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Automotive Industry
Green steel made with sustainable or low-emission energy could play a starring role in the next decade in Europe, helping automakers offset tailpipe emissions that will allow them to sell internal combustion engine cars after a 2035 deadline, as well as meeting their overall sustainability goals.
The European Commission in December released a comprehensive automotive plan that replaces the 2035 zero-emission target with a 90 percent reduction, if the remaining emissions are offset by alternative fuels or green steel.
If the plan is ratified, that could mean 25 percent or more cars sold could still have internal combustion engines after that date, depending on how automakers use offsets and hybrid powertrains.
Most of that compensation will come through the use of green — or low-carbon — steel, with 7 percent designated for steel offsets and 3 percent for alternative fuels. Environmental advocates say they can live with the green steel option, even if the tailpipe targets have been eased, keeping in mind the goal of overall CO2 reduction.
“It’s a fairly good proposal considering the circumstances,” Zachary Azdad, policy officer at the Brussels-based environmental advocacy group Transport & Environment, said in an interview. “It’s more productive in terms of offsetting emissions and decarbonizing the steel sector than having a bigger opening for alternative fuels.”
Automakers have committed to low-carbon steel in principle, but adoption has stalled. Steelmakers won’t invest billions without guaranteed demand. Automakers won’t commit without a reliable supply. The EU’s emissions offset could break that deadlock by making automotive the “lead industry” that justifies the transition.
Volvo Cars ranked first in T&E’s 2025 ranking of green steel use. Automakers are assigned a score based on disclosure, target setting and process and supply chain levers. Volvo’s score of 55 was more than twice that of second-place Mercedes, which had a score of 24. Tesla was third, followed by Ford Motor Co., General Motors and Geely.
Volvo has just launched its first car made with low-carbon steel, the EX60 SUV, from the Swedish steelmaker SSAB.
Even though most global automakers have made some commitments to low-carbon and green steel, “actual use of lower-emission steel is rather low,” T&E said.
Steelmakers are optimistic that the emissions offset option will help justify costly investments in technology that, so far, have not paid off.
“It will get the ball rolling, and that would also give automakers assurance that the product will be available for the long haul,” said Thomas Hörnfeldt, vice president for sustainabilty at SSAB, which also works with Mercedes-Benz and others. He said that by 2050, low-carbon or green steel will be the “default” in Europe. “Running a commercial blast furnace [using fossil fuels such as coal] will be cost-prohibitive in the not-too-distant future,” he said.
GMH Gruppe, a German steelmaker with a spectrum of low-carbon and nearly carbon-free products that counts Volkswagen among its customers, says the auto industry can be a key lever to expand its use.
“Green steel can already be produced at scale, but demand signals are still weak,” Alexander Becker, CEO of GMH, said via email. “Clear lead markets — especially in automotive and public procurement — are needed to move from pilots to volume.”
GMH is supplying its Green Power Steel, which uses sustainable energy to power electric arc furnaces and has up to 98 percent lower CO2 emissions, for VW to produce transmission components.
How much does green steel cost?
Cost calculations can vary, but adding green steel to the automotive production process will have little impact on price, experts said. Using 100 percent carbon-free steel could add around €160-200 to the production cost of a car that has 800 kg of steel, said Georg Bieker, program lead for supply chain at the International Council for Clean Transportation.
Azdad said T&E has calculated that by 2040, a car that used 40 percent green steel would cost €57 more than a car using conventional steel. He said that other studies had found that buyers could pay 1 percent more.
“It won’t impact consumers very much,” he said. “It will be a bit of an investment for carmakers for sure, but the green premium will be cheaper than paying the car CO2 fines.”
Automakers said they expected the price of green steel to come down with scale.
A Volkswagen Group spokesperson said by email that green steel is “an important lever” in reducing supply chain emissions but noted that the supply is limited in terms of volume and price competitiveness, because the steel industry’s transition is moving more slowly than first expected.
“We expect costs to decline as the steel industry progresses in its transformation and production scales up,” VW said.
Volkswagen has signed memorandums of understanding with two large steel makers, Salzgitter and Thyssenkrupp, for low-carbon steel starting in 2026.
VW declined to say if it would use green steel to offset emissions. “We generally welcome the European Commission’s approach to recognizing green steel within emissions calculations. This is an important step toward broader decarbonization efforts,” the spokesperson said.
