The industry is investing, but Europe has not yet secured the conditions
The European steel industry has already invested billions of euros in decarbonization and plans around 35 million tons of new low-carbon production capacity by 2033. However, according to EUROFER, many of the conditions promised to the industry are still missing.
The EUROFER Director General Axel Eggert said that the steel industry is ready for decarbonization, but the EU and most member states are not. According to him, without available clean (green) electricity, hydrogen infrastructure and better access to scrap, the transition cannot progress at the expected pace.
EUROFER pointed out that electricity prices are still around double the level needed for international competitiveness, and renewable hydrogen is unavailable and significantly more expensive than the target price of €2/kg. The risk of the so-called carbon leakage (i.e. the transfer of CO2 emissions from one country to another, when companies move their production to countries with lower emission restrictions due to strict climate policies) persists at home and in export markets.
Projects representing 10 to 15 million tonnes of planned low-carbon steel production capacity have already been postponed or suspended as their economic and commercial viability has weakened.
The system ETS must support investment, not deindustrialisation
EUROFER stressed that the ETS is the cornerstone of the EU's climate policy, but carbon pricing alone is not enough. The revision of the ETS must bring competitive electricity prices, i.e. around €50/MWh, affordable renewable hydrogen, effective protection against the relocation of companies to countries with lower emission limits, stronger so-called
lead markets
(note: lead markets are public and private markets where specific requirements or incentives – in particular public procurement, subsidies and regulation – create real demand for low-carbon products made in Europe), as well as more public funding.
Eggert added that the ETS is intended to reward companies investing in decarbonization while keeping Europe attractive for manufacturing. According to him, if structural problems are not addressed, the ETS may lead to emission reductions through deindustrialization rather than new investments and innovations.
What the revision of the EU ETS must bring
EUROFER called for a slower exit from the free allocation for the CBAM sectors from 2028 onwards, in particular from 2030 to 2032, and for the methodology of the reference standard for liquid metal (pig iron and steel) to be maintained beyond 2030. At the same time, it calls for a structural export solution for the sectors affected by the CBAM and their value chains, so that European producers remain competitive and avoid the relocation of companies to countries with lower emission limits.
EUROFER also called for a larger share of ETS revenues to be returned to industrial decarbonisation. According to data from the European Commission, less than 5% of revenues from the auctioning of allowances under the EU ETS, which are managed by the Member States, are used for this purpose.
The EUROFER Director General also commented on the latest proposal of the European Commission for the revision of the EU ETS
The European Commission expects that the almost complete end of free allowances by the end of 2033 will be accompanied by the decarbonisation of the European steel industry.
However, according to EUROFER, the question of where affordable electricity and hydrogen will come from remains unanswered. Companies are set to invest billions without the certainty that infrastructure, clean energy supplies and competitive prices will be available across the EU.
According to EUROFER, the proposed adjustment to the phasing out of free allocation does not eliminate investment uncertainty. The reduction of steel allowances around 2029-2030 remains almost unchanged, and the rules of the benchmark may weaken the protection against the relocation of companies to countries with lower emission restrictions in 2031, as well as the incentive for early investors to decarbonise.
The long-promised structural solution for the CBAM is still lacking, and the new conditionality of free allocation brings additional administrative burden and legal uncertainty, especially where investments depend on conditions beyond the control of undertakings.
The EU has set ambitious climate targets, but according to EUROFER, it has not yet met the necessary conditions. The EU ETS thus sets a deadline, but not necessarily a credible path to achieving it.
The European steel industry is already investing to replace around 35% of conventional steel production capacity with hydrogen-ready facilities by 2030-2032. However, without creating the necessary favourable conditions, it is unrealistic to expect a complete decarbonisation of the sector by 2033, according to EUROFER. The EU risks losing a significant part of its steel industry, instead of decarbonising it.
The cover image was made by artificial intelligence - ChatGPT
