A policy framework for boosting the demand for green steel in the automotive industry

The nascent green steel industry requires increased demand to grow and a stable market to facilitate investments and to scale up production sites. Simultaneously, the automotive industry can use green steel’s environmental benefits to reduce its carbon footprint, as a large share of the industry’s emissions stem from the different steel components used in the construction of vehicles. Accounting for around 12 % of global steel consumption but potentially being able to pass on the price of a ‘green steel premium’ to its end consumers, the automotive industry is uniquely positioned to create demand for green steel without having to rely on public subsidies. This CEPS In-Depth Analysis investigates different policy options that could trigger more demand for green steel from the automotive industry. We analysed various multi-stakeholder initiatives as well as a range of policy options in terms of their potential to facilitate such demand. While multi-stakeholder initiatives have been important for industry cooperation and creating awareness for green steel within the automotive industry, the differences between their definitions and standards make it difficult to compare the various kinds of low-carbon steel. This may therefore reduce their potential to stimulate demand. The need for common EU standards for green steel has emerged as a crucial prerequisite for many policy options. Against the backdrop of carbon pricing and sustainable finance, creating transparency (e.g. through reporting activities) may indirectly induce demand for low-emissions steel among vehicle manufacturers. However, introducing a set target for reduced material emissions would likely have the largest potential to drive change. There are several policy options that could have scope to introduce such a target. Still, many uncertainties remain on how such a target could be designed and implemented, and policymakers will need to address some inherent conflicts. For example, obliging manufacturers to use a certain share of green steel for producing a vehicle may instead incentivise them to switch to other materials. Trying to regulate a vehicle’s overall carbon footprint could have a similar impact. Carmakers could achieve the necessary emissions reductions by using other materials while continuing to buy conventionally produced steel. This would not stimulate demand for green steel.