Low-Carbon Steel Credits in the EU Cars CO₂ Standards

If designed properly, low-carbon steel credits under the EU car CO₂ standards can create a lead market for green steel produced in Europe. Given the automotive sector’s large steel demand and purchasing power, the mechanism could support the scale-up and commercialisation of green steel projects, strengthen Europe’s industrial base and reduce the carbon footprint of vehicles.

T&E’s main policy asks:

1. Focus the mechanism on the cleanest steel pathways. From 2035 onwards, only fossil-free primary steel should qualify. Rewarding weaker or transitional pathways beyond 2035 would undermine the investment signal for genuinely near-zero steel.
2. Define eligible low-carbon steel strictly and quickly. The Commission should adopt a clear methodology under the ESPR and secondary legislation by the end of 2026 to define “low-carbon” steel, in order to give investors and carmakers regulatory certainty.
3. Maintain a dedicated credit mechanism for green steel only while removing competing flexibilities (e.g. on fuels) that would dilute demand for green steel.
4. Introduce a limited transition phase from 2030. Credits could start in 2030 to reward early movers, but in that case, should be tied to strict conditions, e.g. they should be capped at 3% of carmakers’ CO2 target from 2030–2034.
5. Primary steel should be prioritised, combined with post-consumer scrap. A dynamic emission baseline taking scrap content into account should be defined in order to reflect actual emission saving efforts in primary steel making while avoiding windfall credits from using scrap. T&E proposes that only post-consumer scrap is accounted for in the low-carbon steel credits and in the sliding-scale methodology.
6. Keep the lead market anchored in Europe. Only EU-made green steel should qualify, while allowing limited use of imported green iron from 2035 onwards, (max 50% of eligible steel produced from imported green HBI).

This position paper explores the low carbon steel credit mechanism discussed under the review of the car CO₂ emission regulation and sets out T&E’s recommendations to ensure that steel credits deliver real climate and industrial benefits.

The paper also shows clearly that already in 2030 there will be enough low-carbon steel available in Europe to cover most of the automotive steel demand.

Download the position paper to read more.

Article from T&E.