The European steel industry currently faces multiple challenges: shrinking profitability, global overproduction, and the immense undertaking of going from contributing to 5% of the EU’s CO₂ emissions to being an industry compatible with a net-zero future. To tackle the hurdles, the European Commission released its Steel and Metals Action Plan on March 19^th. Is the plan what Europe needs to finally show real decarbonisation muscles? 

«We cannot afford any more delays. Decarbonisation equals long term competitiveness.»

A competitive decarbonised European steel sector 

Decarbonising the steel industry is not a walk in the park. It requires replacing immense production facilities, switching from coal to currently scarce clean hydrogen and electricity, and sourcing much sought-after high-grade iron ore¹. Even the upstream value chain will require major restructuring while the relevant infrastructure needed in the future is completely different from the one in place now. All of this will come with a price, yet it will need to happen fast – both to achieve urgently needed emission cuts and secure the competitiveness of European steel in an emerging green market. 

«You can’t build tomorrow’s green steel industry with yesterday’s infrastructure.»

Ensuring the right infrastructure 

Infrastructure is the backbone of a functioning industry. Bellona welcomes that the Action Plan mentions the need for electricity, hydrogen and CO₂ infrastructure². However, the European Commission does not offer clarity on how the corresponding energy demand and CO₂ infrastructure needs will be integrated into existing or upcoming systems planning.  

Energy and CO₂ infrastructure requires massive investments and takes years to build. Only with concrete planning (based on realistic assumptions on carriers’ availability, prices and demand), the infrastructure needed to decarbonise the steel and metals industry can be deployed. An action plan requires concrete time frames and pathways, defining the type and scale of infrastructure needed.  To achieve its goal, it is imperative that enabling prerequisites such as the integration with a functional hydrogen value chain is addressed. 

Conversely, the Action Plan mentions Carbon Capture and Storage (CCS) as relevant yet does not acknowledge the urgent and massive infrastructure buildout that needs to come with it. Through the Net-Zero Industry Act, the EU and its Member States are asked to develop the infrastructure needed to link emitters with CO₂ storage sites. Aligning the Steel and Metals Action Plan with CO₂ infrastructure planning would optimise transport networks and provide more investment security for steel producers. In this context, the work on the EU CO₂ Transport Regulation should be expedited to ensure that the necessary framework conditions for decarbonisation efforts are in place.³ 

How to plug the carbon leaks 

Putting a price on emissions only works if everyone must pay. Bellona has always regarded the Carbon Border Adjustment Mechanism (CBAM) as a necessary tool to prevent carbon leakage while also enabling the gradual phase-out of free allowances under the EU Emissions Trading System (ETS). This transition is essential to strengthen the carbon price signal and incentivise investments in emissions reduction. The CBAM further holds great potential in promoting cleaner industrial production in non-EU countries by encouraging them to establish their own carbon pricing systems. For CBAM to be truly effective, both objectives – protecting EU industries and driving global climate ambition – must be upheld throughout its implementation. CBAM’s effectiveness is at the centre of several points the Action Plan raises: from preventing resource shuffling and creative scrap accounting, introducing a scope expansion to downstream sectors to an export solution. 

Bellona acknowledges that the issue of keeping European exports competitive in light of the EU ETS and CBAM is a challenge that must be tackled appropriately. The CBAM is vital in reshaping the global approach to industrial emissions. A simple rebate system for exports risks disincentivising emission cuts and undermining the very purpose of CBAM and the ETS: creating a strong carbon price signal and fostering decarbonisation initiatives around the globe. The impact on third countries should not be overlooked: CBAM has prompted several other countries to explore options for their own carbon pricing schemes and border adjustment mechanisms. If further jurisdictions follow the EU’s initiative, this could contribute to a more level playing field for sustainable goods internationally. Besides, the CBAM will be introduced gradually, which will give the Commission time to properly assess and refine the mechanism accordingly. It is crucial that a solution for exports does not jeopardise the prospect of raising climate ambitions across the board. One problematic scenario would be retaining free allowances specifically for exports – an approach that would undermine the planned phase-out of free allowances under the EU ETS and dilute its effectiveness.  

