The European Parliament’s Environment Committee (ENVI) adopted its position on revised climate targets for the EU’s automotive sector on 5 November. The amendments reduce the overall ambition of the Commission’s initial proposal, but do introduce a more significant role for low-carbon steel procurement.
The European Commission originally proposed adjustments to the EU’s established automotive CO2 reduction targets in December of last year, as part of its broader policy package to support “a clean and competitive European automotive sector.”
Responsible for leading Parliament’s assessment of the Commission proposal, the EU’s ENVI committee has this week reached internal agreement on how the automotive sector’s climate targets should be aligned against the EU’s wider decarbonisation ambitions, and industrial competitiveness realities.
While the revised targets will not become law until affirmative votes are secured from the full European Parliament and Council, the passing of a consolidated compromise package is positive both for the implementation of pragmatic low-carbon policy incentives for the automotive sector, and the establishment of lead markets for the EU’s emerging green steel production.
ENVI’s compromise amendments reduce overall climate tailpipe emission reduction targets for passenger car fleets from 100% to 87.5% from 2035, with an additional 7.5% reduction target (for an effective total 95% reduction) that would be satisfied with credits awarded for consumption of “low-carbon steel made in the EU.” Van targets for 2030 would be reduced to 35% from the existing 50%, with 2035 targets similarly reduced from 100% to 80%. Low-carbon steel credits could similarly be used to meet 7.5% of the van target from 2035, but consumption is not mandatory, as with passenger vehicles (car tailpipe emission targets are only to be reduced to 87.5% if low-carbon steel credits supplement to 95%).
The use of these “low-carbon steel credits” to meet overall targets would become available immediately once the new rules go into effect (as opposed post-2035 as originally proposed by the Commission) but target mitigation would be limited to 3% pre-2035, before increasing to the 7.5% level from 2035.
As is becoming tradition with the EU’s ongoing efforts to create lead markets for green steel, ENVI’s proposals do not make efforts to define what green steel actually is, again citing a forthcoming definition under the iron and steel-specific delegated act to the Ecodesign for Sustainable Products Regulation (ESPR). Dow Jones Energy has closely tracked the crafting of this definition, originally to be contained in the Commission’s Industrial Accelerator Act (IAA) proposal, before being delayed to the ESPR as a casualty of industry disagreements on both ‘sliding scale’ adjustment mechanisms and interactions with ‘Made in EU’ domestic content requirements.
First, on domestic content requirements, ENVI’s amended proposal would limit the availability of low-carbon steel credits to only those steels “made in the EU.” According to ENVI, “steel is considered made within the EU if it has been originally melted and poured within the Union”, and directly cites the ‘melted and poured’ rules introduced under the steel overcapacity regulation, which intensified the EU’s steel protection framework from July of this year.
‘Sliding scale’ adjustments work to grant cleaner classifications to steel products the lower the share of steel scrap in their production process, intended as a practical recognition of the insufficiency of global scrap supplies to meet the entire world’s steel decarbonisation demand from electric-arc furnace (EAF) steelmaking. Sliding scale definitions also work as a decarbonisation incentive for direct-reduced iron-based transformation projects – commonly viewed as the most realistic option for sector decarbonisation – and allow integrated steelmakers to participate in low-carbon lead markets to support their transition CAPEX.
However, as ‘sliding scales’ effectively define green steel in terms of ‘decarbonisation progress’, as opposed to the fact of carbon footprint via PCF or LCA-based approaches, adoption arguably risks undermining the signalling power of a low-carbon steel label, as well as transparency for downstream steel-consuming manufacturers attempting to assess the actual non-adjusted emissions intensity of their final products.
The construction sector is also already subject to Environmental Product Declaration-linked (EPD) carbon targets via regulations like the Construction Products Regulation, national certification requirements, and local permitting specifics, so secondary-EAF steelmakers in particular fear new replacement carbon targets designed at-odds with their own production routes (as sliding scales favour integrated BF-BOF steelmakers). Recent insight from the UK construction sector suggests that steel consumers do not really see it as their responsibility to navigate production-route level specifics to accommodate the steel industry’s decarbonisation, holding that they are really only concerned with whether steel is appropriately certified, and backed by an approved EPD when procuring green steel goods.
As such, European steelmaking association Eurofer has reached its own internal compromise on its desired green steel definition or standard, which would limit sliding scale adjustments to carbon flat steels, and select carbon long steels, while leaving the majority of long steels, and all stainless steels subject to alternative non-adjusted classification standards.
Interestingly, in referencing the upcoming ESPR green steel definition (now expected in H1 2027), the ENVI committee seem to re-introduce some form of sliding scale adjustment: “[i[n developing these criteria [“for defining low-carbon steel”], the Commission should take into account the need to incentivise direct reduced iron (DRI) processes using fossil-free hydrogen.”
Sources closer to internal discussions on the scope of sliding scale adjustments do not necessarily see this reference as too heavy a burden on Eurofer’s existing compromise, and the forthcoming ESPR definition, as automotive sector demand predominantly consists of carbon flat steels supplied by integrated BF-BOF producers.
ENVI’s approved compromise is expected to be tabled for voting by the wider EU Parliament in the upcoming December plenary session, which if approved would set the mandate for final Council negotiations with member state governments.
Author: Benjamin Steven and Maria Tanatar
