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EU eases engine ban: how will green steel demand in automotive be affected?

The EU proposes more flexible CO2 targets for 2035, allowing continued production of ICE and hybrid vehicles. Up to 10% of emissions can be offset using low-carbon steel, potentially creating ~1 million tonnes of annual green steel demand.

Newsroom

Published Updated 3 min read

At a glance

  • The European Commission is proposing more flexible 2035 carbon-emission targets for new passenger cars and light commercial vehicles, allowing continued production of internal-combustion-engine and hybrid vehicles.
  • The revised target would require emissions to fall 90% below 2021 levels, with the remaining 10% planned to be offset through low-carbon steel, e-fuels or biofuels.
  • Fastmarkets estimates that the proposed green-steel compliance route could generate approximately 1 million tonnes of demand per year, while total steel use in EU passenger-car production is estimated at about 8.5 million tonnes annually.

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Steel suppliers welcomed the potential demand for green steel, though the risk of prioritising cheaper alternatives remains. According to the Automotive Package regulatory proposal published by the European Commission on Tuesday 16 December, the EU is proposing more flexible carbon (CO2) emission targets for new passenger cars and light commercial vehicles for 2035, allowing the continued production of internal combustion engine and hybrid vehicles.

In 2022, the Commission set the target of selling zero-carbon-emission new cars by 2035, as specified in EU Regulation 2019/631 and in line with climate-friendly policies. According to the Commission's statement, this target has now been lowered to 90% below 2021 emission levels, with the remaining 10% of emissions planned to be offset using “low-carbon steel produced in the EU or e-fuels and biofuels.”

To support electric mobility, the new Automotive Package also includes credits for automakers for “small and affordable electric cars produced in the EU” and financing for European battery producers through a €1.8 billion ($2.1 billion) Battery Boost programme.

The electric vehicle market needs realistic targets

Fastmarkets base metals and key battery raw materials analyst William Adams said the EU's emission reduction targets were “disappointing but probably necessary to support automakers in Europe.”

According to the European Automobile Manufacturers' Association (ACEA), in 2025, 27% of new car registrations in the EU will be petrol-engined, 35% hybrid electric vehicles, and approximately 25% rechargeable and fully electric vehicles.

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A mill source in Europe said green steel could transform from a cost burden into a regulatory asset

If automakers can offset up to 10% of emissions by using low-carbon or green steel produced in Europe, “green steel transforms from being a cost burden into a regulatory asset and competitive advantage,” said a European steel mill source to Fastmarkets.

How much green steel will be needed?

Industry sources have repeatedly emphasised that green steel will remain a niche market unless the EU incentivises OEMs to “buy green steel” through public procurement projects and subsidies. According to Fastmarkets' calculations, the proposed emission reduction using green steel (up to 10% of 2021 levels) could be limited to approximately 1 million tonnes per year. According to the International Council on Clean Transportation, approximately 800 kilograms of steel is used in each EU passenger car. Based on ACEA data, new passenger car registrations in the EU reached 10.6 million in 2024, meaning approximately 8.5 million tonnes of steel is used annually for passenger car production in the EU.

Even if the entire permitted 10% compliance — excluding biofuels — is achieved using green steel, demand will remain mechanically limited to approximately 1 million tonnes per year unless the threshold is raised or steel earns a disproportionate CO2 credit.

Frequently Asked Questions

How did the EU revise its 2035 CO2 targets for new cars?
The EU lowered the 2035 target from zero emissions to 90 percent below 2021 emission levels. The remaining 10 percent can be offset using low-carbon steel produced in the EU, or e-fuels and biofuels, allowing continued production of ICE and hybrid vehicles.
How does the 10 percent offset mechanism affect green steel demand?
If the 10 percent compliance is achieved entirely through green steel (excluding biofuels), demand is mechanically limited to approximately 1 million tonnes per year based on EU passenger car registrations and the ~800 kg of steel per car.
Why do steel suppliers welcome the automotive package?
Green steel transitions from a cost burden into a regulatory asset and competitive advantage for automakers if they can count low-carbon steel use as a compliance credit toward CO2 targets.
What does the EU’s Battery Boost programme offer?
A €1.8 billion programme to finance European battery producers, supporting the electric mobility ecosystem alongside the automotive CO2 framework.
What remains the key challenge for green steel to move beyond a niche automotive market?
Industry sources stress that green steel will remain niche unless the EU provides stronger incentives for OEMs to procure green steel through public procurement and subsidies, or raises the emission-offset threshold significantly.