Three principles as part of a holistic decarbonisation strategy

On February 3rd, the Ministry of Energy published its working document describing Luxembourg’s hydrogen strategy. The publication of the document was followed by a short consultation of stakeholders, which closed in March. On behalf of its members, FEDIL participated in this consultation and submitted a note commenting on the government’s working document. The latter describes a distant vision of a decarbonised Luxembourg economy using renewable hydrogen.

The industrial community supports the final vision described in the paper, and it stands ready to contribute its share of efforts to gradually reaching it. Hydrogen is considered one central solution to decarbonise the industrial sector; however, it does not come free of technological and economic constraints. Those constraints need to be addressed, at least during a transition period. Moreover, the strategy needs to strike the right balance between environmental ambitions and industrial competitiveness; its design will crucially determine whether the industrial sector can transform towards the E.U.’s climate neutrality targets of 2030 and 2050

In line with the objectives of the Green Deal, FEDIL urges the government to balance and weigh its hydrogen strategy according to the following three principles as part of a holistic decarbonisation strategy:

  1. Avoid carbon leakage by safeguarding the competitiveness of sectors exposed to global competition while they invest in low carbon technologies;
  2. Support low carbon investment in the industry to accelerate the implementation of breakthrough technologies at an industrial scale;
  3. Deliver the climate target in the most cost-efficient way without undue additional costs.

The technology-neutral formulation of those principles underlines that hydrogen shall be considered one decarbonisation technology among others. Therefore, the emphasis on renewable hydrogen should not be regarded as crucial as described in the government’s paper. Instead, as a holistic decarbonisation strategy, all technology options for decarbonisation must be considered and assessed according to their decarbonisation potential, technological, and economic constraints.

Figure 1 lists the potential contributions to industrial CO2 reduction for different technologies by 2050 as assessed by industry interviewees in 2021. The Figure shows that industry leaders identified the most significant potentials in three key levers: (1) in the electrification of heat, (2) in hydrogen as fuel or feedstock and (3) in carbon capture and use or storage (CCU/S). Those three technologies dominate all the other levers in terms of quantified decarbonisation contribution. At the same time, it unveils that all three technologies’ successful deployment is much dependent on how rapidly we manage to ramp up the production of competitively priced renewable electricity. Further, the assessment shows how limited the contributions are from energy efficiency, biomass as fuel or feedstock or demand circularity.

The hydrogen strategy’s final objective must thus not be measured by how much renewable hydrogen it delivers but by how it contributes to decarbonising society and the economy cost-effectively.

To reach industrial CO2 reduction goals of 2050, electrification, hydrogen, and CCU/S have key roles

A hydrogen strategy that prescribes fully renewable decarbonisation as the only route without thoroughly checking it against economic and technological realities is wishful thinking and will not find the support of the industrial community. Prematurely rejecting technological options by arguing that they are not ‘green’ enough will dramatically and unnecessarily reduce Luxembourg’s economic attractiveness and its sector’s competitiveness compared to other E.U. economies. It will undermine a European level playing field needed to decarbonise on an E.U. and global level effectively.
The following paragraphs describe what the principles mean for hydrogen deployment as a decarbonisation agent in the industry.


In the global drive towards decarbonisation of the steel industry, a high potential is seen in hydrogen as an energy source and reducing agent. Switching stepwise the conventional ironmaking route to hydrogen-based
iron ore reduction would gradually replace fossil carbon with green hydrogen in the reduction process, thus reducing the carbon footprint of integrated plants. Relying on our long-standing process know-how and the cooperation with partners, Paul Wurth develops in detail the technical integration of H2 generation with a huge production capacity. Furthermore, it dedicates significant efforts to assess and optimise the business case of the industrial configuration. This reflects the ambition to make Luxembourg a global innovation centre for green metallurgy and hydrogen technology within SMS group, the mother company of Paul Wurth.

We also see new arising opportunities in so-called Power-to-X applications for the mobility sector. In close cooperation with the electrolyser company Sunfire and additional partners, Paul Wurth is developing hydrogen-based technologies to produce synthetic fuels. These are required to meet climate targets, especially in the aviation sector, where the demand for sustainable fuels will grow from year to year, driven by European policies.

