The green steel revolution in 2025 – navigating a new frontier
As we prepare for the arrival of carbon emission-free steel, it is critical to understand the implications for pricing models, market dynamics, and the way supply chains will need to evolve. The key question for the industry is no longer whether zero-carbon steel will happen – it is how to adapt to a world where it becomes the norm. To succeed, stakeholders must adopt new strategies, embrace transparency, and collaborate more deeply than ever before.
Steel mills: balancing innovation with viability
Steelmakers are at the forefront of the green transition, embracing hydrogen-based direct reduction iron (DRI) in Europe and scrap-based electric arc furnace (EAF) technology in the US. While hydrogen shows great promise, its adoption is hindered by high costs, limited availability of green hydrogen, and the need for significant infrastructure upgrades.
Energy costs pose an additional challenge. In traditional EAF steelmaking, energy accounts for 15-20% of production costs, but in new hydrogen-based DRI/EAF processes, this could rise to over 40%, reflecting the energy-intensive nature of hydrogen production.
Regulatory pressures, such as the EU’s Carbon Border Adjustment Mechanism (CBAM), which comes into full effect in 2026, further complicate operations. While CBAM incentivizes decarbonization by protecting low-emission producers from cheaper high-carbon imports, it also pressures steel mills to accelerate investments in green technologies to stay competitive in a changing global market. Rising energy costs and potential supply chain bottlenecks add financial strain, requiring steelmakers to adopt more agile production and procurement strategies.
End users: the demand for decarbonized supply chains
Industries like automotive and construction face dual pressures to reduce carbon footprints while controlling costs. Green steel promises a lower-emission alternative, but its premium – which has consistently tracked at an additional cost of 20-40% across Fastmarkets’ global suite of green steel differentials – remains a stumbling block for many end users.
The solution lies in strategic partnerships between steelmakers and end users, with long-term offtake agreements that balance costs while ensuring supply chain sustainability. Certification standards, still evolving, will become critical to verifying claims and aligning procurement decisions with climate goals.
Middle players: navigating complexity and uncertainty
For middle players such as traders, distributors, and service centers, the green steel transition adds layers of complexity. Managing inventories that include traditional, low-emission, and zero-carbon products introduces logistical challenges, while pricing volatility and regulatory compliance add further strain.
The EU’s upcoming Waste Shipment Regulation, which limits scrap exports to non-Organisation for Economic Co-operation and Development (OECD) countries, will increase competition for high-quality feedstocks within the EU. Middle players must adapt to tighter supply conditions, rising prices, and shifting trade dynamics to maintain their roles in the value chain.
Raw material producers: rising demand for premium inputs
As steel production increasingly pivots to hydrogen-based and EAF technologies, raw material producers face growing demand for higher-quality inputs like DRI-grade iron ore and quality scrap. To meet this demand, these producers may need to innovate by developing methods to improve the quality of lower-grade ores or increase the efficiency of extraction processes. The EU’s upcoming restrictions on scrap exports to non-OECD countries will further disrupt traditional supply chains. Scrap producers will need to adapt by enhancing the quality of their materials through better sorting technologies or exploring regional supply chains to comply with the regulations. Strengthening relationships with steelmakers and securing long-term contracts will be key to ensuring a steady demand for premium materials as steel mills shift toward low-emission production.
Financiers: decoding risks and opportunities
Green steel projects require enormous capital investments, often without guaranteed returns in the short term. For financiers, this raises questions about risk and reward, particularly as regulatory environments evolve. Financial instruments like sustainability-linked loans and green bonds are increasingly critical, and their effectiveness depends on the availability of consistent benchmarks for green premiums.
Financiers also face pressure to align with environmental, social and governance (ESG) goals, and the complexity of valuing decarbonization efforts presents both a challenge and an opportunity. Those who can effectively quantify and mitigate risks tied to green steel investments stand to play a pivotal role in enabling the sector’s transformation.
The role of multi-stakeholder platforms
Collaborative initiatives are essential for navigating the complexities of green steel production. Multi-stakeholder efforts such as UNIDO’s (United Nations Industrial Development Organisation) Industrial Deep Decarbonisation Initiative, and the Climate Group’s SteelZero, bring together policymakers, producers, and end users to align on decarbonization goals and drive systemic change.
These platforms help stakeholders address overlapping challenges, from standardizing low-emission certifications to developing frameworks for sustainable supply chain finance. By fostering collective action, they reduce uncertainty and promote scalable solutions.
