European lawmakers have backed new incentives for carmakers to use EU-made low-carbon steel, potentially strengthening demand for hydrogen-based steelmaking as the industry struggles with high production costs.
The European Parliament’s Environment Committee voted on Wednesday (4 November) to allow automotive makers to use credits for EU-produced low-carbon steel to meet part of their fleet-wide carbon dioxide (CO2) emissions targets.
Under the proposals, steel credits could account for up to 3% of relevant emissions targets before 2035, increasing to 7.5% from that year.
It forms part of a wider overhaul of EU automotive emissions rules, under which the committee wants to reduce the 2035 CO2 reduction target for new passenger cars from 100% to 87.5% relative to 2021 levels.
Manufacturers would have to offset up to 7.5 percentage points of residual emissions with qualifying steel credits, bringing the proposed combined reduction to 95%.
“Low-carbon steel made in Europe could be used immediately, rewarding European production and strengthening the Union’s strategic autonomy,” said Committee Rapporteur Massimiliano Salini.
The proposed incentives could help address the cost barrier facing hydrogen-based steelmaking.
Analysis by the Oxford Institute for Energy Studies found that green steel premiums of around €200 ($225) per tonne could, in some cases, reduce carmakers’ annual operating profits by more than €100m ($112m), despite having a relatively small impact on final vehicle prices.
The study called for stronger regulatory incentives to encourage manufacturers to purchase green steel.
However, the proposals’ impact on hydrogen demand would depend on how the EU defines eligible low-carbon steel, with alternative production routes, like electric arc furnaces and carbon capture, potentially qualifying for the same credits.
The European Steel Association (Eurofer) welcomed the proposals, arguing they could create a much-needed market for low-carbon steel produced in Europe.
The measures come amid continued uncertainty over the commercial viability of hydrogen-based steelmaking, with high hydrogen costs and limited supply contributing to European project delays and cancellations.
Germany’s Salzgitter postponed later stages of its hydrogen-based Salcos programme in 2025, while ArcelorMittal abandoned planned DRI investments across Europe.
The Environment Committee adopted its position by 48 votes to 30, with two abstentions. The full European Parliament is expected to vote on its negotiating position in December, ahead of talks with EU member states.
