European Union faces pushback from carmakers over mandatory green steel quotas

Associations representing carmakers believe that increasing demand for so-called "green steel" by introducing minimum quotas for car manufacturers will not reduce emissions from steel production. Environmentalists, however, take a different view and believe that the automotive industry should lead the market for green steel. Euractiv reports.

Steelmakers, environmental groups and German politicians recently proposed legislation that would require European carmakers to produce a minimum share of green steel. But the proposals have met with opposition from the industry itself. European carmakers believe such a decision should be driven by market needs and should not simply result from political debate.

A spokesperson for ACEA, the European Automobile Manufacturers’ Association, put it plainly:

“Managed trade in green steel should be avoided, and its use should be market-driven.”

Tensions between the automotive industry and European politicians are rising, including in the wake of European Commission President Ursula von der Leyen’s recent speech to the European Parliament, in which she said she planned to define “lead markets” for clean materials as part of the Clean Industrial Deal during the first 100 days of her new term.

Industry representatives responded that the problem is not a lack of demand for green steel, but quite the opposite. The focus should instead be primarily on the supply side.

“The transition to green steel is a long-term project that should be supported through subsidies for investment costs,” said a spokesperson for the German automotive industry association VDA.

While investment costs for green steel plants are supported mainly through national subsidies, plans by European steelmakers would currently cover only half of the bloc’s primary steel production, according to an analysis by the IndustriAll trade union.

Calculations estimate that blast furnaces covered by the EU Emissions Trading System (EU ETS) can currently produce 97.5 megatonnes a year, but their decarbonisation strategies would cover only 54 megatonnes.

Eastern European industry is even more exposed. Plans to decarbonise steel production in Central and Eastern Europe remain largely theoretical, according to IndustriAll General Secretary Judith Kirton-Darling.

A pioneer in the green steel market?

According to Alex Keynes, Cars Policy Manager at the non-governmental organisation Transport & Environment (T&E), the automotive sector is uniquely placed to drive the decarbonisation of heavy industry, particularly steel production.

According to figures from European steelmakers’ association Eurofer, the automotive industry is the second-largest consumer of steel after construction, accounting for 18% of total EU consumption.

Keynes explains: “The automotive sector uses more high-quality flat products, which have traditionally been dominated by coal-based steel production. There is a real opportunity for the automotive sector, at least in the early stages, to absorb the additional green premium.”

The German delegation within the centre-right EPP group in the European Parliament also supports requiring the automotive industry to purchase a share of green steel. In a position paper published in July, it wrote that even a small quota could create an international sales market while reducing the carbon footprint of finished products.

“Such green lead markets would, for example, reduce the footprint of cars or wind turbines in the steel sector while giving our advanced manufacturing methods a competitive advantage,” the delegation wrote.

Reaching a 40% green steel quota by 2030 would add just EUR 57 to the price of an electric car, according to T&E’s calculations—a “negligible” amount compared with the cost of a new car.

A VDA spokesperson disputed that calculation, however, adding that “a reliable estimate of the costs resulting from such quotas is hardly possible, simply because prices depend on a wide range of factors.”

Eurofer meanwhile estimates additional production costs of EUR 300 per tonne of crude steel (with an average car requiring around one tonne of steel).

“If you want leather seats in your car, that costs you an extra EUR 2,000,” Eurofer CEO Axel Eggert said in a recent interview with Euractiv. “If you want extra green steel, it costs you EUR 300,” he added.

The additional costs will also depend on what is considered “green steel”—a definition that still needs to be agreed across Europe.