Georges Rassel, CEO of Paul Wurth

1. Avoid carbon leakage by safeguarding the competitiveness of sectors exposed to global competition while they invest in low carbon technologies

Around 35% of the cumulative CO2 emissions reductions needed to shift to a sustainable path come from technologies currently at the prototype or demonstration phase. A further 40% of the reductions rely on technologies not yet commercially deployed on a mass-market scale. Those findings by the International Energy Agency 1 show how urgently research, development, and innovation (RDI) are needed to accelerate the emergence of industrial-scale low-carbon breakthrough technologies. They also suggest that while RDI is ramping up, we need to deploy low carbon technologies as they become available, even if they are not yet 100% carbon-neutral or renewable.

Today, the government promotes electric mobility even though the power grid is not fully decarbonised. In this way, hydrogen as a decarbonisation agent should be introduced even if it is not 100% renewable yet. During a transition phase, until large volumes of hydrogen can be produced by renewable electricity, different low-carbon hydrogen types must be permissible and promoted. Also, other intermediary low-carbon technologies such as CCU/S, direct electrification in some cases, and renewable heat sources must be allowed during that transition phase. Even for applications where we know that those technologies do not represent the definitive solutions towards carbon neutrality. By rejecting CCU/S as a transition technology, the Luxembourg government undermines the IPCC’s Z and the E.U.’s 3 recommendation on decarbonising energy-intensive industries. Both explicitly mention the necessity of carbon removal technologies such as CCU/S to reach carbon neutrality by 2050. An energy policy that rejects these technologies equals revoking support of reaching the carbon neutrality objective of 2050 in Luxembourg. It is de facto endorsing carbon leakage. While the Luxembourg government dismisses CCU/S technologies as ineffective to fight climate change, we observe that some of our closest allies from the Benelux initiated many such projects already (see Figure 2 *).

While Luxembourg dismisses CCU/S technologies, our Benelux partners are embracing them

Preventing carbon leakage and safeguarding the local industry’s competitiveness means that Luxembourg must give its industry the same access to low carbon technologies as the other Member States. This includes connecting to transnational hydrogen grids as interconnection opportunities become available even if they are not reserved for 100% renewable hydrogen. It also includes supporting sectors that are hard to decarbonise to find solutions. The industrial federation reckons that Luxembourg’s geographic location, away from natural carbon storages sites, does not make CCS a viable option. CCU, however, must remain an option to those industries with an incompressible part of CO2 emissions, such as cement and glass production.

Hydrogen as an energy resource is undoubtedly called to play an essential role in the decarbonisation of our consumption. However, its potential to reduce CO2 emissions remains limited for the cement industry, as 2/3 of our emissions are generated by decarbonising raw materials. As a result, our industry is one of the so-called hard to abate industries in terms of greenhouse gas (GHG) emissions. Nevertheless, we are pursuing an ambitious roadmap to reduce our CO2 emissions based on the activation of all the levers that can be mobilised throughout the value chain of the cement and concrete industry. A 40% reduction compared to 1990 can thus be envisioned in the best-case scenario. Achieving carbon neutrality by 2050 will further require breakthrough technologies that are not yet available today. The remaining incompressible CO2 emissions will ultimately have to be captured, stored, or used (CCU/S). For sites not connected to CO2 transport infrastructures, access to “green” hydrogen will be fundamental for transforming captured CO2 into feedstocks for chemical energy storage or the synthesis of polymers and other chemicals. This technology also requires an abundant availability of renewable electricity. Carbon neutrality by 2050 thus remains an ambitious goal that will only be achieved with considerable effort. It will require large-scale public and private investments.

The four European cement companies Buzzi Unicem SpA – the parent company of CIMALUX, HeidelbergCement AG, SCHWENK Zement KG and Vicat S.A. founded CI4C – Cement Innovation for Climate at the end of 2019 to demonstrate the practical feasibility of carbon capture and use. CI4C’s “catch4climate” project is intended to determine the conditions for the large-scale deployment of technologies for separating CO2 from the production process of clinker, an essential constituent of cement, and to develop the further conversion of the captured CO2 into raw materials.

Christian Rech, Fondé de pouvoir, conseil et information, Cimalux S.A.

