European Steel Sector Faces €82 Billion Carbon Costs by 2031 Under ETS Reform

A new assessment from the European Steel Association (EUROFER) warns that upcoming revisions to the EU Emissions Trading System (ETS) could send the steel industry's carbon bills soaring. Even if current decarbonization projects run at full steam, annual carbon costs for the sector are set to surge from roughly €3.4 billion in 2026 to around €8.2 billion by 2031.

The report, published on 24 September, highlighted that the carbon expense per tonne of steel produced using the traditional blast furnace method could increase to around EUR 100/t by 2030 and is projected to climb beyond EUR 200/t after 2031. EUROFER expressed concerns that such steep costs could render conventional steel production economically nonviable.

Currently, EU steelmakers are required to pay for their emissions, but they receive free allowances to offset part of the cost—a cushion that foreign competitors operating without carbon pricing don't need. However, as the Carbon Border Adjustment Mechanism (CBAM) kicks in to tax carbon on imported goods, these free allowances are slated to disappear.

To prevent a sudden shock to the sector, EUROFER is pushing for a much smoother, five-year transition from free allowances to full CBAM implementation. The association stresses that carbon pricing, protection against carbon leakage, and favorable investment conditions must all advance hand in hand rather than out of sync.

EUROFER Cites Carbon Cost Inequity Impacting Steel Industry

EUROFER is genuinely concerned that cutting free emission allowances too quickly by 2030 puts the cart before the horse, as the core conditions for industrial decarbonization simply aren't ready yet. The association proposes a smarter timeline: a gradual reduction of free allowances over the next five years, followed by a steeper decline only after the proper infrastructure is firmly in place. This buffer would shield steelmakers, supply chains, and exporters from carbon leakage as the Carbon Border Adjustment Mechanism (CBAM) rolls out.

EUROFER also stresses that slapping a higher price tag on carbon isn’t a silver bullet for going green. For a successful shift to low-carbon steel, the industry needs a complete ecosystem:
- Affordable, competitively priced clean energy
- Strong trade protections against unfair foreign competition
- Real market demand for green steel and a steady supply of ferrous scrap
- Substantial investment backing

EUROFER Director General Axel Eggert pointed out that these readiness conditions vary wildly from one European region to another. The ETS framework needs enough built-in flexibility so that companies and regions still playing infrastructure catch-up aren't left behind or unfairly penalized.

EUROFER contends that the current timeline for reducing free allowances by 2030 might progress faster than the establishment of necessary conditions for industrial decarbonization. The organization suggests a slower reduction of free allowances over the next five years, followed by a more rapid phase-out once the essential conditions are met. This approach aims to protect steel producers, steel-related value chains, and exports from carbon leakage during the shift to CBAM.

The association emphasizes that carbon pricing alone is insufficient for achieving a transition to low-carbon production. It highlights the importance of competitively priced low-carbon energy, effective trade measures, demand for low-carbon steel, access to ferrous scrap, and ample investment support. Eggert pointed out that these conditions will not develop simultaneously across all European regions, and he advocated for the ETS framework to support companies and regions where infrastructure and investment opportunities remain inadequate.