Decarbonization of Ukraine’s steel industry: the European way

Transition to emission-free steelmaking is a non-alternative for the Ukrainian steel industry. The main driving factor is Ukraine’s integration into the EU and harmonization of regulations, standards, plans and targets.

 Ukraine is determined to undertake a green transformation of its industry, but even without the war this was not easy. Now it is simply impossible if we rely only on our own resources.

Current situation and plans of the companies

At present, two enterprises of Ukrainian steel sector are working on the EAF-scrap based route. These are Interpipe Steel (Dnipro) and Dniprospetsstal (Zaporizhzhya).

Specific CO2 emissions at Interpipe are 1.288 tons per 1 ton of seamless pipes and 1.307 tons per 1 ton of railway-wheel products. Dneprospetsstal has this figure of 1.7 tons. Therefore, they meet the current European criteria for green steel.

The rest are integrated mills of ArcelorMittal Kryvyi Rih (AMKR), Zaporizhstal and Kametstal (Kamianske) of Metinvest group and Dnipro Iron and Steel Works (DMZ) of DCH group, which have a total of 13 blast furnaces. Their average emissions are 2.3 tons of CO2 per 1 ton of steel, i.e. the potential for reduction is quite large. To realize it, most of the enterprises have chosen the EAF-transition model.

• Zaporizhstal plans to build an electric steelmaking complex (ESC) with a capacity of 3.3-3.8 mln tons per year.
• Kametstal will build an ESC with a capacity of 3.2 mln tons.
• At DMZ it was announced to build an ESC without specifying the capacity. The facility is currently being designed.

AMKR Combine did not declare such large-scale transformations. At the same time, the international experience of the parent company shows that it has followed the DRI-EAF path at all its European plants. Therefore, it can be assumed that ArcelorMittal will decide such a strategy for the Ukrainian enterprise. This allows AMKR to retain the benefits of vertical integration. In any case, the realization of such plans will start after the war, now they are put on pause.

Due to the limited steel scrap resource in Ukraine, significant volumes of low-carbon iron ore, DRI and HBI will be required to operate future EAF facilities. Therefore, Metinvest Group has plans to develop its production on the basis of its own mining enterprises in Dnepropetrovsk region. Two DRI modules for 2.5 million tons per year each are expected to be built there.

AMKR may also build two DRI-modules of 2.5 million tons each. According to GMK Center analysts, the mill may decide such a path based on the experience of its parent company ArcelorMittal.

Initially, these plants will use natural gas as a reducing agent, with a switch to H₂ possible in the distant future. The raw material will be locally produced iron ore pellets. Back in 2020, Metinvest’s Central Mining and Processing Plant started producing products that are suitable for further DRI production. In the future, the project can be scaled up to other Minings.

As a result, the future DRI capacity will not only ensure the operation of Ukrainian enterprises, but will also allow exporting up to 2 million tons per year of low-carbon iron ore to the European market. At the same time, both nominal capacity and utilization of steelmaking units will decrease.

The EAF transition and the emergence of the DRI industry require huge additional volumes of green electricity. Therefore, some steel companies are planning to create their own generation.

• Metinvest will build two power plants with a total capacity of 37 MW at Kametstal and Central Mining and Processing Plant. The cost of the project is $18.1 mln.
• DCH announced the construction of a 40 MW power plant. The facility will be located on the site of DMZ coke plant, which is supposed to be decommissioned and dismantled.

The remaining enterprises can use third-party sources of renewable energy. This will be one of the main directions of further decarbonization, along with increasing energy efficiency of steel and rolling production.

For example, Interpipe has already quadrupled the share of green electricity in its total consumption: from 7% in 2010 to 28% in 2024. As a result, its Scope 2 emissions fell from 0.264 tons of CO2 per 1 ton of pipe products in 2010 to 0.117 tons in 2024. For railway-wheel products – from 0.365 tons to 0.121 tons.

Renewable energy in Ukraine developed rapidly in the pre-war period. After the outbreak of war, the process slowed down, but did not stop. The state strategy for post-war recovery Plan Ukraine Facility envisages further growth of RES capacity, taking into account the huge potential in solar and wind energy.

It is also planned to develop nuclear energy – construction of power units 3 and 4 at Khmelnytskyi NPP. The implementation of these tasks will make it possible to provide Ukrainian steel companies with 100% environmentally friendly electricity.

