EU environment committee accelerates green steel credits for automotive sector

On 5 November, the European Parliament’s Environment Committee (ENVI) agreed on its position regarding updated climate targets for the EU automotive sector. Although its amendments reduce the ambition of the European Commission’s original proposal, they give low-carbon steel procurement a more prominent role. Last December, the Commission proposed changes to the EU’s existing automotive CO₂ reduction targets as part of a broader policy package intended to support “a clean and competitive European automotive sector.” This week, ENVI—leading Parliament’s review of the proposal—reached an internal agreement on how to align the sector’s climate targets with the EU’s broader decarbonisation ambitions and the realities of industrial competitiveness.

Although the revised targets still require affirmative votes from the full European Parliament and the Council before they become law, passage of a consolidated compromise package is a positive step. It would support pragmatic low-carbon policy incentives for the automotive sector while helping establish lead markets for the EU’s emerging green steel industry.

Under ENVI’s compromise amendments, the 2035 passenger-car fleet tailpipe-emissions reduction target would fall from 100% to 87.5%. An additional 7.5 percentage points of the reduction, bringing the total to 95%, could be achieved through credits for using “low-carbon steel made in the EU.” For vans, the 2030 target would drop from 50% to 35%, and the 2035 target from 100% to 80%. From 2035, credits for low-carbon steel could also cover 7.5 percentage points of the van target, but their use would not be compulsory. For passenger vehicles, by contrast, the 87.5% tailpipe-emissions reduction target would apply only if credits for low-carbon steel made up the difference to 95%.

Under ENVI’s proposals, “low-carbon steel credits” could count toward overall targets as soon as the new rules take effect, rather than only after 2035, as the Commission initially proposed. Their use could lower the targets by no more than 3% before 2035, with the cap rising to 7.5% from 2035 onward. The proposals also leave “green steel” undefined, consistent with the EU’s broader approach to establishing lead markets for green steel. Instead, ENVI points to a definition expected in the iron- and steel-specific delegated act under the Ecodesign for Sustainable Products Regulation (ESPR). Dow Jones Energy has followed work on that definition, which was initially slated for inclusion in the Commission’s Industrial Accelerator Act (IAA) proposal but was postponed to the ESPR after industry disagreements over “sliding scale” adjustment mechanisms and their interaction with “Made in EU” domestic content requirements.

EU Steel Credits: Progress vs. Transparency

Under ENVI’s revised proposal, low-carbon steel credits would be available only for steel “made in the EU.” ENVI defines this as steel first melted and poured within the Union, explicitly applying the “melted and poured” rules established by the steel overcapacity regulation, which strengthened the EU’s steel protection framework when it came into force in July this year.

A steel product receives a cleaner classification on the sliding scale when less scrap is used in its production. This approach acknowledges that global scrap supplies cannot meet worldwide demand for decarbonising steel through electric-arc furnace (EAF) production. It also encourages direct-reduced iron-based transformation projects, widely considered the most realistic route to decarbonising the sector, while enabling integrated steelmakers to enter low-carbon lead markets and fund their transition capital expenditure.

Because “sliding scales” classify green steel according to progress in decarbonisation rather than its measured carbon footprint under PCF or LCA-based methods, they may weaken the value of a low-carbon steel label. They could also make it harder for downstream manufacturers using steel to see the unadjusted emissions intensity of their finished products.

Green Steel Standards Split by Production Route

Steel used in construction already faces carbon targets linked to Environmental Product Declarations (EPDs) through rules such as the Construction Products Regulation, national certification requirements and local permitting conditions. Secondary-EAF steelmakers are therefore especially concerned that replacement targets could conflict with their production routes, since sliding scales favour integrated BF-BOF producers. Recent findings from the UK construction sector indicate that steel buyers do not consider it their responsibility to understand production-route details in order to support decarbonisation in the steel industry. When buying green steel products, they mainly want confirmation that the steel is properly certified and supported by an approved EPD.

Against this backdrop, the European steelmaking association Eurofer has reached an internal compromise on its preferred definition or standard for green steel: sliding-scale adjustments would apply only to carbon flat steels and selected carbon long steels. Most long steels, along with all stainless steels, would instead be classified under alternative standards without adjustments.

The ENVI committee appears to reintroduce a form of sliding-scale adjustment in its reference to the forthcoming ESPR green steel definition, now expected in H1 2027: “[I]n developing these criteria [‘for defining low-carbon steel’], the Commission should take into account the need to incentivise direct reduced iron (DRI) processes using fossil-free hydrogen.” Sources familiar with internal discussions about the scope of the adjustments do not necessarily view this reference as a major challenge to Eurofer’s existing compromise or to the forthcoming ESPR definition, since automotive demand is mainly for carbon flat steels supplied by integrated BF-BOF producers.

ENVI’s approved compromise is expected to go before the wider European Parliament for a vote at the upcoming December plenary session. If approved, it would establish the mandate for final negotiations with member-state governments in the Council.