€1B for Salzgitter to decarbonize steel production using hydrogen

A €1 billion German initiative to assist Salzgitter Flachstahl GmbH in decarbonizing its steel production processes by using hydrogen, including renewable hydrogen produced on site, has been approved by the European Commission in accordance with EU State Aid regulations.

This is made possible by a new production facility. The action helps meet the goals of the European Green Deal and the EU Hydrogen Strategy while reducing reliance on imported Russian fossil fuels and advancing the green transition in accordance with the REPowerEU Plan.

The decision made today follows the approval of two Important Projects of Common European Interest (IPCEI “Hy2Tech” and “Hy2Use”) in the hydrogen value chain on July 15, 2022, and September 21, 2022, respectively. Germany chose Salzgitter’s initiative from an open request to be a member of an IPCEI on hydrogen technologies and systems, which led to the two IPCEIs that were authorized. It was better suited for evaluation under the Guidelines on State Aid for Climate, Environmental Protection and Energy 2022, nevertheless, given its traits and goals.

Margrethe Vestager, executive vice president in charge of competition policy, said: “This €1 billion measure enables Germany to assist Salzgitter’s aspirations to use renewable hydrogen in its steel manufacturing processes and to produce it on site. This would lessen Germany’s reliance on imported fossil fuels while helping to green an industry that consumes a lot of energy and is hard to abate. This is a fantastic illustration of how the Member States might assist the EU’s energy-intensive industries in meeting the difficulties of becoming green through the State Aid system.

German measure

In order to promote investments in the greening of Salzgitter’s steel manufacturing processes through enhanced generation and use of renewable hydrogen, Germany informed the Commission of a €1 billion measure.

The assistance, which will take the form of a direct grant, will support the development and installation of a direct reduction plant and electric arc furnace at the company’s location in the Lower Saxony city of Salzgitter. This facility will replace one of Salzgitter’s operating blast furnaces. This will make it possible to replace the usage of fossil fuels (such as coal used for iron ore reduction) with hydrogen in the manufacturing of steel, thereby eliminating all direct CO2 emissions from the process. The new plant will manufacture around 1.9 million tonnes of crude steel annually more sustainably than the amount now produced using a more polluting technology.

A large-scale (100 MW) electrolyser, which will create around 9,000 tonnes of renewable hydrogen annually, will also be supported by the measure. The direct reduction plant will use the hydrogen generated by the electrolyser as feedstock. In 2026, it is planned to begin running the electrolyser, direct reduction plant, and electric arc furnace.

The project is anticipated to prevent the yearly emission of 3.6 million tonnes of carbon dioxide once it is finished. Additionally, the power used to generate the hydrogen will only come from renewable sources in order to maximize the decrease in greenhouse gas emissions.

The Commission’s evaluation

The Guidelines on State Aid for Climate, Environmental Protection and Energy 2022 and Article 107(3)(c) of the Treaty on the Functioning of the European Union (TFEU), which permits EU countries to support the development of specific economic activities subject to certain conditions, were used by the Commission to evaluate the measure.

In the framework of an open call in 2021, Germany chose Salzgitter’s proposal to be a member of an IPCEI on hydrogen technologies and systems. One of the main kinds of aid permitted by the CEEAG, its main goal is to implement technology targeted at lowering greenhouse gas emissions in the beneficiary’s manufacturing operations. The CEEAG was consequently the most appropriate assessment framework for the measure.

The Commission discovered:

The project makes use of new technology as a result of beneficiary-conducted research, development, and innovation (R&D&I) efforts.

Thanks to renewable hydrogen generation and its use in the manufacturing process, the measure helps an economic activity, in particular, the development of steel production in a more sustainable manner. The European Green Deal, the EU Hydrogen Strategy, and the REPowerEU Plan are a few examples of important EU policy projects that it supports.

Since the recipient would not have made the investments in the steel process decarbonization project without public assistance, the aid has an “incentive impact.”

The legislation has a negligible effect on trade and competition inside the EU. In particular, it is essential and suitable to ensure the manufacture of more environmentally friendly steel and renewable hydrogen. Additionally, it is equitable since the amount of help is in line with the actual financial need. Additionally, if the initiative generates additional net income as a result of its success, the firm will repay a portion of the help it got to Germany (a claw-back mechanism).

The positive advantages of the aid far exceed any potential negative consequences on trade and competition inside the EU.

According to EU State Help regulations, the Commission accepted the aid on this basis.

Background

The Commission will evaluate the compatibility of environmental protection, including climate protection, and energy aid measures that are subject to the notification requirement under Article 107(3)(c) TFEU in accordance with the 2022 Guidelines on State Aid for Climate, Environmental Protection, and Energy (the “CEEAG”).

The new regulations, which will take effect in January 2022, establish a flexible, functional enabling framework to assist the Member States in providing the required assistance to achieve the Green Deal objectives in a focused and economical manner. The regulations take into account the growing significance of climate protection and coincide with the significant EU goals and objectives outlined in the European Green Deal as well as other recent changes to the law in the energy and environmental sectors. They contain sections on measures to maintain the security of the energy supply, subject to specific restrictions, as well as help for reducing greenhouse gas emissions through support for renewable energy, energy efficiency measures, aid for clean mobility, infrastructure, and the circular economy.

The ambitious energy and climate objectives set by the EU are to be met by the Member States with the least amount of tax burden and without unjustified competitive distortions in the Single Market, according to the 2022 CEEAG.

The Commission reaffirmed its climate goals in the European Green Deal Communication in 2019, setting a goal of net zero emissions of greenhouse gases in 2050. The “Fit for 55” legislative proposals made by the Commission on July 14, 2021, is based on the European Climate Law, which has been in effect since July 2021 and which enshrines the 2050 climate neutrality objective and introduces the intermediate target of reducing net greenhouse gas emissions by at least 55% by 2030. To enhance the generation of energy from renewable sources and decrease energy usage across the EU, the Commission has proposed amending the Renewable Energy Directive and the Energy Efficiency Directive with more demanding enforceable yearly objectives.

The European Clean Hydrogen Alliance, which unites the European hydrogen community, was established in July 2020 after the Commission released its EU Hydrogen Strategy, setting high targets for clean hydrogen production and usage (industry, civil society, and public authorities).

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