Finally, FEDIL believes that the hydrogen strategy should review its approach to focus mainly on analysing the current situation until 2030. The time until 2030 should already be used to implement tangible projects that help companies decarbonise cost-effectively. Until 2030, EUA 4 prices are expected to double. Without access to alternative low carbon fuels, the most exposed companies risk being put out of business. Others may relocate to destinations that offer more or more rapid support. Carbon leakage, in this case, is not outside the E.U. but from Luxembourg to the other Member States with more pragmatic hydrogen and decarbonisation strategies.

Once more, our partners from the Benelux show the way. They demonstrate that waiting is no good option for small and highly interconnected economies to tackle the energy transition. Figure 3 * shows an inexhaustive list of ongoing hydrogen projects in the Benelux. Unfortunately, no project is done in Luxembourg.

Our Benelux partners have launched a significant number of hydrogen projects (Not exhaustive - based on publicly announced projects)

2. Support low carbon investment in the industry to accelerate the implementation of breakthrough technologies at an industrial scale

In many sectors, the introduction of low carbon hydrogen as an alternative energy carrier or reaction agent is dependent on novel breakthrough technologies at an industrial scale. The industry has to carry the burden of developing those technologies to an industrial scale. It also bears the investment of upgrading installations and then operating them at costs that are expected to be higher than for conventional technologies. This effort’s success and pace must be supported by state aid, incentivising R&D efforts, supporting CAPEX for upgrading installations and OPEX for running them profitably.
The related E.U. and national state aid rules must be adapted rapidly, and the Luxembourg government must be willing to set aside consequent budgets to accompany this transition.

Public RDI projects in the hydrogen strategy need to be evaluated, ranked, and their funding prioritised according to their contribution to transform the existing sectors towards carbon neutrality or to attract inherently sustainable next-generation industries. Public RDI spending must be adapted to match the decarbonisation challenge’s magnitude without neglecting current RDI priorities. Spending by the industry, such as the Paul-Wurth chair in Energy Process Engineering, focusing on hydrogen’s deployment in industrial processes, show the way. They must be encouraged more and met by suitable public funding to further accelerate low carbon technology developments.

The industry’s investment level and the pace of introduction of novel technologies also rely on hydrogen’s availability in large enough quantities and whether its deployment can be based on a viable business case. Within this context, FEDIL suggests reassessing the sectoral volumes proposed in the government’s hydrogen strategy working paper and matching them with the decarbonisation priorities it attributes to those sectors. The paper seems to prioritise the industry’s decarbonisation among the three target sectors, yet it foresees only the lowest of the three volumes for it 5. Much larger volumes of low carbon hydrogen will be needed if, besides industrial processes, industrial heat, which bears the highest decarbonisation potential, is targeted. FEDIL is ready to engage in the dialogue to contribute to reassessing volumes and decarbonisation priorities.

A national strategy that subscribes to the rapid deployment of hydrogen must apply a flexible sourcing and transport approach according to the pace of hydrogen’s availability on the markets. Knowing that only two per cent of hydrogen comes from renewable sources today, other forms than renewable hydrogen must be considered during a transition phase. Figure 4 suggests priorities for sourcing and transport options to make low carbon hydrogen rapidly available in Luxembourg. It follows a gradual ‘greening’ of options during a transition phase until an international market dynamic establishes, making sufficient renewable hydrogen available on the market at a competitive price.

Luxembourg’s permit and construction lead times of a minimum of 2-10 years for infrastructures development projects suggest that investment decisions for some of those options need to occur in the next 12 months to have projects online before 2030.

3. Deliver the climate target in the most cost-efficient way without undue additional costs

A hydrogen strategy that sticks to this third principle can be realised by allowing a transition period until a proper renewable hydrogen economy develops. It includes considering multiple sourcing and transport options, as described in the previous chapter (see Figure 4), as long as renewable hydrogen is scarce and expensive. The corresponding strategies must find the right balance between the potential decarbonisation benefits and the related sourcing or transport costs.

For sourcing, this means that, during a transition phase, CCU/S based hydrogen imports in large quantities must be permitted or that a national hydrogen production shall be considered either via grid electricity (local electrolysers) or other low carbon production methods (f.ex. bio-hydrogen production from waste materials). Furthermore, local industrial applications with the highest decarbonisation benefit versus costs shall use this hydrogen in priority. Such applications are, for example, ETS installations or other industrial processes with high decarbonisation costs. Using it to substitute the current fossil fuel-based hydrogen applications may fail that cost-benefit criterion and would not improve Luxembourg’s industry’s emission performance.

