The European Union has now set a binding target: reduce greenhouse gas emissions by 90% by 2040 compared with 1990 levels.
This is a hard deadline that demands near-complete decarbonisation in just 15 years. That means current steelmaking processes, largely powered by coal and fossil fuels, must shift to low-carbon alternatives almost entirely. The challenge is immense, but emerging solutions like circular hydrogen offer a practical pathway forward.
Europe’s steel sector accounts for around 5% of total EU emissions and 22% of industrial emissions. Meeting the 2040 target will require an industrial transformation. Yet the industry is already warning that without affordable low-carbon energy, hydrogen supply, and carbon-neutral feedstocks, Europe risks deindustrialising rather than decarbonising.
EU-funded projects like H2STEEL represent an EU-funded lifeline for the steelmaking industry. Complementary solutions like circular hydrogen are critical to meet the 2040 targets.
Electricity and hydrogen demand surge
Meeting the 2040 target through hydrogen-based direct reduced iron (DRI) steelmaking requires a dramatic scaling of clean energy. Current projections are far from the needed targets. Electricity consumption in the European steel sector will surge from today’s levels of about 75 TWh to 400 TWh per year by 2050, with around 230 TWh dedicated specifically to hydrogen production alone. To put this in perspective, that’s roughly equivalent to the total electricity consumption of a mid-sized EU country.
Some analyses suggest even higher requirements. The electricity demand creates real tension: renewable capacity expansion is accelerating, but reaching the scale needed for full hydrogen-based steelmaking will stretch existing power systems to their limits.
Cost pressure and industry readiness
Cost is another immediate concern. While green hydrogen-based steel could be 15% cheaper than conventional methods by 2040 (due to rising carbon prices), the upfront investment is massive. Agora Industry estimates indicate that deploying half of EU primary steel production on green pathways will require around 130 billion euros by 2030 alone.
Moreover, green hydrogen today remains expensive. Estimates place current green hydrogen costs around 6 euros per kilogram, but the industry consensus is that costs will fall to 1.5 to 2 euros per kilogram by 2040 if electrolyser technology advances and renewable electricity becomes cheaper. The gap between today’s price and tomorrow’s target is wide, and closing it depends on technology development and policy support remaining consistent.
Circular hydrogen: easing pressure through biowaste
Enter circular hydrogen. Instead of relying exclusively on grid electricity for hydrogen production, this approach taps into existing biowaste and biomethane streams to generate hydrogen with lower energy requirements than water electrolysis alone. The process works like this: wet biowaste, including sewage sludge and digestate from biogas facilities, is converted into biomethane. A biochar-based catalyst then cracks that biomethane into hydrogen and bio-coal, a solid carbon co-product that can substitute for coal in steelmaking.
This matters because Europe already has significant biomethane and biowaste infrastructure. The continent produced 196 TWh of biogas and biomethane in 2021, indicating a substantial existing feedstock base that could be expanded with appropriate incentives. Instead of relying exclusively on grid electricity for hydrogen production, a circular approach taps into these existing streams to generate hydrogen with lower energy requirements than water electrolysis alone.
H2STEEL demonstrates this pathway in practice. The project converts wet biowaste (including sewage sludge and digestate from biogas facilities) into biomethane, then uses a biochar-based catalyst to crack that biomethane into hydrogen and bio-coal, a solid carbon co-product that can substitute for coal in steelmaking. By tapping this source, circular hydrogen production reduces dependency on grid electricity, easing pressure on power systems during the transition to 2040.
Reducing import dependence through industrial symbiosis
Circular hydrogen creates industrial symbiosis between biowaste management and steelmaking, reducing Europe’s reliance on imported coal and fossil fuels. The solid carbon byproduct can either be sequestered or used directly in steel processing, creating a closed-loop system that adds economic value to what would otherwise be disposal costs. Research suggests that biomethane splitting and biowaste-to-energy routes can achieve decarbonisation costs below 180 euros per tonne CO₂, positioning them competitively against other low-carbon hydrogen pathways. When integrated with steel production facilities, this circular route can reduce costs further by avoiding transport and storage overhead.
H2STEEL’s work is now advancing toward validation on a larger scale. The project has demonstrated the technical feasibility of this approach and is moving toward proof-of-concept demonstration with real biowaste feedstocks, showing steelmakers and municipalities alike that this pathway is viable in the near term.
Part of a broader solution
It’s important to acknowledge that circular hydrogen won’t solve the 2040 challenge alone. The total available biowaste and biomethane feedstock in Europe is finite and already has competing uses like biogas for power generation, and biomethane for transport. This means circular hydrogen will form part of a broader hydrogen supply mix.
Still, as one of several complementary pathways, it can ease pressure on electricity systems, reduce import dependency, and offer a lower-cost route to decarbonising at least a portion of European steel production.
The 2040 target demands innovation across multiple fronts. Electrolysis will scale dramatically. Carbon capture and storage will play a role for some plants. But circular hydrogen from biowaste represents a practical, near-term solution that Europe can deploy now, using existing infrastructure and feedstocks while new technologies mature.
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