The European steel industry's annual carbon costs could more than double from around €3.4 billion in 2026 to approximately €8.2 billion in 2031 under the proposed revision of the EU Emissions Trading System (ETS), even if ongoing decarbonization projects are fully implemented, according to the European Steel Association (EUROFER).
In its latest position on the ETS, EUROFER estimated that carbon costs for conventional blast furnace-based steel production could roughly double to around €100/mt by 2030 and rise above €200/mt from 2031, which the association said would make such production economically unviable.
EUROFER calls for slower phase-out of free ETS allowances
Under the ETS, European steelmakers pay for their carbon emissions while receiving benchmark-based free allowances that provide partial protection against competitors that do not face comparable carbon costs. These allowances are being gradually withdrawn as the EU's Carbon Border Adjustment Mechanism (CBAM) introduces carbon costs on imports.
EUROFER is calling for a slower phase-out of free allowances over the next five years, followed by a faster withdrawal once the conditions required for industrial decarbonization are in place.
According to the association, the current timetable would result in benchmark-based free allocation declining sharply by 2030, faster than the development of the conditions necessary to support the steel industry's transition. EUROFER said a smoother transition between the ETS and CBAM is necessary to maintain effective carbon leakage protection while supporting investment.
More than 10 million mt of low-carbon steel projects have stalled
Axel Eggert, EUROFER director general, stated that investment decisions have already been taken for around 35 million mt of low-carbon steel projects in Europe, while projects representing more than 10 million mt of steelmaking capacity have stalled as their business cases have deteriorated.
“Europe's steel industry is investing billions in the transition and is committed to EU climate neutrality by 2050,” Eggert said, adding that withdrawing carbon leakage protection too quickly could undermine the investments required for decarbonization.
EUROFER also highlighted an unresolved issue concerning European steel exports. While foreign producers face EU carbon costs only on products sold into the bloc, European steelmakers incur carbon costs regardless of where their products are ultimately sold. According to the association, the EU currently lacks an effective structural mechanism to protect European steel exports and steel-intensive downstream industries from carbon leakage in international markets.
Competitive energy and low-carbon steel markets also needed
EUROFER stressed that carbon pricing alone will not be sufficient to drive the European steel industry's transformation. The association identified competitive low-carbon energy, effective trade and carbon leakage protection, lead markets for low-carbon steel, access to ferrous scrap and sufficient investment support among the conditions required for low-carbon investments. The association also noted that these conditions will not become available simultaneously across all EU member states and regions, calling for solidarity during the transition.
“Europe needs an ETS that supports first movers without leaving behind companies and regions where the infrastructure and investment conditions are not yet available,” Eggert stated.