«Thankfully the SMAP acknowledges key challenges in the CBAM’s implementation: preventing resource shuffling, addressing the scrap loophole, and finding a solution for exports. When tackling these issues, the protection of EU industries from carbon leakage and driving global climate ambition must both be central.»

Circularity: What goes around needs to come around 

Scrap utilisation is one of the low-hanging fruits for achieving low-carbon steel production, as the Action Plan recognises. Bolstering scrap availability in Europe represents a sensible endeavour. When it comes to the eventuality of scrap export restrictions though, caution and thorough consideration is warranted: Limits to scrap exports may appear to be the logical choice for promoting decarbonisation efforts at first glance. However, several third countries have become reliant on scrap trade inflows from Europe for their steel industry. An abrupt withdrawal of this resource could inadvertently push their industries to emission-intensive primary steel production for replacement, potentially reversing any emissions savings achieved domestically. If the EU moves forward with such restrictions, these measures must be thoughtfully complemented by strategies designed to enhance scrap availability internationally: Promoting knowledge sharing on scrap collection, sorting, and recycling technologies. Creating mutual climate benefits should be the goal rather than simply shifting emissions beyond Europe’s borders. 

Likewise, plans for recycling quotas should avoid just shifting limited scrap resources from one sector to another within Europe itself. In the long term, recycling will become increasingly important in covering Europe’s demand for most steel types. Currently, the majority of the EU’s scrap steel is used by the construction sector. Introducing stand-alone recycled content requirements in the automotive sector, without complementary measures, could cannibalise existing scrap supplies in the short term. A more systemic approach which takes into account the composition of the market would be necessary. If going for the option of quotas, they should come with obligations for additional investment in improved scrap recovery and treatment. In this context, Bellona welcomes that the Commission commits to involving “all relevant stakeholders to discuss recyclability and recycled content obligations”. We hope this means that the views of civil society organisations, representing societal interests at large, shall no longer be neglected.  

Among these views is Bellona’s agreement with the Commission that the role of standardisation needs to be improved. For instance, recipe-based standards currently prevalent in sectors such as construction effectively put a brake on sustainable product development. Transitioning to performance-based standards could unlock a race to the environmental top and accelerate the shift towards a circular economy.  

Leading the way with lead markets 

Somebody must take the first step: with lead markets, the Action Plan promotes a crucial instrument widely recognised for its potential to kickstart the transition. Bellona welcomes their recognition and supports a broad application. The criteria defining lead markets must be ambitious enough to encourage deep decarbonisation rather than simply continuing with incremental energy efficiency improvements, as already pursued for the last few decades. Equally, when setting these criteria, the realistic potential of decarbonisation technologies must be taken into account. We should not favour pathways that sound exciting in theory yet could not be scaled with the resources available.  

With the mandatory use of sustainability requirements and a minimum weight of the award criteria dedicated to climate impact, demand for low-carbon products could be created.  Such measures need to be carefully designed of course: Primary and secondary steel differ significantly in emission profiles and market composition. What they have in common is the need to be decarbonised. Any content requirement thus needs to reflect those differences and take the individual impact on each market into account, so that they can be applied where they have the greatest effect, maximising emission reductions across the value chain. across the value chain. 

If the voluntary carbon intensity label, to be proposed by the Industrial Decarbonisation Accelerator Act, shall effectively promote genuine decarbonisation efforts, it must reflect real-life emission levels. Should the Commission rely on ETS data, the benchmarks chosen must represent the best-performing production processes. They should align with a credible pathway to net-zero emissions by 2050 and not refer to existing product benchmarks, which still use emission-intensive processes.  

Moreover, the calculation must encompass relevant indirect emissions, such as from electricity and hydrogen production, or upstream emissions from natural gas extraction and transport. Failing to do so risks rewarding steel produced with fossil gas sourced from third countries with high methane leakage rates or coal power-based electricity. This would unfairly tip the scales against clean competitors from Europe. 

It is not only about the greenhouse effect: Bellona welcomes that, alongside the voluntary carbon intensity label, the Ecodesign for Sustainable Products Regulation will apply environmental criteria beyond just the carbon footprint. However, developing the methodology for these lifecycle assessments and the carbon label in parallel rather than jointly risks creating inconsistencies. Claiming sustainability through one label while potentially failing to meet broader environmental criteria would undermine trust and defeat their purpose. The labels should be reliable and inspire consumer confidence from the beginning. They should be based on a robust methodology, not only a simple one. 