Navigating the challenges of today – trade tensions, and the just transition
The global push for decarbonization is colliding with escalating trade tensions. Tariffs on steel and its raw materials could undermine efforts to create open markets for green steel. The CBAM rollout might trigger friction with trading partners, with some viewing it as protectionist.
But this challenge opens the door to regional collaborations. Agreements between climate-aligned countries could streamline trade for green steel, providing a much-needed competitive edge for low-emission producers.
Decarbonization is as much about people as it is about technology. The shift to green steel production risks leaving traditional steelworkers behind, especially in regions dependent on emissions-intensive plants. Without investment in retraining and support, the transition could exacerbate inequality.
Yet, the human dimension also presents an opportunity. Companies prioritizing a just transition will attract ESG-driven investors, build stakeholder trust, and gain a competitive edge by integrating social considerations into their business models.
What lies ahead in 2025
The road to decarbonization in 2025 will be defined by:
• The first zero-carbon steel production in Sweden, setting a global benchmark.
• The phased implementation of CBAM, reshaping trade flows and emissions accounting.
• The fine-tuning of international standards for low-emission steel, providing long-awaited clarity for buyers and sellers.
• Supply-chain disruptions in scrap and iron ore markets, necessitating greater agility and foresight.
• Gradual energy sector transformation in Europe to feed new DRI capacities.
Navigating the transition
Reliable market intelligence will be critical for navigating this new frontier. Clarity of pricing across the entire steel value chain – from raw materials and semi-finished products to finished goods – provides a foundation for informed decision-making. Fastmarkets’ robust pricing solutions, including green steel and green ferroalloy differentials, empower stakeholders to manage volatility, enhance transparency, and build confidence in their strategies.
With the right tools, insights, and collaborations, the steel value chain can transform the challenges of 2025 into pathways for growth and leadership in a decarbonized future.
European green flat steel suppliers maintain premiums at high levels
In general, European steelmakers were optimistic regarding green steel uptake in the following years, despite ongoing challenges, sources told Fastmarkets.
“We don’t see booming volumes [for green steel sales] now, but we see steady inquiries almost every week — for 100, 500 tonnes — but the interest is growing,” a steel mill in Europe said.
Sources, however, agreed, that economic crisis in Europe was slowing down decarbonization and green steel uptake in the market in general.
“It’s hard to create sustainable demand for green steel in such environment, when businesses are struggling to keep afloat,” a buyer in the Benelux region said.
“[EU] member states must intervene — we need public infrastructure projects that would stimulate buyers to ‘go green,’” they added.
Fastmarkets’ methodology defines European green steel as steel produced with Scope 1, 2 & 3 emissions at a maximum of 0.8 tonne of CO2 per tonne of steel.
Green steel suppliers in Europe maintained premiums for such steel at €200-350 ($209-366) per tonne.
Notably, a premium for steel with carbon emission of under 600 kilograms and Scope 1,2 and 3 upstream was reported at €200 per tonne.
Transactions for such steel were heard at €170 per tonne during the week, but for limited tonnages.
Premiums for steel, carbon neutral under Scopes 1 and 2 were reported at €300-350 per tonne.
And premiums for green steel, with Scope 1, 2 and upstream Scope 3 carbon emissions of less than 0.8 tonnes per tonne of steel, were reported at €200-250 per tonne.
Industry sources estimated achievable prices for such material at €100-150 per tonne.
Some bids were reported at even lower levels — €50-80 per tonne.
Producer sources said that it would be not commercially viable to sell green steel with such low premiums, considering costs of production and short availability.
“We can provide certain discounts on decent volumes [of green steel], but there is a limit — we can’t be selling green steel for free,” a second steelmaker said.
As a result, Fastmarkets calculated its weekly green steel domestic, flat-rolled, differential to HRC index, exw Northern Europe at €100-200 per tonne on Thursday, stable week on week.
European steel industry faces critical turning point in 2025
The steel industry is poised to move up in the political agenda of various European nations in 2025 as governments begin addressing production and job cuts.
European countries must develop concrete solutions to transition the industry toward low-carbon production; failure to do so could result in a diminished manufacturing sector and a precarious political landscape.
The market has deteriorated significantly in recent months, with the European steel sector facing a lull characterized by minimal trading activity and falling prices.
“The European steel industry has never been so challenged, caught between decarbonization costs and the fallout from severe overcapacity, particularly from China, which has led to a surge in low-cost, heavily subsidized, and CO2-intensive imports,” Thyssenkrupp told S&P Global Commodity Insights.
