Nerves have persisted around Europe’s high-profile green industrial project Stegra during its ongoing funding round. The green steel producer was granted EUR 37 million in state aid by the Swedish government late last year, still below the amount approved by the European Commission. The round remains uncertain, marked by the rejection of additional state aid for external port infrastructure, and write-downs, even as Stegra has secured customer deals.

Europe cannot afford roadblocks in its industrial transition, particularly in regions where the potential for clean industrial transformation is greatest. Wavering support for green industrialization sends negative signals that risk eroding trust in Europe’s decarbonization agenda and discouraging private investment well beyond the immediate financial impacts.

The risks of inaction

Public debate often focuses on the risks associated with failed industrial bets. What is missing is an equally serious discussion on the risks of inaction. Sweden – and Europe more broadly – could lose a strategically important industry as Chinese producers continue to squeeze European firms out of global markets. This has already occurred for solar panels, battery cells and electric vehicles, and similar dynamics are now emerging in wind turbines and electrolysers. Scaling up European primary green steelmaking is essential for supply chain resilience and the competitiveness of strategically important downstream industries. By failing to move from innovation to deployment, the EU risks losing its relevance in global industrial development.

Through strategic government support, early action, and the development of strong domestic supply chains and markets, key Chinese manufacturing industries have advanced rapidly and captured dominant global market shares. In 2024, China accounted for roughly four out of five solar modules and battery cells produced globally, and more than two-thirds of electric vehicles. The recent deal by Chinese steelmaker HBIS to export hydrogen-based low-carbon steel to a European buyer is a further signal that Chinese producers are gearing up to become major exporters of hydrogen-based green steel.

CBAM and the emerging global green steel race

The EU’s Carbon Border Adjustment Mechanism (CBAM) aims to create a more level playing field for European steelmakers and prevent carbon leakage by placing a carbon price on imported goods. Beyond its immediate trade effects, CBAM holds the potential to incentivize trading partners to implement decarbonization strategies in order to maintain their trading position – an example of the so-called “Brussels Effect”, whereby EU regulation transforms markets beyond its borders. There are already early indications that this signal is being picked up by several major steel exporters to the EU:

• India: JSW Steel, a major steel company, is embracing green steel manufacturing in their sustainability plans in response to CBAM, with pilot facilities already under construction.
• China: CBAM appears to have contributed to the Chinese government’s decision to expand its national emissions trading system to include steel, cement and other heavy industries, alongside signals of future absolute emissions caps in targeted sectors.
• Türkiye: Türkiye’s Ministry of Industry and Technology, together with multilateral development banks, has launched the Türkiye Industrial Decarbonisation Investment Platform, which aims to mobilize USD 5 billion in private investment by 2030 to decarbonize energy-intensive industries such as steel, aligning national efforts with global decarbonization policies.
• South Korea: Facing growing trade pressures, the South Korean Government has unveiled a strategy to advance its steel industry, including a focus on green competitiveness through hydrogen-based ironmaking and a USD 600 million investment in a demonstration project.

In short, the race is underway. For Europe to remain a leader in green industrial development, it must recognize the strategic value of accelerating green industrialization – especially in regions such as northern Scandinavia, which are uniquely positioned to lead due to their access to low-cost renewable electricity. This requires translating net-zero goals into practical measures that reduce risk, accelerate investment and ensure timely deployment of supportive infrastructure for primary green steelmaking. Unrealized visions risk eroding confidence in EU climate policy and weakening Europe’s position on the world stage.

Given uncertainties surrounding China’s role as a global supplier of electrolysers, strong European demand could also influence where electrolyser manufacturing capacity is located, further reinforcing Europe’s position in the global green technology race.

Costs, competitiveness and Europe’s strategic choice

But what about costs? Green steel is currently more expensive, with estimates suggesting a price premium of 20–30%. However recent EU Emissions Trading System revisions and the enforcement of CBAM could make hydrogen-based green steel production in regions such as northern Scandinavia, Portugal and Spain cost-competitive within the European market by 2026. Our research further indicates that future production costs of hydrogen-based green steel across global value chains are likely to vary within a range comparable to the cost-variability already observed in fossil-steel markets (see Figure 1). When deployed at scale, green steel may therefore face cost uncertainties that are similar in magnitude to those already managed by the conventional steel industry. As costs are likely to fall due to economies of scale and declining renewable energy costs, these differences should become an increasingly manageable risk.

From policy ambition to delivery

If costs are likely to be higher everywhere in the near term, the strategic question for Europe is not whether to act, but how decisively. Stronger and more coherent policy frameworks are needed to create the conditions for investment in green industrialization. In the coming weeks and months, the European Commission – under the leadership of Commissioner Sejourné – is expected to launch several initiatives, including the Industrial Accelerator Act and the European Competitiveness Fund. As the case of Sweden and Stegra illustrates, EU-level initiatives must be complemented by effective coordination across the Commission and member states to ensure delivery of the European Green Deal. Standing firm on their direction signals stability and predictability, making Europe a more attractive destination for the private capital required to support this transformation.  

On climate mitigation and industrial strategy, the options for the EU are clear: transition to low-carbon primary steelmaking using domestically produced clean energy or green iron imports; offshore its steel production; or continue to rely on fossil fuel imports. Each pathway carries risks, but decision-makers must approach them with clear eyes, as the consequences of delay or retreat would be profound for European innovation, strategic autonomy and competitiveness.