Bellona, a long-time advocate for tackling emissions from construction equipment, is also glad to see the recognition of machinery as a key sector to achieve the objectives of the Industrial Decarbonisation Accelerator Act, and the inclusion of the supply chain perspective. It should not be forgotten that the EU’s Non-Road Mobile Machinery sector must also transition towards zero-emissions at the tailpipe, which means replacing the internal combustion engine with a zero-emission one. The sector may thus face increased costs from both measures. A thorough analysis is recommended to ensure that promoting low-carbon steel consumption does not come at the expense of advancing the transition towards zero-emission machinery. 

No decarbonised steel without decarbonised grids  

As so often with efforts to decarbonise, the availability of clean and affordable energy is an indispensable enabler. Metals industries are no different in that regard. Ensuring timely connection to the grid of supply and demand is vital, which is why Bellona welcomes the Commission’s plan to collaborate with Member States on considering alternatives to the first-come-first-served approach, for example with objective criteria supporting the energy transition. We recommend to closely follow experiences with existing schemes from different Member States such as Spain’s tenders for just transition, where freed grid capacity from coal plant closures is reallocated to renewable projects. 

The Commission intends to reprioritise the mandate of the European Clean Hydrogen Alliance. As part of the Alliance since its creation and current member of its Steering Committee, Bellona stresses that hydrogen must be regarded not as an end in itself, but as a tool to reach climate targets. Consequently, in reshaping the Alliance’s mandate, Bellona urges the meaningful integration of insights from the scientific community to ensure that hydrogen deployment remains aligned with credible and realistic pathways. However, certain aspects within the Commission’s approach raise questions. To be “as flexible as possible to achieve the desired greenhouse gas emission reduction goals” is the goal set out for the low-carbon hydrogen delegated act – wording that bears contradiction in itself? Genuine emission reductions require rigorous accounting for all emissions along the entire value chain and adherence to the additionality principle, which, again, demands stringency rather than flexibility. 

Similarly, the instruction for the European Hydrogen Bank to facilitate access for industrial off -takers is well-intended but may fall short due to continued reliance on price-only auction criteria. An approach that disregards off-take can risk sidelining commodity producers that operate on tight margins yet need hydrogen the most. The steel industry may not be able to compete in price-driven auctions. Incorporating greenhouse gas emission abatement as an auction criterion could remedy this issue — particularly given that steel production represents the application where hydrogen holds the highest CO₂ abatement potential. 

Concluding remarks 

The Steel and Metals Action Plan rightly diagnoses many of the industry’s ailments and attempts to tweak the correct levers. The need for developed lead markets, circular value chains and supply of clean affordable energy are all industry challenges that need action at EU level.  

«While the communicated measures are a step in the right direction, Bellona stresses the need for them to turn from aspirations into concrete strategic choices, designed to ensure a sustainable and clean transition.»

Whenever economic security standards are mentioned, the definition of “economic security” must go beyond price competitiveness and focus on long-term resilience by promoting high climate, environmental and labour considerations.  

The industries and markets waiting to radically decarbonise will lag a step behind. The ones acting now will build a stronger, more competitive business case. Europe can wait, but those who wait are often overtaken. The question is: does Europe want to be the follower? Or the leader? 

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¹ Steel production using Electric Arc Furnaces require ore with an iron content of at least 66%. This limits the suitable supply to only 3-5% of global iron ore resources. Opting for an Electric Smelter Furnace in combination with a Basic Oxygen Furnace instead could render ore with 62% iron content viable and thus increase the share of suitable supply up to 50%. However, it would come with additional emissions of 100-200kg.

²  As renewable hydrogen will remain scarce and prohibitively expensive for the foreseeable future, achieving a timely and large-scale sector decarbonisation will greatly depend on integrating CO₂ capture in the steel production process. To learn more about technological pathways for steel decarbonisation, you can refer to our steel report.

³ For steel producers to make use of CCS technology, commercially developed CO₂ storage needs to be available. Under the Net-Zero Industry Act, oil and gas producers operating in the EU are obligated to provide CO₂ injection capacity. For more information on their progress, follow Bellona’s Article 23 implementation tracking initiative.