ArcelorMittal is preparing for the transition to a hydrogen-based economy, as it accelerates its decarbonisation strategy which involves pursuing two breakthrough carbon-neutral technology routes: Smart Carbon, and an innovative DRI-based route.

As cost-effective hydrogen becomes available, Smart Carbon will become Hydrogen Smart Carbon, where hydrogen becomes a key reductant in steelmaking. The innovative DRI route involves moving from using predominantly natural gas to green hydrogen. To enable the availability of hydrogen for steelmaking, ArcelorMittal is participating in the establishment of regional hydrogen networks.

The ”Hamburg Hydrogen Network” will benefit ArcelorMittal’s project in Hamburg, where a pioneering project is underway to build an industrial pilot to produce DRI from green hydrogen instead of natural gas, by 2025.

The « Clean Hydrogen Coastline” and the “Hydrogen Cluster East Brandenburg” networks will benefit two of the company’s DRI-based projects. In Bremen, the group plans to build a large industrial DRI plant and an electric arc furnace (EAF), while in Eisenhüttenstadt a new EAF will be built, supplied with DRI made using hydrogen, from Bremen.

In Belgium, ArcelorMittal is supporting the development of ‘SeaH2Land’, which plans to link GW-scale electrolysis to an area of large industrial demand, where ArcelorMittal Gent is located. ArcelorMittal is involved in similar projects in the north of France, and the north of Spain.

Roland Bastian, CEO & Country Manager ArcelorMittal Belval & Differdange S.A.

Applying the decarbonisation benefit versus costs consideration to hydrogen transport means prioritising the existing gas grid’s repurposing to transport a blend of hydrogen and natural gas 6. The argument that hydrogen is a too noble gas to mix with other gases does not hold. The use of hydrogen is not an end in itself but a mere means for decarbonisation. Injecting low carbon hydrogen into the grid during a transition phase could contribute to rapidly decarbonising parts of the gas grid. This approach would allow a gradual phase-out/reconversion of the gas grid and avoid decommissioning grids that are not yet fully depreciated. It would also address the challenge of financing dedicated hydrogen grids with only a few connected consumers.


The government’s hydrogen strategy must refocus its vision on the short to the midterm horizon. It must describe the transition roadmap, including an action plan, milestones, and budgets until 2030 so that at the latest, by the end of this decade, the industrial community has a clear vision on what hydrogen and other decarbonisation assets it can count on to reach their emission targets. Ideally, this vision would be accompanied by tangible first projects showing the government’s commitment to supporting the industry in its decarbonisation efforts.

Knowing that permit and construction lead times of hydrogen or CCU/S infrastructure projects in Luxembourg would require a minimum of 2-10 years, investment decisions for such projects need to occur in the next 12 months to have projects online between 2025 to 2030. Further, industrial assets typically have a lifetime of 30 – 50 years, so that any investment decision now affects economic gains for the next few decades and influences whether we can reach the 2050 climate targets. As a result, industrial investments risk stalling or being withdrawn the longer the government does not commit to a more short-term action-oriented plan. The urgency of the climate crisis, often used to argue climate policies, should also apply to creating decarbonisation options for the industry.

Moreover, the competence gap that Luxembourg is about to accumulate in both sustainable molecules and CCU/S technologies raises concern. Among the 35 hydrogen and CCU/S projects identified in the Benelux, not one is in Luxembourg. There are merely two Luxembourg based companies involved in all those projects. The lack of experience to integrate key decarbonisation technologies into Luxembourg’s economy will make it challenging in the future to offer viable decarbonisation solutions to sectors needing them most. With the rising EUS prices, they will inevitably be exposed to carbon leakage. According to the European Commission’s definition of carbon leakage sectors, a workforce of over six thousand people is affected directly by the risk of carbon leakage in Luxembourg, including steel, aluminium, glass, cement, and copper. The Luxembourg government must thus consider rethinking its position to offer the industry realistic and cost-effective decarbonisation perspectives in a timely manner.

Les auteurs
Gaston Trauffler
Responsable politique industrielle auprès de la FEDIL