ArcelorMittal has launched a €2-million project to use smoke generated from its factory to heat buildings in the Belval area.
The new system will cover 70% of Belval's heating needs – the equivalent of 4,000 homes.
It is due to be implemented in May.
Economy minister Etienne Schneider said the project was an example of "sustainable supplies within a so-called 'smart-district' area".
ArcelorMittal's Belval site continuously generates 500,000 tonnes of steel sheets, and its furnaces heat up to 1,300°C.
The new project aims to exploit the furnace smoke emitted at around 400°C to heat water via a transmitter.
It will then be injected into Belval's heating network.
The aim is to make use of lost energy and reduce energy consumption.
Urban heating company SUDCAL's environmental impact is expected to decrease by up to 5,000 tonnes of carbon dioxide per year as a result of the project.