29 September 2026 – German Chancellor Friedrich Merz (CDU) visited Dillinger Hütte on Monday and praised the transformation of Saarland’s steel industry as a showcase project for all of Europe. What is really on display there is something else: how to live off the state for decades.
Merz in Dillingen: A Showcase Project Paid for by Taxpayers | Stainless Espresso
First the Subsidies, Then the Market
Power4Steel costs around €4.6 billion. The federal government and Saarland are covering €2.6 billion of that, more than 56 per cent. “The Federal Government stands by the transformation of Germany’s steel industry,” Merz assured. Translated, that means: the taxpayer stands by it, whether they want to or not. No small or medium sized business gets half of its investment reimbursed by the state.
The reason for the visit was not a breakthrough, but fear. Stahl Holding Saar is concerned that Brussels may allow the CO2 price to rise more slowly. If that happens, the multibillion euro bet may no longer pay off. A business model that only works if the state drives up everyone else’s costs is not a business model. It is subsidy architecture.
Billions in Free Allowances
Saarland’s steel industry is anything but a victim of emissions trading. Between 2005 and 2023, it received free allowances worth more than €2.5 billion, including around €780 million in windfall profits. Millions more are likely to have come from electricity price compensation.
The Commission’s latest ETS proposal extends free allocation until 2038 and leaves accumulated legacy allowances untouched. Saarland Minister President Anke Rehlinger (SPD) is now demanding “protection of legitimate expectations” for the first mover. The industry has enjoyed that protection since 2005. With those resources, it could have financed the transformation itself long ago.
For Now, Only the Label Is Green
The new direct reduction plant can run on natural gas, and initially it will have to. From 2029, only 6,000 tonnes of hydrogen per year are contractually secured, while long term demand is estimated at up to 120,000 tonnes. Dillingen is not expected to be connected to the hydrogen network until 2032.
Three electrolyser projects in Saarland with more than 300 MW of capacity are on hold. In 2026, PwC found not a single competitive scenario for primary steel production in Central Europe.
The electricity price argument does not hold up either. At around 16.7 cents per kilowatt hour, industrial electricity prices in 2026 are effectively back at 2014 levels. The socket is not the problem. The problem is steel producers addicted to subsidies, especially those that German policymakers have wrapped in cotton wool for far too long, and that, when necessary, are quite willing to threaten politicians with the steel hammer to keep federal and state governments compliant.
Not a Word for Small and Medium Sized Enterprises
Merz is continuing what began under Olaf Scholz and Robert Habeck: industrial policy for a handful of large corporations that have not been competitive for years and will not become competitive with hydrogen either. Others are left to pay for Berlin’s economic mismanagement.
Downstream processors, distributors and craft businesses bear the cost of CBAM, steel tariffs and higher purchasing prices. The ETS reform provides neither exemptions nor fixed support quotas for them. They are not going to get a Chancellor’s visit with television cameras either, let alone political attention.
A CDU Chancellor who prefers posing on the major construction sites of steel corporations to listening to the backbone of his own economy should not be surprised when his own voters disappear and his party suffers one defeat after another at state level.
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