The European Commission (EC) has proposed policies designed to strengthen domestic manufacturing and demand for low carbon steel. While measures introduced in the past –such as the EU ETS and CBAM – stimulate supply, the introduction of the Industrial Accelerator Act (IAA) and automotive package mark a strategic shift as the first demand-side policies.
In the case of steel, the real value of such policies will depend on the net impact they have on the demand for low carbon steel over and above existing net zero commitments companies have already made. This Insight focuses on quantifying what that net impact could be, but also raises the pertinent issue of how low carbon and green steel is yet to be defined across Europe.
In March 2026, the Industrial Accelerator Act (IAA) was introduced as a legislative proposal by the EC. The Act forms part of the EU’s wider “Clean Industrial Deal” strategy, with an aim to promote industrial decarbonisation. The IAA covers strategic sectors such as energy-intensive industries, net zero technologies and the automotive industry. Together with the IAA, the automotive package proposed in December 2025 will focus on reducing emissions from the automotive sector by 2035 and strengthening domestic manufacturing.
Under the automotive package, car manufacturers will need to comply with a 90% tailpipe emissions reduction target, while the remaining 10% of emissions can be compensated through the use of low carbon steel made in the EU or the use of bio fuels. Meanwhile, the IAA sets out the minimum threshold for the use of low-carbon material in the automotive, construction and infrastructure sectors from 2029 to qualify for public procurement and subsidy schemes. While the IAA sets out low carbon requirements for steel, cement and aluminium procurement, CRU has assessed the impact the IAA and the automotive package will have on the demand for low carbon steel.
A key ambiguity in both policies is that low carbon steel remains undefined. The EC recognises that low carbon steel needs to be defined sooner rather than later. The Commission’s proposed solution, currently under discussion, is to develop a specific label for low carbon steel that would establish a clear methodology and track emissions at a product level.
CRU distinguishes between two categories – low carbon and green, with green steel being comparatively less carbon intensive and therefore, better aligned with the spirit of the Industrial Accelerator Act (IAA) and the automotive package. Therefore, we analyse the impact policy might have on green steel demand. As it stands, there is no world- or region-wide definition of green steel, which opens up a debate to various definitions.
To effectively segment the demand of low carbon steel for client engagements, CRU has developed its own definition of green steel.
Green steel, as defined by CRU, is associated with emissions of below 400 kg CO2/t of finished steel for Scopes 1, 2 & 3 (or 200 kg CO2/t of finished steel for just Scopes 1 & 2).
It is important to further understand how much various technologies emit and which of them can be associated with producing green steel.
Various steelmaking technologies are emerging that offer a range of lower emissions when compared to an average BF-BOF. With a wide range of emission reductions that can be achieved through various technolgies, it becomes essential to clearly define the boundary between what is low carbon versus green steel.
Technologies such as EAFs using natural gas-based DRI/HBI and BF-BOFs practicing CCS (carbon capture and storage) can lead to a significant reduction of CO2 and as such, can be classified as low carbon technologies. However, green steel in Europe, as defined by CRU, has the potential to be associated with 200 kg CO2/t of finished steel for scopes 1 & 2. This level of CO2 reduction can be primarily achieved through using hydrogen-based or green DRI/HBI in EAFs and SAFs, and all scrap-based EAFs. Consequently, the IAA and the automotive package are expected to have a positive impact on the investment in such technologies as the policies are expected to increase and solidify green steel demand in Europe.
The impact of these policies on green steel demand in Europe
To assess the impact of these policies on green steel demand, the sectoral breakdown in the steel sector must be understood, along with what the existing market sentiment is for green steel demand (the “base case”), driven by the decarbonisation commitment timeline of end-users in major steel-consuming sectors. CRU suggests that the proposed policies (in order to have a net impact on the demand for low carbon steel or green steel) must stimulate demand for such products over and above what the underlying demand will be. This approach is yet to be explored in other analysis on this topic.
By 2029, the impact of the Industrial Accelerator Act (IAA) will primarily influence the construction and infrastructure sectors and stimulate total demand for green steel by ~2 Mt. The impact of policy on public procurement will be a more significant driver for the construction/infrastructure sector than automotive, whereas public support schemes will stimulate demand in both sectors. Total green steel demand will reach 17 Mt compared to 15 Mt in the base case.
By 2035, the automotive package will require a 90% reduction in tailpipe emissions. While most Scope 3 emissions for automotive companies come from Category 11 tailpipe emissions, policy will still have a notable impact on the remaining 10%, which will need to be addressed through a proportion of low-emissions steel. Beyond 2030, automotive companies will be advancing to reach their net zero scope 3 targets, reducing the delta between policy impacts and achieving reduction objectives, resulting in a stimulus of ~2 Mt by 2035. Total green steel demand will reach 39 Mt compared to 37 Mt in the base case.
The implementation of these policies is not expected to generate a significant increase in net demand for green steel. Instead, it reinforces existing decarbonisation commitments from end-use sector participants, at a time of geopolitical uncertainty and economic challenges in bringing low-carbon and green steel supply online. Concerns about weaker demand for low-carbon and green steel in Europe are likely to be offset by policy implementation and would support the green steel demand assumed in the base case. Potentially, it can also accelerate low-carbon and green steel consumption between companies’ interim reduction targets, such as 2030 goals, and their net-zero targets
While the proposed policies serve as a catalyst for increase in demand for low carbon steel, there are still key challenges that need to be addressed. CRU will explore these in a second Insight. In the meantime, we can help you understand the emerging market of low carbon/green steel in Europe and globally. Click here to learn more, or directly contact us here.
