EU Pushes 'Green Steel' Plan to Cut Car Emissions by 2035
What if the future of Europe's auto industry depended on a material that barely exists? That is the gamble at the heart of the European Union's new Industrial Accelerator Act, unveiled on March 4, 2026 . Under the plan, automakers must cut tailpipe CO₂ emissions by 90% by 2035. The remaining 10% can be compensated for—but not just by any means. The EU is mandating that a portion of this compensation come from using low-carbon "green steel" made in Europe, a product that is currently scarce, expensive, and lacks a clear definition .
How the Automotive Package Works
The EU's strategy, embedded within the Industrial Accelerator Act, creates a new flexibility mechanism for automakers facing the 2035 CO₂ reduction targets. While the headline goal remains a 90% cut in "tailpipe" emissions, the remaining 10% can be offset through a combination of two specific methods :
This means that in practice, vehicles with internal combustion engines, including plug-in hybrids (PHEVs), range extenders, and mild hybrids, could still be sold after 2035, provided their manufacturers can secure enough certified green steel to balance their fleet emissions .
The Definition 'Wild West'
The lack of a standardized definition for "green" or "low-carbon" steel is a major stumbling block. In the days leading up to the Act's release, reports emerged that the European Commission had scrapped plans for a specific emissions label for steel, which would have provided this much-needed clarity .
An EU official cited concerns that the label would increase bureaucracy, especially as another product-labeling law is already being drafted . Eurofer, the European steel association, warned that delaying the label "risks pushing decisions back in time at a moment when investors are looking for certainty" .
The Supply Problem: Too Little, Too Late
Even if a definition existed, the physical supply of green steel is a critical issue. Planned annual green steel capacity globally is projected to reach around 28 million tons by 2050. However, Reuters calculations show that only a third of that capacity is actually under construction .
The cost of green hydrogen, a key input for the most ambitious low-carbon steel production routes, remains prohibitively high. When the steel does become available, it is expected to cost about a third more than the conventional product, according to Stegra, a green steel hopeful .
Automakers Pivot to Scrap-Based Solutions
Confronted with these realities, many steelmakers are pivoting to a more cautious, step-by-step strategy centered on electric arc furnaces (EAFs) that can initially run on scrap .
Automakers are also adjusting their procurement strategies:
- Volvo Car: Had aimed to start using hydrogen-based steel from SSAB in 2027 but has now agreed to begin with scrap-based fossil-free steel first .
- BMW: Will use Thyssenkrupp's "bluemint recycled" steel for the iX3 from 2026, a mass-balanced product with a high share of recycled content .
- Porsche: Has signed a deal with H2 Green Steel to use approximately 35,000 tons of low-CO₂ steel annually, produced with hydrogen, starting in 2026 .
Christian Levin, CEO of Traton's Scania, captured the industry's dilemma: "We believe that there will be a demand. (But) we are not commercially offering it yet and we are not yet buying it because it is not yet available" .
Industry Reaction: Criticism and Cautious Optimism
VDA (German Auto Lobby)
President Hildegard Müller criticized the plan in December, stating: "This means that our industry is once again dependent on developments over which it has no influence" .
Hydrogen Europe
The industry association welcomed the regulation, calling it a "positive signal" that creates a clear market for green steel. Its CEO, Jorgo Chatzimarkakis, even suggested bringing the target date forward to 2030 to "further increase the commercial viability of clean steel" .
VDMA (German Engineering Federation)
Hartmut Rauen expressed skepticism, arguing that the "theoretically good" idea is undermined by "very detailed specifications." He warned that the precise caps of 7% for steel and 3% for fuels are fraught with uncertainty .
Public Procurement: A 25% Green Mandate for 2029
Beyond the automotive sector, the Industrial Accelerator Act also mandates that from January 1, 2029, a minimum of 25% of steel procured for public projects must be low-emission . This provision is designed to kick-start demand and create a "lead market" for green steel in Europe, independent of the automotive industry's transition.
In a significant move, the Commission dropped a "made in EU" requirement for steel in public procurement, citing a forthcoming new trade measure to address global overcapacity . However, the voluntary label for low-emission steel has also been omitted from the final proposal .