The cost of green steel production compared to conventional steel

Steel from 'green' hydrogen cannot compete with coal-based steel

Indicative unsubsidised and pre-tax cost of steel in €/kg for different steel production technologies. 

 

Steel is a very cheap product. With coal-based technology, it only costs about 50 euro cents per kilogram – cheaper than a kilogram of potatoes or a litre of milk.

Another surprising fact about steel is its marginal role in the price of the end product. Take, for example, a car and an offshore windmill. Both contain a vast amount of steel – about one ton of steel per car and 1,000 tons for a windmill. Switching from conventional steel to green steel doubles the cost, but it makes hardly any difference in the final pricing of steel-heavy products. It raises the price of a car by just 1% to 2%, depending on the sale price. The capital needed for the investment in the windmill increases by 2% to 6% depending on the location of the wind farm (shallow or deeper waters).

 

Switching to green steel has little impact on product prices

Indicative price impact of a switch from conventional coal-based steel to hydrogen-based steel which is assumed to be twice as expensive

 

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For a typical car, the price increase from green steel translates into a couple of hundred euro only. That doesn't seem such a big deal, given the thousands that consumers spend by ticking the options list in the showroom. If ‘green steel’ was an option, it would cost far less than the option of additional features like alloy wheels. An increasing amount of consumers indicate their willingness to pay more for green products. The cost increase for a car and offshore windmill falls well within estimates for the green premium.

In this view, the steel sector is very different than transportation sectors. Steel often represents a minor share of the total cost of the end product. Flight tickets in aviation or shipping rates in marine shipping are much more sensitive to fuel costs. Take aviation as an example. Substituting traditional jet fuel by a hydrogen-based synthetic fuel would raise the cost of a two-way ticket from Amsterdam to London by about +150%, to New York by +400% and to Sydney by +450%.

Taking this into account, it isn't too surprising to see companies like Volkswagen partnering up with large steelmakers like Salzgitter AG to source green steel. Volkswagen plans to use the low-CO₂ steel from the end of 2025 in important future projects such as the Trinity1 e-model, which will be produced in Wolfsburg from 2026 onwards.