Europe-based non-governmental organization Transport & Environment (T&E) has argued that low-carbon steel credits within the EU’s vehicle carbon emissions framework could play a crucial role in creating a lead market for green steel in Europe, helping steelmakers secure demand certainty while accelerating decarbonization investments.
In its latest position paper, T&E stated that the automotive industry consumes approximately 20 percent of all steel used in the European Union and remains heavily dependent on primary steel production, which generates roughly two tons of CO₂ equivalent per ton of steel produced. According to the organization, steel accounts for around 16 percent of lifecycle emissions in electric vehicles and approximately 27 percent in internal combustion engine vehicles, making steel decarbonization a key element of reducing automotive emissions.
Proposed EU car rules could support low-carbon steel adoption
The paper examines the European Commission’s proposal to revise EU passenger vehicle carbon regulations. Under the proposal released in December 2025, the 2035 emissions target would be adjusted from full zero emissions to a 90 percent reduction compared with 2021 levels. Automakers would be allowed to offset up to seven percentage points of this flexibility margin through the use of low-carbon steel. Emissions reductions would be calculated based on both the volume of low-carbon steel purchased and the emissions savings achieved compared to a defined benchmark. T&E supports this mechanism but argues that the EU must quickly establish clear definitions for both “low-carbon steel” and “made-in-EU steel” to provide investment certainty for producers and buyers.
Europe's green steel pipeline could satisfy automotive demand
According to research cited by T&E, Europe is developing a substantial pipeline of green steel projects that could be sufficient to meet future automotive demand.
The report estimates that near-zero-emission primary steel capacity based on green hydrogen could reach 12.3 million mt by 2030. When combined with another 9.4 million mt of direct reduced iron projects that initially rely on natural gas before transitioning to green hydrogen, total low-carbon steel capacity could reach approximately 21.7 million mt. Projects included in the assessment involve major steel producers and developers such as Stegra, SSAB, LKAB, Blastr Green Steel, Hydnum Steel, GravitHy, Salzgitter, thyssenkrupp Steel, SHS and Tata Steel across several European countries.
T&E noted that steel demand from EU-produced passenger cars and vans is expected to remain around 15 million mt annually throughout the 2030s, including roughly 13 million mt of primary steel demand. Based on these projections, Europe's planned green steel capacity would be sufficient to fully support the proposed steel-credit system.
Demand uncertainty continues to challenge decarbonization projects
Despite the promising project pipeline, T&E warned that numerous decarbonization projects across Europe continue to face significant challenges. High electricity prices, limited access to competitively priced renewable hydrogen and uncertainty regarding future demand have already delayed or complicated several planned investments. At the same time, China is rapidly expanding its own green steel ambitions and could emerge as a significant exporter of hydrogen-based low-carbon steel to Europe.
According to the organization, stronger demand-side measures are therefore becoming increasingly important to ensure that European projects proceed to final investment decisions. The report also highlighted studies suggesting that producing vehicles entirely with hydrogen-based green steel would increase final vehicle prices by only 0.7-1.0 percent, indicating a relatively limited impact on consumers.
T&E calls for strict eligibility criteria after 2035
T&E argues that only genuinely near-zero-emission steel should qualify for credits after 2035. The organization recommends limiting eligibility to fossil-free primary steel produced using 100 percent renewable hydrogen and meeting an emissions threshold of no more than 500 kg CO₂ equivalent per ton of steel. This level corresponds to the highest near-zero category under the Low Emission Steel Standard (LESS).
The group believes that continuing to reward transitional technologies beyond 2035 would weaken incentives for investment in truly climate-neutral steelmaking technologies. For the 2030-2034 transition period, T&E proposes a more flexible approach. Credits would be limited to three percent of fleet emissions and would only apply to primary steel produced using at least a 50 percent share of green hydrogen, equivalent to an emissions intensity of roughly 1,000 kg CO₂ per ton of steel. Under the proposal, conventional blast furnace-basic oxygen furnace production routes and natural gas-based DRI combined with carbon capture technologies would not qualify for credits.
Europe should remain at the center of the green steel market
T&E also emphasized that the proposed lead market should primarily benefit European steel producers. It recommends restricting eligibility to steel produced within the European Union. However, it acknowledges that imported green hot briquetted iron (HBI) could help reduce costs and support supply security.
Under T&E’s proposal, imported green HBI could account for a maximum of 50 percent of eligible steel production from 2035 onward. Additionally, imports should not originate from any country controlling more than 40 percent of global supply. According to the organization, such safeguards would help maintain European industrial capacity, protect jobs and ensure that the transition to low-carbon steel strengthens the competitiveness of the EU steel sector rather than increasing reliance on external suppliers.