Low-Carbon Steel Credits in the EU Cars CO₂ Standards

Transport & Environment (T&E) has outlined a proposal for incorporating low-carbon steel credits into the European Union’s car CO₂ emission standards, aiming to foster a market for green steel within Europe. Given the automotive industry's significant steel consumption and purchasing power, this mechanism could accelerate the development and commercialisation of low-carbon steel projects, thereby strengthening Europe’s industrial base and reducing the carbon footprint of vehicles. The initiative is positioned as a strategic tool to support the transition to fossil-free steel production by creating financial incentives for carmakers to source greener materials. T&E emphasises that the credit system should be strictly focused on the cleanest steel production methods, advocating that from 2035 only fossil-free primary steel should be eligible for credits. The organisation warns against rewarding transitional or less ambitious steel pathways beyond this date, as this could weaken the investment signals necessary for achieving near-zero emissions in steel manufacturing. To provide clarity and regulatory certainty, T&E calls on the European Commission to establish a clear and stringent definition of “low-carbon” steel by the end of 2026, incorporating this into the European Sustainable Products Regulation (ESPR) and associated secondary legislation. The proposal also includes a phased approach starting in 2030, allowing early adopters to earn credits under strict conditions, such as capping credits at 3% of carmakers’ CO₂ targets between 2030 and 2034. Priority is given to primary steel production combined with post-consumer scrap, with T&E recommending that only post-consumer scrap be counted towards low-carbon steel credits to avoid windfall gains. A dynamic emissions baseline is suggested to accurately reflect emission reductions in primary steelmaking, ensuring that credits correspond to genuine environmental benefits. Furthermore, T&E insists that the lead market for green steel should remain anchored in Europe, with only EU-produced green steel qualifying for credits initially. From 2035, limited use of imported green iron, capped at 50% of eligible steel, would be permitted to maintain market integrity while recognising global supply realities. This position paper underlines that sufficient low-carbon steel capacity will be available in Europe by 2030 to meet most of the automotive sector’s demand, signalling a realistic pathway for the industry’s decarbonisation efforts.