Europe’s steel industry could reduce production costs by up to 15 per cent by 2040 by importing green iron while retaining downstream jobs, according to a new analysis by the Agora Industry think-tank. The report proposes outsourcing the most emissions-intensive production phase—ironmaking—to regions with cheaper renewables and iron ore.
European steelmakers should focus on high-value activities like finishing, safeguarding an estimated 90 per cent of EU steel jobs tied to these processes, while outsourcing ironmaking. “Green iron trade can become a strategic pillar of Europe’s industrial policy,” said Julia Metz, director of Agora Industry. “The EU and national governments should ensure that the Clean Industrial Deal strengthens resilience, competitiveness and a climate-aligned global economy.”
Prohibitively expensive
The study models the cost of producing one tonne of crude steel, finding that importing green hot briquetted iron (HBI) from Australia, Brazil or South Africa could undercut domestic European production by 15 per cent. Sourcing from the Middle East or North Africa would yield 12 per cent savings. These gains hinge on lower renewable energy costs abroad and Europe’s retention of steelmaking processes like rolling and coating. With the steel sector accounting for five per cent of EU emissions, the strategy aims to align decarbonisation with economic pragmatism.
Agora’s blueprint dovetails with EU climate policies: free emissions allowances under the bloc’s carbon market expire in 2034, and the Carbon Border Adjustment Mechanism (CBAM) will penalise imports of dirtier steel. By 2045, Agora projects carbon prices reaching €194 per tonne, making conventional steel production prohibitively expensive. “Integrating green iron trade into Europe’s steel transition offers a forward-looking solution while renewable hydrogen remains costly at home,” Ms Metz said.
Agora Industry is a programme under Agora Energiewende, a Berlin-based think tank focused on shaping policy for the clean energy transition. While Agora Energiewende primarily addresses power systems and renewables, Agora Industry specifically targets industrial decarbonisation, aiding sectors like steel, chemicals, and cement in transitioning to net-zero emissions.
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Three-phase transition
The study prescribes a phased approach to ease Europe’s shift. Phase one prioritises replacing coal-fired blast furnaces with hydrogen-based direct reduced iron (DRI) plants. This would anchor early green steel production, leveraging EU renewables and hydrogen infrastructure. Germany, the bloc’s largest steel producer, has several such projects underway, though their viability depends on affordable hydrogen. “Investment support to first domestic green iron projects is crucial,” Ms Metz noted.
Green iron trade can become a strategic pillar of Europe’s industrial policy. — Julia Metz, director of Agora Industry
Phase two focuses on harmonising intra-EU green iron supply chains. Common standards, certification systems and demand from sectors like automotive and construction would foster a single market for green steel. The report urges “lead markets” for clean products, ensuring economies of scale. Phase three expands globally, with strategic partnerships securing green iron imports from sun-rich nations. This would hedge against hydrogen-supply bottlenecks and diversify sources. “Building intra-EU value chains will hedge against costs, while global trade opens access to lowest-cost production,” Ms Metz added.
The sequencing aligns with EU policy timelines. As CBAM ramps up and carbon prices rise, imported green iron would offset cost pressures. Agora estimates that maintaining current emissions intensity (1.8 tonnes CO2 per tonne of steel) would incur €237–349 per tonne in carbon costs by the mid-2030s—a burden imports could mitigate.
Global South to lead production
Countries with abundant renewables and iron ore reserves—notably Brazil, South Africa and Australia—emerge as potential green iron powerhouses. Brazil and South Africa’s mix of solar, wind and low labour costs position them for the lowest production costs globally. However, high capital costs currently favour Australia and Saudi Arabia, where financing risks are lower. “Strategic partnerships, such as the EU’s Clean Trade and Investment Partnerships, are critical to unlock investments,” the report states.
Incumbent steel giants like Japan, South Korea and Germany face structural disadvantages. Higher energy costs—even in a renewables-dominated future—inflate hydrogen prices, complicating domestic green iron production. Europe plans hydrogen pipelines from renewables-rich regions like Iberia and Scandinavia, but imports remain essential. “Europe’s steel sector must access lower-cost green iron via offtake agreements or partnerships,” the analysis advises.
The report highlights geopolitical stakes: over 70 per cent of global steel remains coal-based, with ageing blast furnaces due for replacement this decade. Decisions now will lock in technology for decades. Agora urges the EU to leverage tools like concessional finance and guarantees to nurture partnerships, citing the EU-South Africa pact as a model.
Securing downstream jobs
With 10 per cent of EU steel jobs tied to ironmaking, the report stresses measures to protect downstream roles. Cheaper electricity, green steel demand incentives and robust CBAM enforcement are vital. “Anchoring lead markets for green steel at home and building partnerships abroad are essential,” Ms Metz said. The EU’s planned 34 million tonnes of hydrogen-based DRI capacity—half its green iron needs—relies on steady hydrogen supply, a vulnerability imports could address.
The Clean Industrial Deal and revised state-aid rules are flagged as enablers. Germany’s early projects, reliant on subsidies and de-risking instruments, are deemed critical for scaling DRI technology. The report warns against delaying phase-one investments: “First-wave projects drive innovation, kickstart green markets and build domestic expertise.”
Agora also calls for tighter CBAM rules to prevent “carbon leakage” through third countries. Without this, cheaper coal-based imports could undercut EU producers even as they decarbonise. The mechanism’s full implementation, paired with green iron trade, would shield Europe’s industry during its transition.
Cost pressures mount
By 2045, Agora projects EU carbon prices hitting €194 per tonne, with steelmaking costs for fossil-based producers reaching €237–349 per tonne. Green iron imports would reduce this burden, narrowing the price gap between conventional and low-carbon steel. “The higher costs placed on fossil-based steel will accelerate market adoption of green technologies,” the report argues.
The analysis cautions against over-reliance on domestic hydrogen, which remains costlier than imports. Europe’s hydrogen corridor plans—linking Iberian solar and Scandinavian wind to industrial hubs—are deemed necessary but insufficient. “Global trade mitigates risks from domestic hydrogen delays and diversifies supply,” Ms Metz said.
Sequencing allows technology development alongside carbon pricing. — Agora Industry study
For exporters, green iron offers economic upside. South Africa and Brazil could generate billions in trade value and thousands of jobs by moving up the value chain. Yet this requires EU support to offset capital risks. “CTIPs [Clean Trade and Investment Partnerships] integrating industrial, climate and trade policies are a starting point,” the report notes.
Ambition versus pragmatism
Agora frames green iron trade as a compromise between climate urgency and industrial reality. Outsourcing ironmaking cuts emissions and costs without offshoring entire industries. “This approach keeps downstream activities—and their jobs—in Europe,” Ms Metz emphasised.
The report acknowledges tensions. Domestic DRI investments risk stranded assets if imports undercut them, while delayed partnerships could cede market share to global rivals. “Sequencing allows technology development alongside carbon pricing,” it advises, urging policymakers to lock in phase-one gains before expanding imports.
For Europe’s steel sector, the path is clear: blend homegrown innovation with strategic imports or risk being priced out. As Ms Metz concluded, “The decisions we make this decade will shape the sector for generations.” With coal’s demise inevitable and hydrogen’s rise uncertain, green iron offers a bridge—one that EU policymakers must now choose to cross.
