ArcelorMittal withdrew an application to use the Florange site in northern France for an EU pilot project in less polluting steel that Paris had hoped could keep two idled blast furnaces going.
ArcelorMittal has been under fire for months in France over its plan to permanently shut its Florange furnaces on the grounds they are not economically viable.
It said it could not currently pursue the Ulcos project for technical reasons but denied it had abandoned the project.
"[This] is perfectly coherent with what is in the agreement signed with the French government," the company said, adding: "This in no way means the Ulcos project is being abandoned."
Money diverted to renewable energy
Chris Davies, the EU lawmaker who crafted a special funding mechanism to support carbon capture and storage (CCS) projects in Europe, said he was "bitterly disappointed".
"The announcement today that steelmaker ArcelorMittal will not proceed with their Ulcos project in France means that not one single new CCS scheme is set to proceed," said Davies, a British lawmaker in the European Parliament.
More than €1.5 billion of EU funding had been made available but the money will now be diverted to new renewable energy schemes, Davies said.
"Hopes of Europe becoming a world leader in the development of a key technology to combat global warming have been dashed," Davies continued, saying governments in the Netherlands, Romania and Poland have also failed to provide the additional money necessary.
"This is a huge blow to efforts to combat climate change," Davies said in a statement.
The announcement comes as a setback for European countries, which are engaged in global climate talks at the UN summit in Doha.
"Today's news marks a major failure by Europe to step up to the mark," Davies said. "We talk big about the need for action yet fail to deliver."
"Most studies suggest that CCS is needed to prevent more than 20% of global warming emissions escaping into the atmosphere, but the technology must be developed to bring down costs."
Ulcos (Ultra-Low Carbon Dioxide Steelmaking) is a consortium of 48 European companies and other organisations working to develop ways to cut CO2 emissions from steel production in order to curb the greenhouse gases blamed for global warming.
ArcelorMittal had agreed to invest €180 million in Florange and keep the furnaces in working order so they could be used if its application to use the site for the Ulcos project was successful.