The automotive sector could be the demand driver of green steel projects in Europe
Green lead markets in the automotive sector are key to generating demand for climate-neutral products. A recent assessment shows that by 2035 there are enough European near-zero steel projects in the pipeline to meet that demand.
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Ysanne Choksey
Transitioning away from coal-based steel production will require more than just developing new steelmaking technologies. Steelmakers also require robust, long-term demand signals for low- and near-zero emission steel to secure investments and build these new iron and steel plants.*
Investments in near-zero emission steel projects in recent years have been stimulated by expectations of increasing carbon prices from the emissions trading system – a measure vital to create investment certainty for decarbonisation technologies – and support from governments across Europe. However, some projects are stalling and not reaching final investment decision (FID) because a lack of clear market signals makes investors hesitant to commit to the significant upfront and ongoing costs.
The automotive sector can play a key role in stimulating these market signals. The sector requires around 15 million tonnes (Mt) of primarily flat and high-quality steel depending on the year. This is currently mostly produced via coal-based blast furnaces, as opposed to long steel which is already largely being produced from scrap in electric arc furnaces (EAF).
A recent assessment of the near-zero project pipeline in the European Union by Agora Industry reveals that there are enough projects to supply the car sector’s steel demand, provided clear and ambitious demand-creation measures are in place.
In 2025, Agora Industry identified 34 Mt of announced near-zero capable steel projects in Europe using direct reduced iron (DRI) technology. Looking more closely, Agora analysis has found that 25 Mt are moving forward through the project pipeline, albeit at varying stages, from permitting and FID through to construction phases. This is good news for two reasons: first, it shows we are on track to fulfil the entire potential demand for high-grade near-zero emission steel products needed by the automotive industry by 2035. Additionally, it shows that Europe is still leading the world in near-zero emissions capable steel plants.
The potential is high, but the ice is still thin. These volumes cannot be taken for granted: only a small number of projects have moved to the crucial FID stage and even fewer have started construction. These stages critically depend on solid demand signals from offtake agreements and clear lead market policies that signify long-term investment security.
*"Near-zero emissions steel", as used in Agora Industry 2025 follows the definition set out in IEA (2024): the term is “specifically reserved for technologies that are already compatible with an energy system at net-zero emissions. Distinctive recognition of such performance already today is critical, particularly given the higher risks and costs that come with development and early deployment of innovative technologies. Incentivising these technologies now can help kickstart market uptake, paving the way to eventual widespread diffusion.” We distinguish this from “lower-emission” technologies like fossil gas-based DRI that can lower emissions compared with conventional blast furnace-blast oxygen furnace (BF-BOF) routes but are not compatible with an energy system at net-zero emissions.
DRI-based steel project pipeline in the EU
Why the European automotive sector is a potential catalyst for low-CO2 steel production
There are four main reasons why the automotive sector could clearly drive the demand for green steel, thus acting as an accelerator for the low-CO2 steel production:
Volumes: If all automotive steel demand for cars and vans in Europe would need to procure near-zero emissions steel, steelmakers would have a 15 Mt market to sell their products into. This kind of demand signal would help de-risk most of the current hydrogen DRI project pipeline in Europe.
Technical necessity: Although scrap steelmaking based on EAFs will have to increase in order to reach climate neutrality goals in Europe, due to quality constraints for automotive-grade steel, the sector will require new DRI-based ironmaking pathways coupled with steelmaking furnaces (direct reduction plants can be coupled with electric arc furnaces or with existing basic oxygen furnaces (BOF) via a smelter). These technologies will require hydrogen for ironmaking and fossil-free electricity for steelmaking to produce near-zero emissions steel.
Low cost impact on consumer: The cost premium of low- and near-zero emission steel can be readily passed through the supply chain with a limited impact on the final consumer. An Agora analysis shows that steel represents only a small share of the final cost of a vehicle: less than 1% of the end price of a car.
Scope 3 emissions: Steel currently represents a significant portion of total lifecycle emissions of vehicles: between 16-27 percent (embedded phase), depending on the type of vehicle. Addressing their steel supply chain will be one of the most effective measures for carmakers to tackle their scope 3 emissions.
Standardising low- and near-zero emission steel to unlock green lead markets
In addition to creating demand signals, harmonised standards for low- and near-zero carbon steel are essential. At present, there is still a lot of uncertainty around the definition of low- and near-zero emission steel, with several international standard initiatives and parallel processes in European legislation yet to be agreed upon. Even projects already far along could still rely on fossil gas beyond 2035 unless the definition of low-carbon steel becomes more ambitious and incentivises transformational pathways towards net-zero steel. Policymakers therefore urgently need to sharpen legislation to spur investments into the necessary near-zero emission capable technologies.
What is needed now: policy support to create market signals
The project pipeline for clean steel production in Europe is there. To turbo-charge Europe’s clean steel projects into the construction phase requires turning market signals from steel buyers into a bankable investment case. Lead markets provide these crucial signals and are a key element of a policy package that must also support upstream supply chains, such as green hydrogen production. By implementing a comprehensive lead market policy framework alongside harmonised standards across the currently negotiated Industrial Accelerator Act (IAA) and the automotive package, the EU can create the guaranteed demand necessary to kick off climate-neutral steelmaking in the EU.
![[Translate to English:]](/fileadmin/_processed_/8/f/csm_15_insights_global_steel_news_73f640a802.jpg "The global steel industry can achieve net-zero emissions by the early 2040s")
![[Translate to English:]](/fileadmin/_processed_/9/e/csm_global-steel_project_news_2_283e600f74.jpg "Shifting global steel reinvestments from coal to clean")
