctuations already seen in fossil-based steel markets.
Policy coherence seen as decisive factor
SEI concluded that Europe’s strategic question is not whether to decarbonize primary steelmaking, but how decisively to act. Stronger and more coherent policy frameworks are needed to reduce investment risks, accelerate infrastructure rollout and ensure alignment between EU institutions and member states.
Forthcoming initiatives such as the Industrial Accelerator Act and the European Competitiveness Fund are expected to play a crucial role in shaping demand and investment conditions. The Stegra case, the institute argued, demonstrates that translating climate ambition into industrial delivery requires predictable and consistent support mechanisms.
SEI stated that Europe now faces three broad pathways: transition to low-carbon primary steelmaking supported by domestic clean energy or green iron imports; offshore steel production; or continued reliance on fossil fuel imports. While each path carries risks, SEI stressed that delaying green industrialization could have far-reaching consequences for Europe’s innovation capacity, strategic autonomy and long-term competitiveness.