Since the financial crisis, European steel production has declined by nearly one-third and employment has dropped by 25%.
Demand has not rebounded to pre-COVID-19 levels, and combined with high energy costs and rising imports, steelmakers’ profit margins have shrunk, threatening their viability and capacity for reinvestment.
EUROFER highlighted that steel production in the EU has sharply declined since 2018 to 126 million mt in 2023. Imports now account for 27% of the EU market, further undermining domestic production, while capacity utilization has dropped to a concerning 60%.
Adolfo Aiello, deputy director general of EUROFER for Climate and Energy, remarked that the challenge has shifted from securing funding for low-carbon transformation to operationalizing projects amid high energy costs and ineffective trade safeguards.
“The conditions when many low-carbon projects were designed have changed dramatically, with geopolitical tensions, continued increase of excess capacities and soaring energy prices creating a challenging environment,” he said.
Recent announcements from European steelmakers indicate a postponement of investments in low-carbon steel projects due to tough market conditions. The economic slowdown, particularly in the automotive and construction sectors, has hurt demand for decarbonized steel products.
In total, around 60 low-carbon steel projects are underway in the EU, but their growth will depend largely on the availability of affordable renewable energy for electric-arc furnaces and green hydrogen production.
Companies like Stegra, Hydnum, and Blastr Green Steel AS are planning to build new greenfield DRI-EAF steel mills in Sweden, Spain and Finland. Nordic-based mills are at an advantage thanks to their proximity to DR-grade iron ore operations, green hydrogen and later production starts and in relative smaller tonnages.
For companies already established that are working to change their route, production is more complicated as they have to deal with a gloomy market and address productions cuts, job losses and low margins.
ArcelorMittal, Europe’s largest steelmaker, has delayed final investment decisions on its DRI-EAF projects in several countries and on its 2030 carbon reduction targets.
“We need an effective carbon border adjustment mechanism and stronger trade defense measures to enhance our business case,” an ArcelorMittal spokesperson said. “We await details on the European Commission’s Steel and Metals Action Plan, as these multi-billion-dollar investments will shape our future.”
Thyssenkrupp reaffirmed its commitment to green transformation and climate-neutral steel production but emphasized that investment decisions are contingent on economic conditions.
“The economic and political conditions that need to be taken into account do not relate to the continued operation of the two blast furnaces 1 and 2, but to the second transformation step,” thyssenkrupp said. “This depends on the market conditions prevailing at that time, our customers’ requirements for a CO2-reduced product and the funding conditions for a further technological step to replace the blast furnace technology.
“What is clear is that our steel production should be carbon neutral by 2045 at the latest,” it said. “After the decommissioning of blast furnaces 8 and 9, another blast furnace is the next to be shut down.”
Kerstin Maria Rippel, CEO of the German Steel Association, expressed concern over the industry’s survival amid rising energy costs and “unfair” competition from China.
“To navigate this crisis, we need coherent industrial policies from both Berlin and Brussels that ensure a reliable long-term perspective,” she said.
Looking ahead, establishing leading markets for CO2-reduced products is crucial for both German and European competitiveness. Thyssenkrupp and other steelmakers have called on the European Commission to deliver a robust steel action plan.
The EU must also revise rules that make hydrogen production in Europe more expensive as part of the Clean Industrial Deal.
“Germany’s hydrogen strategy is lagging, with only 3% of announced electrolysis projects reaching final investment decisions,” Rippel said, highlighting the slow progress in developing a hydrogen backbone and the unclear financing of the grid.
Although with all the issues underlined there are expectations for the low carbon market to pick up.
“Northern EU HRC prices are expected to rise over the next decade due to rising carbon costs and regulatory pressure in the EU, which are pushing steelmakers to adopt lower carbon yet higher cost production methods”, Evan Millard, S&P Commodity Insights’ Metals and Mining research analyst.
As a consequence, in May 2023, Commodity Insights launched the first ever daily carbon-accounted steel premium assessment, reflecting the differential for HRC sales with total accounted carbon emissions of 2.1 mt of CO2 or less for every metric ton of steel produced, and weekly price assessments for European carbon-accounted rebar and carbon-accounted medium sections were launched Sept. 11, 2024, the first carbon-accounted assessments for long steel.
German steel industry to become major green hydrogen offtaker
Europe’s steel industry is set to be a significant consumer of renewable hydrogen and German steelmakers in particular have some of the most advanced plans in the region to tap the new green energy source.
