European auto industry may get low-carbon steel credit under 2035 targets

• EU steelmakers seek dedicated demand for low-carbon steel
• EUROFER projects over 20 mnt of low-CO2 steel capacity by 2030

A political compromise in the European Parliament could create a new demand channel for low-carbon steel by allowing European automakers to use qualifying EU-produced material toward vehicle emissions compliance.

The agreement between the European People’s Party (EPP), Socialists and Democrats (S&D), and Renew Europe proposes cutting vehicle carbon emissions by 87.5% by 2035 from 2021 levels. Under the proposed framework, the use of qualifying low-carbon steel could provide an additional 7.5% contribution toward meeting the target.

For Europe’s steel industry, the proposal could strengthen the market signal for investments in lower-emission production, while giving automakers an additional route to reduce the embedded carbon footprint of vehicles.

Over 20 mnt of low-carbon steel capacity planned

The European Steel Association (EUROFER) estimates that more than 60 low-carbon steel projects are planned or under development across Europe. Collectively, these projects could add over 20 mnt/year of automotive-grade low-carbon steel capacity by 2030 – enough to cover the steel requirements of vehicles registered annually in the EU.

Steel represents a substantial share of a vehicle’s material footprint, with around 800 kg, or 40-50% of vehicle weight, comprising steel. EUROFER estimates that iron and steel production accounts for 16-27% of emissions linked to vehicle manufacturing.

This makes the automotive sector a potentially significant source of demand for Europe’s emerging low-carbon steel capacity, particularly as producers seek long-term markets to justify the capital-intensive transition to cleaner production.

EUROFER seeks steel-specific credit and EU sourcing rule

EUROFER has urged policymakers to retain the proposed credit exclusively for low-carbon steel rather than extending it across other low-carbon materials. The association argues that a dedicated mechanism would provide a clearer demand signal for steelmakers undertaking decarbonisation investments.

It has also backed the proposed “Made in the EU” requirement, which would restrict eligibility to low-carbon steel melted and poured within the EU. EUROFER says this would ensure that the incentive supports domestic steelmaking rather than imported steel subsequently processed within the bloc.

The European Parliament is expected to vote on the proposal later in 2026, after which negotiations with the European Commission and the Council of the EU will determine the final framework.