Germany allocates €322m for Salzgitter's hydrogen steel project
- BlogSmarter AI
- Edited by Ruth Kearney
- Blog
- February 25, 2026
- Updated:
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The German government has committed an additional €322m to support Salzgitter’s ambitious hydrogen-based steelmaking initiative, Salcos, as the company grapples with regulatory delays and funding gaps. This new allocation, confirmed by the Federal Ministry for Economic Affairs and Energy (BMWE), follows approval from the European Union earlier this month.
Boosting Green Hydrogen Steelmaking
The Salcos project aims to revolutionise steel production by replacing coal in the iron ore reduction process with green hydrogen. In its initial phase, Salzgitter is constructing a 100MW electrolyser plant at its Flachstahl site, which will supply hydrogen to an iron ore direct reduction unit. When operational, this phase alone is expected to reduce the facility’s annual carbon dioxide emissions by approximately 30%, a significant step in decarbonising the steel industry.
The German government initially pledged €1bn to Salcos in 2022 through the Important Projects of Common European Interest (IPCEI) scheme. However, BMWE stated that further financial support was always anticipated due to a funding shortfall in the original calculation. Attempts to combine the aid with other financing mechanisms ultimately proved unworkable.
“By providing the new funds, [the government is] providing a key future project… with the necessary financial security to continue making great strides in its implementation”, BMWE said.
Delays and Challenges
Despite progress on the electrolyser, which is on track to begin operations this year, Salzgitter announced in September that the subsequent phases of the Salcos project - targeted at a 95% reduction in carbon dioxide emissions - would be delayed by three years. The delay was attributed to regulatory challenges, with the company emphasising the importance of “consistent trade protection” in moving forward.
The European steel industry continues to face significant pressures due to competition from low-cost steel imports from countries such as China and India. In response, the European Union implemented its carbon border adjustment mechanism in January, introducing carbon pricing on imported materials like steel and aluminium to level the playing field.
Future Prospects
Salzgitter is also preparing for a tender process to secure at least 100,000 tonnes of low-carbon hydrogen, beginning in 2027. The additional funding from the German government is expected to provide the project with the financial stability required to address these challenges and maintain momentum toward its ambitious climate goals.
Salzgitter has yet to release a statement regarding the latest funding approval.
FAQs
Why does hydrogen steel matter for the global industry?
The Salzgitter hydrogen steel project — backed by 322 million euros in German government funding — represents one of the most significant bets in the global steel sector’s decarbonisation efforts. Green hydrogen as a reducing agent in steelmaking eliminates the coal and coke that are the primary sources of CO₂ in traditional blast furnace production, potentially reducing steelmaking emissions by up to 95%.
The scale of the investment reflects both the opportunity and the challenge. The opportunity is enormous: the steel sector accounts for approximately 7-9% of global CO₂ emissions, and decarbonising it is central to any credible path to net zero. The challenge is equally significant: the production costs of green hydrogen are currently much higher than those of coking coal, and the infrastructure for green hydrogen production and distribution is largely unbuilt.
What are the implications for the supply chain?
For metals distributors, service centres, and fabricators, the shift to green steel production will have significant supply chain implications. As green steel becomes available at scale, customers — particularly in construction and automotive — will increasingly specify it, often in response to their own customers’ sustainability requirements and regulatory obligations like CBAM.
Being prepared for this shift means understanding the provenance and carbon content of the steel being supplied — data that mill certificates alone cannot provide in their current form. GoSmarter’s work on material traceability and carbon tracking is directly relevant to this transition: manufacturers and distributors who can demonstrate the carbon content of their products will be better positioned as the market for low-carbon steel develops.
What does this mean for UK and Irish manufacturers?
About the Author
Editor · Co-Founder & CEO
Ruth Kearney is Co-Founder and CEO of GoSmarter AI — driving commercial growth and strategic partnerships to help metals manufacturers adopt AI and digital tools that actually deliver on the shop floor.