Potential future demand from the German steel sectorcould amount to 850,000 metric tons per year by 2030, according to German steel association WV Stahl, with producers planning to connect to a national hydrogen pipeline network now under construction, as well as producing their own green hydrogen from electrolyzers onsite, saving 28 t of CO2 per metric ton of hydrogen.
The German government expects total hydrogen demand of 95-130 TWh (2.85 million-3.90 million t/y) by 2030, with 40-75 TWh from new demand.
Carbon-accounted hot-rolled coil steel commanded a $120/t premium to the Platts conventional HRC assessment of $615/t ex-Ruhr on Aug. 7.
Platts, part of S&P Global Commodity Insights, assessed the cost of green hydrogen production via alkaline electrolysis in Germany, backed by renewable power purchase agreements, at an average of Eur7.98/kg ($8.71/kg) in July.
“The steel industry offers one of the most encouraging new use cases for low-carbon hydrogen due to the amount of CO2 that can be abated per kilogram of hydrogen,” Commodity Insights senior hydrogen analyst Matthew Hodgkinson said. “However, switching to low-carbon steel production is expensive, with ETS prices of at least Eur150-200/t required to make it comparable to current production methods.”
Platts assessed nearest December EU ETS prices at Eur71.04/t Aug. 7.
Complete decarbonization of EU crude steel production would require around 6 million to 8 million t/y of low-carbon hydrogen, comparable with current total hydrogen demand, Hodgkinson said.
German steel producers, backed by national and EU government policies, aim for climate neutrality by 2045, targeting a 30-50% reduction in greenhouse gas emissions by 2030.
Greening steel
Steel production accounts for around 5% of European CO2 emissions, and 8% globally. Germany is Europe’s largest steel producer and seventh biggest in the world, and the sector accounts for around 30% of the country’s industrial emissions.
Steel is produced through two main production routes that both emit CO2 — the blast furnace/basic oxygen furnace (BF/BOF), and the direct reduction iron/electric arc furnace (DRI/EAF) routes.
The predominant BF/BOF route removes oxygen from iron ore using a carbon reducing agent, such as coking coal, leading to around 1.6-2 t of CO2 emissions per metric ton of crude steel produced. The basic oxygen furnace then converts molten iron from the BF into steel.
Meanwhile, DRI plants can use natural gas, hydrogen or a mixture to remove oxygen from iron ore. Using only renewable hydrogen produces zero greenhouse gases. The EAF melts scrap steel or DRI to produce steel using electric arcs.
Around 60% of European steel production is via BF and around 40% via EAF, according to industry association Eurofer. Germany produced about 35.4 million metric tons of steel in 2023, down 4% year on year, of which 9.8 MMt was produced via EAF and 25.63 MMt via BF.
Steelmakers plan to replace BFs with hydrogen-based DRI, with most DRI plants in Germany to be paired with an EAF (see map).
Salzgitter, Stahl-Holding-Saar and Thyssenkrupp have all issued tenders to source large volumes of low-carbon hydrogen for their steel production from later in the decade.
These companies, along with ArcelorMittal, received state funding commitments in 2023 and 2024 under the EU’s Important Projects of Common European Interest program on hydrogen and low-carbon technologies.
Powering up
The switch will see a huge leap in renewable power demand.
The German steel industry’s current electricity demand from the grid is 12 TWh, according to WV Stahl. This could double by 2030 to 24 TWh, with crude steel production estimated around 42 MMt/y. Further green electricity will be required to power electrolysis, of around 28-29 TWh.
While being a large increase, those figures are a relatively small fraction of German power demand of around 500 TWh in 2023, forecast to rise to 649 TWh in 2030, according to Commodity Insights data.
European steelmakers are already marketing low-carbon steel products. Platts launched its daily carbon-accounted steel premium assessment in May 2023, which reflects any differential achieved for spot sales of hot-rolled coil on an ex-works basis, with total accounted carbon emissions of 2.1 t of CO2, or less, for every metric ton of steel produced.
Decarbonizing logistics: charting the path ahead
As global organizations chart a path to net zero, many are looking to the next frontier of emissions reduction: “Scope 3” emissions. These emissions are not directly produced by a company’s operations, but embedded in its supply chain. They account for the vast majority of companies’ emissions, and a significant portion are generated from supply chain and logistics activities—in particular, from the combination of road and ocean freight.In total, logistics emissions from freight and warehousing account for at least 7 percent of global greenhouse gas (GHG) emissions. Any successful path to net zero will thus need to address them as part of a company’s holistic environmental, social, and governance (ESG) strategy.
