Mandating low-emission steel use in the EU’s construction and automotive sectors would allow steel to gain a green premium that will be partially passed on to the price of final products. This predictability of future demand for low-emission material could absorb part of transition investment costs and push further decarbonisation investment decisions, the European Commission notes.
Earlier this week, the Commission published its Industrial Accelerator Act (IAA) legislative proposal, including a stipulation that 25% of steel volume procured for public projects launched from 2029 must be low-emission.
In its IAA impact assessment, the Commission points out there are at least 29 announced steel decarbonisation projects, with a combined potential capacity of additional 41 million tonnes/year of low-emission steel by 2030, that have not yet reached the final investment stage.
The proposed lead market measures could unlock up to €15.5 billion ($18 billion) in investments covering approximately 15% of the sector’s €100 billion total investment need by 2050, it adds in the document monitored by Kallanish.
“The measure will create a more stable and predictable domestic market for European producers, allowing them to secure long-term contracts for low-carbon materials in public works and supported sectors. This internal market stimulus is expected to offset any small decline in export volumes, reinforcing industrial utilisation and accelerating investment recovery,” the document notes.
“In addition, by slightly increasing domestic output and reducing exposure to highly concentrated foreign supply chains in the supported segments, the measure provides a modest economic-security gain, lowering vulnerability to sudden price shifts, coercive practices or export restrictions from dominant suppliers,” it adds.
In terms of how the measure impacts downstream sector competitiveness, “given the significant share of vehicle registrations supported by public support schemes, it is reasonable to expect that introducing low-carbon steel and aluminium requirements as a condition for accessing such support would strongly incentivise vehicle manufacturers to adopt low-carbon materials across a significant part (if not the entirety) of their product portfolio, particularly for models intended for the EU market,” the document notes.
“At the same time, there is a risk of losing competitiveness on third countries markets, especially if no similar low-carbon policies apply,” it adds. “Consequently, the absence of similar requirements in other world regions may put – in the short term – EU vehicle manufacturers in a condition of relative cost disadvantage and possible relocation of EU industry.”
“Moreover, the risk of capacity constraints in the low-carbon steel and aluminium supply-chain should not be neglected: the moderate low-carbon ambition tabled under this measure is therefore based on the existing pipeline of projects, to prevent that risk,” it says.
As low-carbon production scales up, premiums are projected to decline, reducing the competitiveness gap. In the medium term, the expansion of EU low-carbon capacity and declining green premiums are expected to strengthen the overall competitiveness of the European industrial base, enabling it to compete globally on both cost and sustainability performance.
Nevertheless, “the limited willingness to pay for the green premium depends on a range of policy measures to bolster the business case for decarbonisation investments, optimising net benefits,” the Commission notes. “Importantly, the lion’s share of demand generated by lead markets measures will continue to originate from private sector uptake and procurement.”
