ArcelorMittal declared it “impossible” to proceed with direct reduction iron and electric arc furnace plans at its Bremen and Eisenhüttenstadt facilities in June 2025, abandoning €1.3 billion in approved German government subsidies. The decision, coupled with ThyssenKrupp’s reconsideration of its €2 billion subsidized green steel project at Duisburg and suspension of hydrogen procurement tenders due to prices “significantly higher” than expected, exposes fundamental economic flaws in Germany’s hydrogen industrial strategy.
The scale of subsidy abandonment represents an unprecedented failure in European industrial policy coordination. The European Commission had approved the €1.3 billion ArcelorMittal measure through the Recovery and Resilience Facility, while ThyssenKrupp secured EU approval for €2 billion in German state subsidies for hydrogen-based steel production. Combined, these projects represented over €3.3 billion in committed public funding that companies now consider insufficient for economic viability.
Market dynamics reveal systematic misalignment between subsidy design and industrial economics. ThyssenKrupp’s hydrogen tender sought up to 151,000 tonnes annually under 10-year contracts but was suspended when initial bids exceeded company expectations. This procurement challenge illustrates the chicken-and-egg problem plaguing hydrogen infrastructure development, where producers require guaranteed demand while consumers need assured supply at competitive prices.
The timing of these cancellations coincides with deteriorating European industrial competitiveness. ArcelorMittal had indicated in November 2024 that policy, energy, and market environments had not moved favorably for European decarbonization investments, suggesting systematic rather than project-specific obstacles. Energy cost differentials between Germany and competing regions create structural disadvantages that subsidies alone cannot overcome.
Technical and logistical constraints compound economic challenges. Hydrogen-based direct reduction requires integrated supply chains spanning production, transportation, and storage infrastructure that remain underdeveloped in Germany. The absence of dedicated hydrogen pipeline networks forces reliance on truck delivery, increasing operational costs and supply security risks that undermine long-term investment confidence.
Subsidy structure inefficiencies become apparent when companies can abandon projects without penalty after securing funding approval. ArcelorMittal stated it would not claim the allocated state funding, indicating that approval mechanisms lack sufficient commitment guarantees or penalty structures to ensure project completion. This design flaw may encourage speculative applications that consume administrative resources without delivering intended outcomes.
Competitive positioning concerns drive strategic recalculation as companies evaluate global production footprints. ArcelorMittal indicated it would shift focus to countries “that can offer a competitive environment, suggesting German industrial policy creates investment diversion rather than genuine decarbonization. This pattern threatens domestic manufacturing capacity while potentially increasing carbon leakage as production migrates to less stringent regulatory environments.
The steel sector’s hydrogen withdrawal signals broader challenges for Germany’s transition strategy across energy-intensive industries. Chemical companies, cement producers, and other industrial users face similar economic calculations regarding hydrogen adoption costs versus alternative decarbonization pathways or production relocation. Sequential project cancellations could undermine political support for continued hydrogen subsidization.
Policy coordination failures emerge between federal and state government commitments and market realities. The substantial subsidies represent significant fiscal commitments that yield no tangible decarbonization benefits when projects fail to proceed. This outcome raises questions about due diligence processes, market analysis quality, and coordination mechanisms between different governmental levels responsible for industrial policy implementation.
International competitive dynamics complicate domestic hydrogen strategy. Companies can leverage subsidy competitions between countries while ultimately selecting locations based on total cost considerations, including energy prices, regulatory complexity, and market access. German policymakers face pressure to increase subsidy levels or risk continued industrial migration, creating unsustainable fiscal escalation patterns.
The infrastructure gap between hydrogen production capacity and industrial demand creates circular investment barriers that subsidies fail to resolve. Without sufficient scale economies from coordinated development, individual projects face elevated costs that render them uneconomical despite substantial public support. This coordination failure suggeststhe need for comprehensive industrial ecosystem development rather than project-specific financial assistance.
Risk allocation between public and private sectors reveals fundamental tensions in transition financing. While governments provide substantial upfront commitments, companies retain decision-making autonomy over project continuation based on evolving market conditions. This asymmetric risk distribution may require restructuring to align public investment with binding private sector commitments that ensure project completion and operational performance targets.