ArcelorMittal calls for internationally competitive prices for renewable energies, hydrogen
Steelmaker ArcelorMittal has called for guaranteed internationally competitive prices for renewable energies and hydrogen in sufficient quantities in the long term for Germany to successfully transition to carbon-neutral steel production.
The steelmaker May 17 called for a clear industrial policy, saying that the necessary economic policy framework needed to be put in place more quickly by Germany and the EU.
“Despite significant progress and an EU-approved funding commitment from the German government for the planned decarbonization projects at the flat steel sites in Bremen and Eisenhuttenstadt, the company is facing challenges, particularly due to high energy and hydrogen costs,” it said, adding that competitive energy prices were a significant factor in its final investment decision to decarbonize production in Germany.
ArcelorMittal said CO2-neutral pig iron production required a hydrogen price of around Eur2/kg to remain competitive, but hydrogen prices were Eur7-9/kg. It said it was also difficult to operate EAFs economically in the long term due to high electricity prices.
Platts, part of S&P Global Commodity Insights, assessed the cost of green hydrogen production via alkaline electrolysis in Germany, backed by renewable power purchase agreements, at Eur6.58/kg ($7.13/kg) on May 16, down from Eur7.77/kg a month before.
The assessment reflects one possible pathway for producing EU Renewable Energy Directive-compliant green hydrogen.
The recent debut auction under the EU’s European Hydrogen Bank, providing subsidy support for green hydrogen production, cleared at below 50 euro cent/kg, with seven projects totaling 1.5 GW in Iberia and the Nordics the winners.
The winning bids demonstrated both the competitive locations for green power production, along with a willingness of end users to pay a premium for the renewable hydrogen.
There were also several bids from projects in Germany for well under Eur1.50/kg, EC data showed.
Carbon neutral by 2050
ArcelorMittal aims to reduce its CO2 emissions in Europe by 35% by 2030 and reach carbon-neutral production globally by 2050.
In Germany, the company is converting its blast furnace technology to natural gas to reduce emissions and plans to eventually move to hydrogen-based direct reduction and electric arc furnaces.
In February, the German government announced Eur1.3 billion support ArcelorMittal’s plan to build EAFs in Bremen and Eisenhuttenstadt, as well as a direct reduction plant in Bremen.
The steelmaker said at the time the use of green hydrogen could result in savings of more than 6.3 million mt/year of CO2 by 2030 and produce 3.4 million mt of CO2-reduced steel in both plants.
“Decarbonizing our production is a top priority for us, but the current costs and future price forecasts for energy and hydrogen pose a considerable challenge,” ArcelorMittal Germany CEO of the flat steel plants in Bremen and Eisenhuttenstadt Thomas Bunger said in the statement.
“An industrial policy aimed at reducing these costs is crucial for our success and the success of the entire industry,” he said.
“We need the rapid expansion of renewable energies and the development of domestic hydrogen production while at the same time increasing hydrogen imports in order for the transformation to succeed,” ArcelorMittal Europe Vice President Lutz Bandusch said.
The steelmaker said establishing a “green lead market” was crucial to the viability of producing CO2-reduced steel competitively, while labeling initiatives could also be helpful to set additional incentives, such as in public tenders and government procurement.
ArcelorMittal also called for “decisive action” at national and EU levels against distortions of competition, which it said would include closing the remaining weaknesses in Carbon Border Adjustment Mechanism to reduce the risk of part of the industrial value chain migrating outside Europe.
“ArcelorMittal remains firmly committed to achieving CO2-neutral production worldwide by 2050. Active support through government measures is essential for the transition to a sustainable future,” it said.
ArcelorMittal produces CO2-reduced steel under its XCarb brand and subscribes to the ResponsibleSteel standard, which guarantees socially and environmentally responsible supply chains and production methods, it said.
Platts, part of S&P Global Commodity Insights, assessed domestic HRC prices in Northern Europe at Eur630/mt ex-works Ruhr May 16, down 8.7% since the start of 2024.
Authors: Jacqueline Holman, jacqueline.holman@spglobal.com, James Burgess, james.burgess@spglobal.com
Carbon border adjustment debate divides EC, steelmakers
European Union steelmakers may be at loggerheads with the European Commission on how a Carbon Border Adjustment Mechanism can be introduced in Europe, according to views expressed during a European Steelmakers’ Association March 17 webinar that focused on EU climate policy.
