Steel industry needs 13 to 35 billion euros support for climate-neutral transition – analysis

The steel industry needs financial support of 13 to 35 billion euros to make the shift to climate-friendly steel production, according to an analysis conducted by think tank Agora Energiewende and made available to Handelsblatt. Carbon contracts for difference (CCfD), which compensate companies for the additional investment needs for climate-friendly production, are an efficient instrument to reduce emissions, the think tank writes. "The financial requirement for climate protection contracts to transform the steel industry by 2030 amounts to 13 to 35 billion euros, depending on the combination of policy instruments,” the analysis reads. The report states that a permanent refinancing mechanism is needed "so that the industry receives investment security." In addition, green lead markets must be established parallel to the climate protection contracts, "which reward the added value of climate-neutral steel and establish it as a standard on the market."

A "swift and pragmatic implementation of climate protection agreements" is needed, according to the think tank. The next government needs to make decisions about investment funding and commitments to cover the additional costs of the green transformation at the beginning of the next legislative period, it writes. It is necessary to "create the framework conditions for suitable investment decisions as quickly as possible, as the downstream approval procedures and plant construction take about three years."

Several German parties have proposed CCfDs as a key tool for industry decarbonisation in their election manifestos. In 2020, the German government presented a steel strategy to help the industry make the shift to climate-neutrality. The strategy falls in line with a broader set of measures to decarbonise Germany's industry and facilitate the breakthrough of hydrogen as a key component of the energy transition.