Tag: Industrial Accelerator Act

The European Commission’s proposal for an Industrial Accelerator Act (IAA) has undergone last-minute amendments to text concerning the EU’s first green steel standard, as revealed upon official publication on 4 March, further supporting a non-harmonized implementation of the EU’s ‘voluntary low-carbon steel label’.

McCloskey has closely followed the drafting process for the IAA, as it represents one of the core pillars of the European Commission’s attempts to remedy European steelmaking competitiveness under its Steel and Metals Action Plan (SMAP), via demand-side measures to stimulate low-carbon lead markets.

In last year’s SMAP, the Commission committed to introducing the EU’s first ‘low-carbon voluntary label,’ initially covering steel products, as a means to standardise the definition of ‘green steel’ and give low-carbon consumers greater certainty on the quality of relevant emissions reductions. This label would then be referenced in public procurement and financial support schemes purchasing steels, under mandates to prioritise low-carbon, or domestic origin steels and stimulate green demand.

Negotiations to finalise provisions of the IAA have been fraught with disagreements as to the form and scope of the Commission’s proposed competitiveness remedies, primarily relating to the embedding of domestic “Made in EU”, and low-carbon content requirements into EU public procurement and financial support schemes. The specific formulation of the low-carbon label has also seen significant disagreement.

“Made in EU” content requirements are particularly contentious, supported by some member states, such as France and Italy (as described in a joint declaration of French and Italian industrial ministries on 3 March), but opposed by others like Germany and Scandinavia, who prefer a “Made with EU” approach that would extend requisite European origin status to the EU’s like-minded trading partners.

As of official publication of the IAA, on 4 March, the steel sector is referenced only in terms of mandates to include a minimum share of 25% for “low-carbon” steel products in public procurement and support schemes, without its own Union-origin requirements. The European Commission state that domestic content criteria is not necessary for the steel sector due to the long-term revision of the EU’s steel safeguard quotas, expected for July. The ‘low-carbon label’ is gone entirely.

Voluntary low carbon label and ‘sliding scale’

Independent of authorities, the European steelmaking lobby has itself been arguing about the form and scope of the EU’s first low-carbon steel label, as of yet unable to reach a compromise as to the means of defining green steel; namely whether or not to include a ‘sliding scale’ mechanism as a decarbonisation incentive for integrated blast-furnace producers.

Sliding scale mechanisms generally operate on a classification model (e.g A-E, with A as the least-polluting) facilitating a ‘greener’ classification the lower a steel product’s constituent share of steel scrap. This is intended not only to recognise that global supplies of quality steel scrap are insufficient to support the the entire transition of the world’s steelmaking to scrap-based electrified production, requiring alternative inputs like green direct-reduced iron (DRI); but also to allow primary producers to participate in low-carbon markets to finance the high investment costs of decarbonising their processes.

In principle, sliding scales make a lot of sense and can even be argued as necessary for a realistic low-carbon transition in the steelmaking sector, however, the proposed implementation of such a mechanism could present too high a burden for the EU’s existing secondary steelmakers.

DRI-EAF steelmaking is widely considered the most realistic path to green steelmaking worldwide, but if anything, the EU is behind the curve on DRI-EAF development, particularly in the MENA region, as illustrated in McCloskey’s Global Green Steel Profile.

A clear definition for low-carbon steel is thus viewed by many as necessary to lay secure foundations for the EU’s low-carbon transition, and some fear current efforts could fall short, as argued by Andrew Forth, Head of Policy and Advocacy at Climate Group:

“The EU’s Industrial Accelerator Act sets out a framework for classifying steel by emissions intensity, and we welcome the recognition that a labelling scheme is needed. But the detail matters enormously. A voluntary classification system will not provide the certainty that producers and buyers need to make the investment decisions that actually cut emissions at scale. We need a mandatory, harmonised EU definition of low-carbon steel – established without delay – so that public procurement and private investment reward cleaner production. Without it, Europe risks confusion, stalled investment and losing ground to competitors.” 

‘Sliding scale’ – Secondary Steelmaker Resistance

Initial formulations of the low-carbon label under the IAA would have extended the sliding scale universally across all steel products, which combined with the possibility of international producers receiving certification and thus access to EU public procurement, was too big a threat for EAF steelmakers to accept. International DRI-EAF steels would benefit both from their competitive emissions profile, and lower scrap content, potentially obtaining a cleaner classification than fully recycled domestic products via the sliding scale. The EU’s secondary steelmakers predominantly service the construction sector, which is also already subject to sustainability requirements via the Construction Products Regulation (CPR).

These steelmakers were thus unwilling to accept the sliding scale in any capacity, though particularly in the absence of strict “Made in EU” content requirements, which could compound in threats to their existing construction sector market share both from domestic integrated producers, and international DRI-EAF exporters.

Germany, a supporter of the sliding scale due to its relative share of integrated primary steelmaking, is heavily resistant to the stricter definition of “Made in EU” – whereas countries like France and Italy have argued for the inclusion of domestic content requirements.

In their aforementioned joint declaration, France and Italy express support for lead market generating procurement mandates to support the steel sector, but explicitly oppose any implementation of the sliding scale (referred to in terms of the EU’s leading sliding scale certification, the Low Emissions Steel Standard (LESS), a project initially started of the German Steel Association, WV Stahl).

“We support incentives for European green steel through sectoral quotas, while opposing a use of the LESS label that is harmful to European industry, and we call for “Made in EU” requirements for steel products used in construction through public procurement and public support schemes.”

Low-carbon label – current status

It seems this direct resistance to the sliding scale, and wider frictions surrounding “Made in EU” requirements, may have had an impact on the IAA’s final iteration.

McCloskey has tracked the ‘low carbon steel label’ as it has gradually transformed though leaked IAA drafts, from a universal classification across steel product groups informed by the sliding scale, to legislative non-existence. The label previously existed under Chapter VII of earlier versions of the IAA, but was completely cut late last week, with standardisation efforts now to be pursued under the steel-related delegated acts of the ESPR later this year.

Leaked IAA drafts seen by McCloskey on Monday 2 March, just days before official presentation, still contained references to a universal application of the sliding scale across steel products for future ESPR implementation, but have since been amended a final time in the wake of Member State and downstream sector resistance.

The explanatory recitals of the latest draft stated: “[product labelling requirements] should be based on classes of performance that acknowledge the different decarbonisation effort of the technologies routes, also rewarding circularity, adjusting emission intensity thresholds based on percentage of scrap metal used in production, as necessary.”

Whereas the officially published text now appears to constrain the scope of future efforts (emphasis added): “[…] adjusting emission intensity thresholds based on percentage of scrap metal used in production for those product categories that typically require primary steel production, as necessary.”

This would suggest that Commission intentions are now non supportive of a sliding scale-based label implemented universally across the steel sector, instead to be constrained to products produced via primary steelmaking.

Indeed, sources close to both the IAA drafting process, and consultations on the low-carbon label suggest that a compromise was potentially visible before the label was cut from the IAA, which would limit the scope of the sliding scale only to those steel product segments that require a decarbonisation incentive – such as flat steel products – leaving EAF-produced long steel products, destined for the construction sector, under the existing remit of the CPR.

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