Decarbonizing Steel And Chemicals: Why Industrial Demand Is Fueling The Europe Green Hydrogen Market
Two Sectors, One Bottleneck
Steel and chemicals are the two industrial sectors most often cited as the future growth engine of the Europe green hydrogen market, yet both are running into the same wall: existing hydrogen demand is still met almost entirely by fossil-based production, and switching that demand to renewable hydrogen requires volumes no supplier can currently guarantee. Refining alone consumes around 4.8 million metric tons of hydrogen a year in Europe, roughly 60% of total demand, while ammonia production accounts for another 2 million metric tons, or about 20%. Steel and chemicals sit behind both, competing for a supply base that has not yet scaled to meet even the incumbent markets.
Refining And Ammonia: The Incumbent Base
Refiners are moving first because they already run hydrogen-intensive processes and can retrofit existing units rather than build entirely new production routes, which is why the Europe green hydrogen market's near-term growth is concentrated there rather than in heavy industry. Ammonia tells a more cautionary story: despite representing a fifth of hydrogen offtake, fertilizer producers account for just 1.7% of post-FID low-carbon hydrogen projects in Europe, trailing steel, chemicals, road transport, power, and heat applications. Several European ammonia plants have been mothballed since the 2022 energy crisis, and industry representatives have warned that high renewable hydrogen costs, combined with the absence of national implementing legislation, risk a further contraction of the sector.
Steel's Hydrogen Math Doesn't Add Up Yet
Salzgitter's SALCOS programme illustrates the scale problem better than any policy paper. Phase one of the project needs roughly 150,000 tonnes of hydrogen annually, but the company's own 100 MW on-site electrolyzer is expected to deliver only 9,000 to 10,000 tonnes, leaving well over 90% of demand to be sourced externally. Salzgitter has since signed a seven-year offtake deal for 10,000 tonnes a year from EWE's 320 MW Emden plant, covering just 6.5% of Salcos's eventual hydrogen requirement. That gap between announced steelmaking capacity and contracted hydrogen supply is the clearest sign that the Europe green hydrogen market has not yet built enough production to match industrial ambition.
The Retreat: Why Flagship Projects Are Stalling
The economics have proven harsh enough to force outright cancellations rather than delays. ArcelorMittal scrapped a EUR 1.3 billion, subsidy-backed direct-reduced-iron and electric-arc-furnace project in Germany in June 2025, citing high energy prices and insufficient hydrogen availability. Thyssenkrupp indefinitely postponed a hydrogen tender for its 2.5-million-tonne Duisburg DRI plant after bids came in far above expectations, and Salzgitter itself pushed back the next phase of Salcos by three years. Each case points to the same underlying issue reshaping the Europe green hydrogen market: steelmakers are willing to build the furnaces, but not at the currently quoted price of the hydrogen needed to run them.
Carbon Pricing Is Starting To Bite
What is changing the calculus is the phase-out of free EU ETS emissions allowances, which steelmakers have relied on for years to avoid paying for most of their carbon output. Allowances currently trade near EUR 80 per tonne of CO2 and are projected to reach EUR 142 by 2035 under base-case forecasts, with free allocations phasing out for domestic producers and importers between 2026 and 2034. At the same time, the Renewable Energy Directive III requires industrial hydrogen users to source 42% of consumption from renewable sources by 2030, a binding target few member states have yet transposed into law. Together these two mechanisms are the structural forces expected to eventually pull steel and chemicals demand into the Europe green hydrogen market at scale, even if near-term project economics remain difficult.
Where The Real Momentum Is
Not every project is retreating. Stegra's integrated hydrogen-DRI facility in Boden, Sweden, is targeting five million tonnes of green steel annually by 2030, and SSAB's HYBRIT initiative has already supplied hundreds of tonnes of fossil-free steel to customers including Volvo and Cargotec for real-world testing. A green steel certification and premium-pricing ecosystem is also emerging, with frameworks like ResponsibleSteel and SteelZero enabling price premiums of EUR 50 to EUR 200 per tonne for buyers willing to pay for verified low-carbon output. These pockets of commercial traction matter because they demonstrate that segments of the Europe green hydrogen market can clear a profitable price once certification and offtake are structured correctly, rather than waiting for hydrogen costs to fall economy-wide.
What It Will Take To Convert Demand Into Deliveries
Converting steel and chemicals demand into contracted hydrogen deliveries will require closing a capital gap as much as a molecule gap. Industry estimates put the capital expenditure for switching to hydrogen-based direct reduction at EUR 1 to EUR 2 billion per million tonnes of annual green steel capacity, a figure that dwarfs the cost of the electrolyzers themselves once pipelines, storage, and grid reinforcement are included. Until that financing gap narrows and dedicated industrial pipeline connections reach more sites, the steel and chemicals sectors will remain the slowest-moving demand pool within the Europe green hydrogen market, even as they are simultaneously the sectors regulators are counting on to absorb the bulk of future renewable hydrogen production.