Introduction of a CBAM on top of the EU’s current Emissions Trading System would be an “overcompensation” in terms of ensuring a fair market for clean steel and risks not being compatible with World Trade Organization policies, Mette Koefoed Quinn, the European Commission’s head of unit, ETS Implementation and IT, DG Climate Action, told industry representatives on the Eurofer webinar. The ETS currently offers some free allocations to steelmakers to avoid carbon leakage.
Eurofer’s members are meanwhile pressing for the ETS to continue for a transition period of eight years after the CBAM is introduced, during which time free ETS allocations would continue to be made to EU steelmakers, the association’s director general Alex Eggert said.
This transition period should run until a sustainable market for “green” steel is fully formed in 2030, according to the association.
“We’ve had intense discussions with trade lawyers who all confirm that carbon border measures are absolutely compatible with WTO….. and even a combination of the two (CBAM and the ETS) to cover the delta between free allocations and carbon costs at the border is compatible,” Eggert said. Europe’s steel industry has already suffered a competitive disadvantage – estimated to have cost the sector some Eur3 billion in 2018 at current prices – due to the ETS system, where the shortage of free ETS allocation to the sector is currently put at around 20%, he said.
The EU is extremely exposed to international competition, with a high cost susceptibility because the EU imports around 30 million mt of steel a year and exports some 20 million mt/year, according to Eurofer data.
CBAM may be implemented in 2023
The European Parliament March 10 approved the principle of setting up a CBAM and the EC is expected to move ahead with a legislative proposal for its introduction in June, for possible implementation in 2023. Andrei Marcu, founder and executive director, European Roundtable and Climate Change and Sustainable Transition, said that so far the only place that a CBAM has been applied is in California. However, US President Biden is understood to be considering one at national level.
WTO Deputy Director-General Alan Wolff said last month that cooperation between nations will be essential to avoid disputes around carbon border taxes. On March 5 the WTO launched a Trade and Environmental Sustainability joint initiative group with 53 member countries, which is expected to be a forum for the discussion of carbon border taxes.
Under the European Green Deal, the EU steel industry needs to reduce its carbon emissions by 55% from 1990 levels by 2030, and achieve net-zero carbon production by 2050. According to Eurofer’s climate and energy director, Adolfo Aiello, this may involve investments of Eur144 billion including in breakthrough technologies which could increase steel production costs and prices by between 35% and 100% above current levels, as a well as supplies of up to 400 TWh of climate-neutral electricity, seven times more than what the sector purchases from the grid today .
The investments required are expected to come from steel sector companies themselves, public sector bodies such as the EU Innovation Fund, and ETS revenues, around 80% of which are currently being used for “green” actions, according to the EC.
“We support climate ambition but it needs to be achieved in the most cost-efficient way: higher climate ambition means and needs better carbon leakage protection, and more support for low carbon technologies,” Aiello said. Carbon is currently priced in the EU at around Eur40/mt, having risen dramatically over the past three years after hovering around Eur7/mt for several years. This decade carbon prices might even rise to “three-digit” levels, he said.
“Fair burden-sharing is needed between ETS and non-ETS sectors,” he said, adding the commission needs to redirect more of the ETS revenues to industry.
EC considering six options
The EC is looking at six different options to decarbonize, but does not consider that a CBAM could be complementary to the ETS system, Quinn said. It would be an alternative, she said.
Phase 3 of the EC’s ETS allocation system has just finished, without carbon leakage having been seen, she said. In Phase 4 of the ETS, designed to cover the January 2021 to 2030 period, free allocations to companies are now being calculated.
The overall structure of the ETS is being reviewed: there will be sufficient free allocation, to the benefit of steelmakers, Quinn said. “The current system foresees the sufficient allocation of free allowances until 2029-30: giving adequate carbon leakage protection. However, we’re now looking at whether to introduce CBAM… the commission says it’s either CBAM or free allocation, you can’t have both because that’s a risk of double compensation…. but a transition period might be needed and that’s one of the alternatives we’re looking at,” she told the webinar.
While ETS free allocations are currently giving adequate carbon leakage protection, they are reducing the incentive to go for quick decarbonization: “The pricing is not coming through as it should into the products and this is a problem,” Quinn said. CBAM could provide a useful incentive to the steel industry to decarbonize within Europe and externally, she said.
— Diana Kinch