The EU must consider using its indigenous fossil fuel resources to ensure economic resilience during geopolitical instability, while the focus on building out nuclear energy, although correct, will not benefit steelmakers in the near term. Emissions Trading System (ETS) prices should be kept at lower levels and the system made able to react to prevent costs during crises.
So said Moravia Steel chairman Petr Popelar in an exclusive interview with Kallanish this week.
ETS needs revision to ensure industry continuity
ETS has been in the spotlight in recent months, with the phaseout of free allowances beginning from 1 January, together with the phase-in of CBAM. The scrutiny has been tightened further by the escalating conflict in the Middle East putting pressure on fuel prices. EU government leaders are expected to discuss potentially weakening ETS during their summit planned for Thursday and Friday.
For Moravia Steel, which owns Czech steelmaker Trinecke Zelezarny, free ETS allowances will fall significantly short of its emissions in 2026. At an EU allowance (EUA) price of around €80/tonne of CO2, this would mean around €100 million in additional costs for the steelmaker, making it harder to invest in decarbonisation projects at the pace required, Popelar notes.
The outlook is not helped by financial speculators being allowed to trade allowances and create EUA price volatility and unpredictable costs for industry. “The Market Stability Reserve should keep ETS prices more stable and closer to the levels originally expected by the European Commission, around €25-45/tonne for 2026,” he said. “In times of geopolitical shocks or energy crises, the system should be able to react and avoid additional costs.”
Nuclear a ‘lost opportunity’, EU fossil reserves need utilising
Given the current climate of high energy costs and supply uncertainty, the reluctance of some EU states to deploy nuclear energy has “led to higher costs and lost opportunities”, Popelar observed. However, EU sentiment has shifted in favour. “While the recognition of this strategic mistake is correct, time and investment constraints mean that energy-intensive industries will not benefit from new nuclear capacity in the near term. New reactors and SMRs [small modular reactors] will come online only after the current transition period,” he added.
This mistake is being repeated with fossil fuels, he continued. “Fossil reserves located in Europe, especially in the Czech Republic … could provide important geopolitical and economic resilience for the EU,” he added.
He considers the Czech government’s decision to close coking and thermal coal miner OKD this year as a mistake. “The current crisis in the Middle East shows the consequences. The Czech Republic has already lost its domestic fuel sources and is now fully dependent on imports,” he said. Instead, policymakers should consider the use of often overlooked technologies to reduce fossil-based emissions, such as efficient coal-based power generation.
Uneven energy costs across Europe amid varying wholesale electricity prices, network charges, surcharges, levies and taxes also present a problem as they create competition between member states. “EU energy prices therefore need to be both more uniform and globally competitive,” Popelar noted.
EU policy support welcome but must go further
Although EU policymakers have become aware of the need to support industry in recent years, “rhetorical recognition and the correct diagnosis of issues is not sufficient to save the EU steel industry,” he warned. “The real test is whether this new pragmatism produces more decarbonisation funding, faster permitting, lower energy costs, stronger trade defence, effective CBAM anticircumvention and actual demand for EU produced low-carbon steel.”
“For us, the key question is not whether the Czech industry can decarbonise. It is whether the European regulatory framework allows primary steel production to remain economically viable during the transition,” he continued.
Scrap-EAF transitioning will be necessary but some steel-using sectors still depend on iron ore-based production for high value-added products. There is a risk the EU will become dependent on imports of these products produced under different regulatory and carbon cost regimes. In Trinecke Zelezarny’s mainstay long steel segment, this relates mainly to the wire rod ecosystem, including automotive springs, tire cords, chains, bearings and welding electrodes.
The Czech steelmaker said last year it was delaying its EAF transition to at least 2030 due to uncertain policy support. Some EU steelmakers have since indicated that following the CBAM implementation and new steel trade regime announcement, the policy environment is more conducive now to decarbonisation investments. However, hurdles remain.
CBAM requires a further downstream extension and implementation of the melt-and-pour rule, with the new trade regime also requiring downstream coverage and melt-and-pour. Only this will ensure a level playing field and prevent circumvention, thereby enabling transition investments, Popelar pointed out.
Smaller member states, like the Czech Republic, also require stronger EU funding support as their fiscal resources are more limited.
Popelar gave the example of Moravia Steel subsidiary Bohemia Rings, which produces steel rings for wind turbines. The feedstock needed for production is covered by CBAM, but imports of finished wind‑energy rings under CN 8482 and 8483 remain unprotected. EU wind ring production thus faces an existential threat from Asia-origin imports, mainly from China, he said.
EU domestic demand outlook subdued, threatened by circumvention
In terms of the EU’s demand outlook, this remains subdued amid structural shifts in the bloc’s manufacturing sectors, with Europe’s competitiveness gap still not addressed. “The effectiveness of CBAM and the new steel trade regime will be tested this year and may need adjustment if necessary. In the case of CBAM, we already see a clear risk of downstream circumvention. Importers may shift towards higher value-added products to avoid carbon costs and other European standards,” Popelar concluded.
