Today the European Commission released the Steel and Metals Action Plan, part of the Clean Industrial Deal (CID) framework that the ICCT wrote about a few weeks ago. The automotive sector is a major consumer of steel in the European Union and steel is a primary contributor to the emissions of producing vehicles. Thus, the Steel and Metals Action Plan could substantially support the decarbonization of the automotive sector, and as we’ll outline here, it can serve as a lead market to support the transition of the steel sector. Certain aspects of the Plan warrant careful consideration.
A recent ICCT analysis of the steel supply chains of vehicle manufacturers in Europe and the United States estimated that the emissions intensity of automotive steel in Europe is above 2.0 t of carbon dioxide equivalent (CO2e) per tonne of steel for each vehicle maker—50% higher than the average of the European steel industry of 1.4 t CO2e/t. On a vehicle basis, steel accounts for 27% and 15% of production emissions for internal combustion engine cars and battery electric cars, respectively. Aside from lightweighting design—using less steel overall—our analyses showed that there are currently two strategies to reduce steel-related vehicle production emissions: decarbonizing primary steelmaking, in particular moving from coal-based to green hydrogen-based primary steelmaking, and a more circular use of automotive steel. These strategies are complementary, and both are addressed in the Steel and Metals Action Plan.
The automotive sector as a lead market
ICCT analysis estimated that producing fossil-free primary steel via the pathway of direct reduction of iron ore (DRI) with green hydrogen in combination with an electric arc furnace could cut steel-related vehicle production emissions by more than 95%. The Steel and Metal Action Plan supports both scaling up low-carbon hydrogen supply and the use of electric arc furnaces: Building on the Affordable Energy Action Plan, the Commission proposes to guide Member States in facilitating power purchase agreements, reducing electricity levies, and decreasing electricity taxation down to zero for energy-intensive industries. For further financial support, the Commission plans to adopt a CID State Aid Framework in the first half of 2025 and guide Member States on contracts for difference public support schemes.
To most effectively use the budget for these initiatives, they should be limited to projects that allow for deep decarbonization such as hydrogen- and electricity-based steel production pathways. In particular, the transition to green hydrogen-based DRI production should be designed with future green hydrogen compatibility to avoid creating lock-in effects that perpetuate dependence on fossil fuels. Energy efficiency measures related to coal-based technology, carbon capture and storage (CCS), and carbon capture and utilization (CCU) projects, all of which are proposed in the Steel and Metal Action Plan, do not support decarbonization of the steel sector in the long term and may also reinforce a lock-in of fossil-based technologies. In particular, CCS and CCU have repeatedly demonstrated poor results in capturing emissions from steel plants because there are several emission points and a relatively low concentration of CO2 streams.
Several steel makers announced plans to convert coal-based production to DRI pathways, and others have greenfield projects to build DRI plants. These have thus far received €14.6 billion in financial support from the European Union, Member States, and local governments. However, uncertainty regarding both the supply of sufficient green hydrogen at a competitive cost to support green steel production and the demand for the initially higher priced green steel has thus far slowed the scale-up of fossil-free steel production. The automotive industry is uniquely positioned to break this uncertainty in demand and act as a lead market for fossil-free steel because it’s a consumer-facing industry and the public pays attention. Additionally, higher steel costs have relatively little impact on vehicle price: We estimate that even switching to 100% green hydrogen-based steel would increase vehicle purchase prices by less than 1%.
Nevertheless, we found in a recent analysis that among all major automakers selling vehicles in Europe and North America, only four have pledged to procure any fossil-free steel by 2030. These commitments only total an estimated 2% of the global steel used by all these major automakers—too little to effectively boost the investments needed to transform the steel sector.
To increase investment security for low-carbon industrial products by leveraging lead markets, the CID mentions the possibility of introducing requirements on low-carbon steel for cars and corporate fleets and refers to environmental criteria for public procurement to be established in the Industrial Decarbonisation Accelerator Act. This approach is welcome, and could, when realized in the form of a green steel quota for new vehicle production, effectively create the needed certainty for investments in the transition of the steel sector. Furthermore, the Commission proposed creating a market for low-carbon industry products by developing a methodology for a voluntary carbon-intensity label starting with steel in 2025.
Circularity
A brief we published today estimates that using 30% recycled steel in vehicles could reduce greenhouse gas emissions by 20% compared with using primary coal-based steel. At the same time, each tonne of primary steel saved would avoid the use of more than 700 kg of coal and 1.6 t of iron ore. Using recycled steel would allow the EU industry to reduce its dependence on imported primary raw materials. Additionally, as steel scrap availability is projected to increase both globally and in the European Union, there is room to make better use of scrap domestically, provided its quality is high enough to use for vehicle manufacturing.
To foster a more circular use of steel and aluminum, the Commission is considering setting recycled content targets in key sectors, starting with the End-of-Life Vehicles Regulation for the automotive sector that’s currently in discussion. Setting quotas to create demand for recycled materials is certainly welcome, as it would create a market for a more circular use of resources. As we show in our study, with better recycling and end-of-life vehicle management practices, the steel scrap from end-of-life vehicles collected in the European Union could support a recycled steel quota of up to 30%.
However, to be effective in mitigating emissions also in the broader system, recycled steel quotas must be accompanied by additional recovery of high-quality steel. If not limited to using steel recycled from end-of-life vehicles, a recycled steel quota may divert scrap recovered from other products and thus provide no additional recovery of high-quality steel scrap. Instead, a closed-loop recycled steel quota for new vehicles would most effectively spark investments in the recycling supply chain of vehicles and promote better treatment of end-of-life vehicles. As recently demonstrated by a large-scale vehicle recycling study in France, improved dismantling of vehicles can reach a steel scrap quality high enough to be reused in auto manufacturing without increasing total cost.
Pursuing both decarbonizing steelmaking and increased use of recycled steel would allow the auto industry to take advantage of low-hanging fruit while investing in long-term sustainability and resilience. However, certain aspects warrant careful consideration to avoid displacing the use of recycled steel from other sectors and ensure that the limited public support is efficiently targeted at those technologies that lead to a decarbonization of European steel and vehicle production.
