Green steel, grey realities: bridging the EU-Ukraine gap

Steel is the backbone of Europe’s industrial muscle, but also one of its climate Achilles’ heels. While steel is essential to the EU’s economy and green transition, this sector is also one of the hardest to decarbonize. Responsible for roughly 5-6% of EU greenhouse gas emissions, the steel industry is now asked to reinvent itself to meet climate targets. That is no small feat. Most European steel plants were built decades ago. Retrofitting or replacing them is slow and costly. “Green” steel technologies are not yet commercially viable.

For Ukraine decarbonization challenge is even greater.  As Ukraine pursues EU membership, it is aligning its regulations with the European acquis. One major requirement is the launch of a national emissions trading system (ETS), which is eventually expected to link with the EU ETS. As a result, Ukraine’s carbon prices will rise, putting pressure on domestic steelmakers to decarbonize.

At the same time, the EU’s CBAM restricts access to the European market for carbon-intensive steel. That presents a serious risk for Ukrainian producers still operating outdated BF-BOF and even OHF capacities. Although the European Commission is drafting a special report on CBAM’s application to Ukraine, potentially allowing for preferential treatment, any exemption will be temporary. As CBAM costs rise, the EU will be less interested in supporting Ukrainian producers.

Decarbonization plans of Ukrainian steelmakers

Ukrainian steel producers recognize the need to decarbonize as there is no other way to remain access to European market. Ukrainian companies announced decarbonization projects. We estimate that total CAPEX needed for green iron & steel projects in Ukraine is around $11 bln.

For example, Metinvest intends to construct three DRI/HBI facilities with capacity up to 5.6 mln t/year that requires investment of $2 bln. Zaporizhstal is considering building EAFs with a total capacity of 3.5-3.8 million t/year to substitute open hearth furnaces (approximate investment – $1.1 bln).

ArcelorMittal Kryvyi Rih is expected to follow the decarbonization pathway of its parent company by transitioning to DRI-EAF route. Based on similar investments in the ArcelorMittal group, such a transition could cost at least $5 billion.

But these projects cannot move forward for several reasons:

1. Ongoing war. Hostilities have damaged production assets and logistics infrastructure. Installation of new equipment is impossible under current conditions. Every year of war is a lost year for Ukraine’s green transition.
2. Lack of funding. For Ukraine, green ambitions are clear, but implementation remains out of financial reach. Ukrainian companies don’t have the financial resources for decarbonization. The war has raised risk premiums and closed access to financial markets. The Ukrainian government does not provide decarbonization subsidies. European funds could support these efforts, but Ukrainian companies currently don’t have access to them.
3. High electricity prices. Ukrainian energy infrastructure is under attack, compromising grid reliability. Domestic power prices are high due to dependence on imports.

Ukraine also faces a specific technological gap. Unlike in the EU, where long steel products are predominantly produced using EAFs, Ukrainian producers rely on BF-BOF route for the same product group. As a result, in Ukraine production of long products needs decarbonization, while EU producers already meet carbon requirements without further action. This makes the operating conditions of Ukrainian and European producers initially unequal.

Practical aspects of decarbonization in the EU

European experience shows that decarbonization is not only expensive, but also time-consuming process. In the EU decarbonization projects typically last 5-12 years. For example, Stegra plans to start commercial operation in 2026 (5 years from the beginning). Hybrit plans to start commercial-scale production in 2027 (11 years). Salzgitter plans to launch 1 phase of DRI-EAF facilities in 2027 (12 years). ThyssenKrupp plans to commission DRI plant using some share of H2 in 2027 (5 years). Voestalpine announced decarbonization strategies for Linz and Donawitz sites in 2022 and commission of EAFs is expected in 2027.

Decarbonization projects usually go through several stages:

1. Concept & feasibility assessment: defining strategic objectives of the project, conducting feasibility study (choosing technologies, sites, sources of energy and raw materials), making rough CAPEX estimates.
2. Investment decision and planning: finalization of scope, capacity, technology pathway; securing board/investor approval for CAPEX; signing letters of intent with key customers, securing long-term supply agreements (iron ore, hydrogen, power); initiating permitting process (environmental, land‐use, grid connection).
3. Financing: raising equity and debt, securing grants/subsidies, finalizing financial structuring and risk mitigation (for example, for hydrogen supply, power price).
4. Contracting for equipment & works: signing EPC (Engineering, Procurement, and Construction) contract if necessary (in such case a single contractor is responsible for all phases of a large project), conducting tenders for major equipment (for example, electrolyzer, DRI module, EAF); negotiating contracts, delivery schedules, performance guarantees.
5. Construction: site preparation (ground‐works, civil engineering, infrastructure: roads, utilities, grid connection etc.), delivery of major modules and their installation, integration of production systems (hydrogen plant, DRI plant, EAF, casting lines etc.).
6. Testing, commissioning & ramp‑up: initial testing of production facilities; trial production at reduced capacity, addressing technical issues, optimization of process flows; ramp‐up to full nameplate capacity over some period (often 1-2 years after installation completion); customer deliveries, quality assurance, production process stabilization.