Interpipe intends to reduce CO2 emissions by 26% by 2030 compared to 2023 in the seamless pipe segment by further increasing the share of renewable energy sources in its energy consumption, as well as a number of other measures. For railroad-wheel products, it is 25%. Other steel companies do not set such clear targets.

Impact of government policy

According to GMK Center estimates, the Ukrainian steel industry needs $12 billion in capital investments to achieve climate neutrality. Obviously, steel companies will not be able to accumulate such a resource on their own. Taking into account that reduction of greenhouse emissions is not a problem of an individual industry, but a national task, state participation in decarbonization seems quite logical.

In Canada, the government is providing 50% of the funding for the above-mentioned $1.8 billion EAF transition project for the Dofasco steel mill. The funds come from the federal and provincial budgets. This is the same money that the company previously transferred there as payment for greenhouse emissions.

Ukraine also levies a similar tax on industrial enterprises. But these funds, unlike in Canada, go to the general fund of the state budget and are spent on current needs. Therefore, firstly, it is necessary to establish the targeted use of environmental payments. But even in this case, according to Andriy Tarasenko, Chief Analyst of GMK Center, it will not be possible to finance decarbonization in full.

One can also refer to the experience of Japan, where the government provides tax credits of $149 for each ton of green steel produced at facilities that were built as part of the decarbonization of steel mills. This includes both new EAFs to replace BFs and hydrogen steel industry. Obviously, under the current conditions, when more than 50% of the Ukrainian state budget deficit is financed by external financial aid, this is not a very realistic option for the industry.

That is why Ukrainian steel companies critically need to get access to European instruments. Such as the Fair Transition Fund, the Innovation Fund, grants and preferential financing for green transition projects. This requires reaching appropriate agreements at the highest political level.

«The issue of access of enterprises directly to European funds looks logical. Firstly, by reducing CO2 emissions Ukrainian industry and Ukraine as a future EU member make a contribution to the EU climate goals. Secondly, the majority of decarbonization costs (from 70 to 80%) will be spent on the supply of equipment from leading European manufacturers such as Danieli (Italy), Primetals (Austria), SMS (Germany),» commented Stanislav Zinchenko, CEO of GMK Center.

The next problem requiring government intervention is the protection of the domestic market from unfair steel imports. The lack of effective barriers on its way is the main challenge to decarbonization in Brazil, Australia, the UK, and the EU. This sharply narrows the opportunities for steel companies to green up production, and sometimes simply nullifies them, as local players are forced to compete by reducing the profitability of their sales.

The same can be said about Ukraine. According to the State Customs Service, imports of long steel products in January-June 2025 increased by 62.6% year-on-year – to 128,000 tons. Of this volume, 59% was supplied from Turkey.

Analysis of the situation shows: where there is strong tariff protection of the domestic market, steelmakers are confidently moving towards carbon neutrality. For example, in the USA, Canada, Japan, South Korea and Turkey.

Finally, the cost of electricity for industry. Currently, in Ukraine, it is one of the highest in Europe. In the first half of the year, electricity prices here have already surpassed nneighbouringcountries such as Poland, Romania, Hungary, and Slovakia. They are 34% higher than in Germany and 3.5 times higher than in Sweden.

This is explained by the significant damage to the energy infrastructure caused by Russia’s attacks. Yes, it is an objective factor. But nevertheless, the largest Ukrainian steel mill AMKR before the war, electricity accounted for 7% of the selling price of its products. Now this share has increased to 20%.

Other enterprises have similar situation. What will happen after the EAF-transition, when the indicator reaches 50% or even exceeds it? Complete loss of competitiveness and production curtailment. But is this the goal of decarbonization?

Thus, a realistic and stable cost of electricity is both a prerequisite for supporting the current operating activities of Ukrainian steel mills and a guarantee of their green future.

This can be achieved by introducing a price ceiling for energy-intensive enterprises and long-term contracts with fixed rates, as well as by strengthening price competition between state-owned energy producers. This, in turn, requires appropriate decisions at the governmental level.

«There are two main obstacles to decarbonizing Ukraine’s steel industry: the price of energy and access to finance. The current energy price makes the economics of low-carbon projects inefficient, although before the war the figures may have looked acceptable. If the situation does not change, it will be unprofitable to implement decarbonization projects in Ukraine. The second point is that domestic plants cannot finance multi-billion dollar projects on their own. Given the post-war budget priorities, the state will be unable to provide sufficient funding for decarbonization. Therefore, the only way is access to European decarbonization financing funds. If these two problems are not solved, decarbonization will simply end with the closure of plants,» summarized Stanislav Zinchenko.