Green Hydrogen in Steel, Arcelor Mittal Cancels 2 Projects with €1.3 B in Subsidies, Stegra Lands $1.6 B Funding Boost (2021 to 2026)

Green Steel Commercial Projects Face Economic Headwinds

The transition from successful pilot projects to commercially viable, large-scale green steel production using hydrogen is encountering significant economic and infrastructural resistance. While the 2021-2024 period was characterized by ambitious project announcements and technological validation, the period from 2025 has been defined by a market correction, with major players canceling or delaying flagship projects due to high costs and market uncertainty, despite substantial government support.

H 3: From Pilot Success to Commercial-Scale Cancellations

• Between 2021 and 2024, the industry demonstrated the technical feasibility of the hydrogen-direct reduced iron (H-DRI) pathway. The HYBRIT project in Sweden, a joint venture of SSAB, LKAB, and Vattenfall, was a key example, successfully producing fossil-free steel and demonstrating superior properties in hydrogen-reduced iron.
• The market dynamic shifted in 2025, exposing the economic fragility of these projects. Arcelor Mittal cancelled two green steel projects in Germany, which had attracted €1.3 billion in subsidies, citing unsustainable costs and weak market demand for green steel premiums.
• This trend was reinforced by Salzgitter, which announced in late 2025 a three-year delay for its flagship SALCOS hydrogen steel project, highlighting the difficulties in securing favorable economic conditions even for Europe’s most advanced initiatives.

H 3: The Hydrogen Cost Barrier

• The core challenge is the cost of green hydrogen, which remains significantly higher than conventional fuels. In 2026, unsubsidized green hydrogen production costs range from $2.50 to $7.00 per kilogram, compared to grey hydrogen at $1-$2 per kg.
• This high input cost translates to a “green premium” for the final product. Analysis shows green steel produced via H 2-DRI costs around $562 per tonne, approximately 5% more than conventionally produced steel, a cost that many offtakers are not yet willing to bear without stronger regulatory incentives. The decarbonization of other heavy industries, such as in the hydrogen in cement industry, faces similar cost-related hurdles.

€1.3 Billion in Subsidies Not Enough to Prevent Project Cancellations

Recent events demonstrate that even multi-billion-dollar government subsidies are insufficient to de-risk green steel projects in the face of prohibitive operational costs and uncertain market demand. High-profile cancellations and delays in 2025 signal that the financial models for many first-generation commercial plants are not viable under current market conditions, forcing a strategic reassessment across the industry.

H 3: Arcelor Mittal and Salzgitter Project Setbacks

The most prominent signal of this market reality check came from Germany. In June 2025, Arcelor Mittal cancelled its plans for green hydrogen-based steel plants in Bremen and Eisenhüttenstadt. This decision was made despite having secured €1.3 billion in German government subsidies, underscoring that public funding alone cannot bridge the gap created by high energy prices and an insufficient market for premium-priced green steel. Similarly, Salzgitter‘s decision to delay its SALCOS project by three years points to systemic economic challenges rather than isolated project-specific issues.

Table: Significant Green Steel Project Cancellations and Delays (2025)

Europe vs. New Frontiers: A Geographic Split in Green Steel Momentum

A geographical divergence is emerging in the development of hydrogen-based steelmaking. While Europe, particularly Scandinavia, continues to advance with commercially-backed projects, the industrial heartland of Germany is experiencing significant setbacks. Simultaneously, new regions like the Middle East are leveraging their renewable energy potential to position themselves as future hubs for green iron production.

H 3: Swedish Progress Contrasts with German Delays

• Sweden remains a leader, with projects moving from pilot to commercial stages. H 2 Green Steel (operating as Stegra) secured a $1.6 billion funding boost in June 2026 to build its large-scale plant in Boden, which aims to produce steel with up to 95% lower CO 2 emissions. This progress is built on the earlier success of the HYBRIT pilot.
• In contrast, Germany’s ambitions have been tempered. The cancellation of Arcelor Mittal‘s projects and the delay of Salzgitter’s SALCOS program highlight the acute challenges of implementing green steel strategies in regions with high energy costs and without integrated renewable energy infrastructure. The stalling of projects is a broader issue, impacting sectors from shipping with Mediterranean Shipping Company to energy majors like Repsol.

H 3: The Middle East and Asia Emerge as Production Hubs

• New regions are capitalizing on favorable conditions. In Oman, Meranti Green Steel announced in January 2026 that it had secured full offtake coverage for its planned green hot briquetted iron (HBI) plant in Duqm. This model, which focuses on producing and exporting an intermediate product (HBI) rather than finished steel, leverages the region’s abundant solar resources for competitive green hydrogen production.
• China and India are also advancing their own hydrogen metallurgy projects. A May 2026 report outlined the economic case for green steel production in India, while other analyses track the top hydrogen metallurgy projects in China, indicating a growing focus in Asia, driven by national decarbonization goals. These efforts mirror strategies by national energy companies like Petro China and ADNOC to develop domestic hydrogen capabilities.

SWOT Analysis of Hydrogen-Based Steelmaking

The strategic landscape for hydrogen in steel has shifted from technological optimism to a focus on commercial realism. While the underlying technology is sound and policy support exists, economic weaknesses and external threats related to cost and market structure have become the dominant factors shaping project viability between 2024 and 2025.

Table: SWOT Analysis for Hydrogen in the Steel Industry

Hydrogen-Based Steel Slashes Emissions by 95%
Hydrogen-based steel production (H2-DRI-EAF) emits 0.05-0.1 t CO2 per tonne, achieving up to 95% less CO2 than traditional BF-BOF methods (1.8-2.1 t CO2). This makes green steel the lowest emission route, significantly outperforming transitional NG-DRI-EAF and renewable Scrap-EAF.

(Source: IEA — via Stage set for German steel industry to become major green hydrogen offtaker | S&P Global)

Scenario: Offtake Agreements to Dictate Project Success

Going forward, the success of green steel projects will be determined less by technological innovation and more by commercial execution, specifically the ability to secure binding, long-term offtake agreements. As seen with recent cancellations, government subsidies are a necessary but insufficient condition for success. The new litmus test is whether a project can prove its bankability by locking in customers willing to pay a premium for green steel, thereby de-risking the massive upfront capital investment.

H 3: The Meranti Green Steel Offtake Model

• Watch the model pioneered by Meranti Green Steel in Oman, which announced in January 2026 it had secured full offtake coverage for its planned facility. This signal demonstrates that demand exists but must be contractually secured before final investment decisions are made. This approach reduces market risk, a factor that was critical in the failure of Arcelor Mittal’s German projects.

H 3: Carbon Pricing as the Key Enabler

• Monitor the effective carbon price in key jurisdictions like the EU. H 2-DRI is estimated to become cost-competitive at a carbon price of €34–€68/t CO 2. As carbon prices approach and exceed this range, the economic case for green steel strengthens independent of direct subsidies, making projects more resilient to policy shifts. This dynamic is also influencing the hydrogen strategies of integrated energy firms like Equinor and Chevron.

H 3: From Green Steel to Green Iron Exports

• Expect a potential shift from producing finished green steel to producing and exporting intermediate products like green hot briquetted iron (HBI). This allows regions with cheap renewable energy (like the Middle East or Australia) to supply HBI to traditional steelmaking centers, which can then use their existing Electric Arc Furnaces. This decouples green hydrogen production from the final steel market, optimizing the supply chain globally.

The questions your competitors are already asking

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• Companies signing green steel offtake agreements
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• EU carbon price forecast for steel industry
• Cost comparison green steel production methods

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