Even after making the investment decision and signing contracts, companies could wait at least 2‑3 years just for major equipment delivery. It means that on the one hand, decarbonization projects are based on less‑mature technologies requiring extensive engineering work. On the other hand, manufacturers of major equipment have limited capacities, while demand spikes as many companies want to start implementing their decarbonization roadmaps.

Decarbonization challenges

The shift to low-carbon steelmaking is not just a technical or engineering challenge – it is also a fundamental economic and strategic dilemma. If the green transition takes 5-10 years to implement, a key question arises: how will producers remain operational during that time? Most steelmakers already operate on slim margins, and the idea of building new plants under uncertain market conditions raises doubts about long-term viability. These concerns are equally relevant for both EU and Ukrainian producers.

Ukrainian steel capacities were built during the Soviet era. Ukrainian steel companies don’t earn enough to cover the costs of large-scale decarbonization projects. Without robust earnings and external support, these decarbonization ambitions remain out of reach.

Maintaining cost competitiveness is a central concern of “green” transition. Steelmakers must be confident that they will remain economically viable even after implementing expensive decarbonization measures – yet that confidence is missing across both the EU and Ukraine.

Historically, Ukrainian iron and steel companies were among the most cost-competitive globally. But the situation has changed dramatically. Rising logistics costs, supply disruptions for raw materials, and high electricity prices have eroded competitiveness. If these conditions persist, there will be little economic rationale to pursue decarbonization.

“Green” steel production relies on supply of affordable low-carbon electricity. In Ukraine, this is a major bottleneck: energy infrastructure is damaged, and electricity prices are high. In the EU situation is uneven. While countries like France and Sweden benefit from relatively low-carbon and low-cost baseload electricity (nuclear or hydro), steel producers in Germany, Italy, and Poland face volatile and expensive electricity costs. It becomes impossible to produce “green” steel in such conditions since electricity could gain 35-50% in production costs of decarbonized production routes.

Unlike conventional upgrades, decarbonization projects require specific market conditions to succeed. There must be clear, sustained demand for low-carbon steel. There is no sense in construction of a «green» steel plant if no one buys “green” steel. However, at present, no EU-wide policy guarantees demand for “green” steel products. Leading European automakers and appliance producers have signaled support for «green steel» through offtake agreements, but these contracts remain small and symbolic in volume. As a result, steel companies are left wondering whether they’ll generate enough future revenue to justify the upfront investment.

The EU’s stagnating steel demand makes matters worse. With fewer growth prospects, companies are reluctant to embark on high-risk, capital-intensive investments – especially when each “green” steel project require at least €1 bln. Under such weak market conditions, prematurely decommissioning conventional equipment looks economically self-defeating. Without functioning «green» markets and affordable energy, even the best decarbonization plans remain theoretical.

Although EU steel producers are eligible for generous state aid – up to 50% of project investment – many are postponing their decarbonization plans facing an unfavorable economic and policy environment. Even the most advanced steelmakers hesitate when «green» steel demand is uncertain and production costs are rising.

For example, in June 2025, ArcelorMittal canceled its EAF-DRI project in Bremen and Eisenhüttenstadt. In September 2025, Salzgitter postponed the final investment decision on the second phase of its program from 2026 to 2028-2029. In October 2025, Stegra ran into a funding shortfall and began seeking up to €975 mln in additional capital.

What then can be expected from Ukraine – a country with no prior experience in designing large-scale incentive policies and rebuilding capital-intensive sectors? The risks are enormous. Without clear rules and stable conditions, an investor could easily sink billions into a decarbonization project and find themselves trapped by shifting or ineffective regulation.

Delays in European projects also create uncertainty in technology choice. Decisions made five years ago aren’t now relevant, and European manufacturers are already reconsidering their plans.

Given the technological uncertainty surrounding decarbonization in the EU, Ukrainian steel producers will not be able to decarbonize sooner or faster their European peers. The Ukrainian steel industry is closely tied to the European one and must therefore align with its direction.

It looks like the first “green” steel from EU facilities will not appear before 2030 – a milestone that is still years away. Large-scale production is unlikely before 2035, as current projects are moving slowly through planning, permitting, and financing bottlenecks. These are not just delays – they reflect the real-world inertia of transforming a steel industry. For now, decarbonization is a marathon, not a sprint.

Conclusion

Steel sector is difficult to decarbonize, even in the European Union where strong climate regulations and significant government support are in place. Projects are capital-intensive, slow to implement, and rely on favorable energy and market conditions that are currently lacking.

For Ukraine, the challenge is even greater. Despite sharing the EU’s long-term decarbonization ambitions, Ukrainian steelmakers lack access to the funding instruments, grants, and risk-mitigation tools that support similar projects in the EU. They also face war-related destruction, high electricity prices, and deteriorated competitiveness.

Under such conditions, decarbonization of the Ukrainian steel industry can’t be fast process. Transition will take time, and without targeted external support, it risks being delayed far beyond the timelines seen in the EU. Let’s not be populists – decarbonization will not happen in the next five years; it is a much longer and more complex process. The progress needs joint actions of Europe and Ukraine.