BMW Group said it has focused on steel and aluminum in decarbonizing its supply chain and has concluded contracts and agreements with low-carbon steel suppliers, but it declined to be more specific, a spokesperson said.
“We therefore welcome ambitions to incorporate CO2‑reduced materials, such as green steel, into CO2 fleet regulations,“ the spokesperson said by email. ”This approach can create market pull effects and incentivize increased production of low‑carbon steel within the European Union."
Uptake of green steel has remained low because of what both Azdad and Bieker called a chicken and egg scenario: Steelmakers can’t justify multibillion-euro investments in machinery and processes without contracts, while automakers won’t sign contracts without a guaranteed supply.
“We’ve had announcements about green steel production in the EU, but we’ve also seen that some are canceled because there’s no demand,” Bieker said. “The steel producers say nobody wants to buy green steel, and the automakers and other industries say there’s no green steel to buy.”
The emissions mandate could make automotive the lead industry that justifies billions in investments and also drives change in other sectors such as construction, Azdad said.
“Steelmakers are worried about the lack of demand even though they have the technology,” he said. “They need the car industry to commit so it’s safe to keep investing in these production pathways.”
How does green steel differ from traditional steel?
One potential point of confusion is that the EU has not defined exactly what constitutes green steel, experts, automakers and steelmakers say. That is expected to be clarified in a separate piece of legislation.
Hörnfeldt said he prefers the term “low-carbon steel” to capture a spectrum of low- and zero-emission processes.
In the traditional steelmaking process, iron ore is turned into molten iron in a coal-fired blast furnace, with very high carbon emissions as a byproduct.
Green steel, on the other hand, uses electric arc furnaces powered by renewable electricity or direct-reduced iron processes using hydrogen. Even using an electric arc furnace that is powered by natural gas can involve less CO2 than a coal-fired furnace. But the cleanest processes use electricity generated by renewable energy or hydrogen (ideally produced by renewable energy itself).
Another cleaner intermediate process uses hydrogen generated by conventional energy. Recycled steel also cuts the carbon footprint significantly.
According to the Institute for Energy Economics and Financial Analysis, traditional coal-fired steelmaking has emissions (direct and indirect) of about 2.2 tons of CO2 per ton of steel. Electric arc furnace emissions average 1.4 tons. A scrap steel and electric arc furnace process has about 0.3 tons of emissions. Electric arc furnaces powered by green hydrogen have almost no emissions.
How is green steel being used?
Production accounts for about 10 percent of a car’s life-cycle emissions, but switching to low-carbon steel requires no design changes, making it the easiest decarbonization path. “You get exactly the same steel,” Hörnfeldt said. “You get rid of roughly 30 percent of the carbon production footprint at a cost per vehicle of hundreds of euros.”
Experts said that broadly, low-carbon or green steel can be used interchangeably with traditional steel, whether it is produced as bars or sheets.
Becker, the CEO of GMH, said his company’s green steel is mostly used in powertrain and drivetrain applications, which require high-quality bar steel. “This includes transmission parts and forged components produced in [automakers’] in-house manufacturing,” he said. “Green steel has its greatest immediate impact in technically demanding, safety-critical components rather than body-in-white applications.”
Hörnfeldt said that substituting low-carbon steel in simpler products can offer “quick wins.” Volvo Trucks, for example, used SSAB’s Zero steel, made with recycled steel and sustainable energy, for chassis beams in 12,000 trucks last year, saving 6,000 tons of CO2 emissions.
Volvo Cars is using SSAB Zero in the new EX60 electric SUV. It says the carbon footprint for SSAB Zero is 70 percent lower than conventional steel.
Vanessa Butani, Volvo’s global head of sustainability, said Volvo is also exploring low-carbon and zero-carbon steel made from raw materials with SSAB.
Butani said that with Volvo’s plan to go 100 percent electric, “by 2035 we don’t see that we’re going to have a need to compensate tailpipe emissions with low carbon steel or renewable fuels.” But that doesn’t mean Volvo won’t keep pushing to find cleaner raw materials, she said.
The automaker has set a target of using 50 percent low-carbon steel by 2030.
“Green steel will still be a big part of our decarbonization strategy,” Butani said, “and we hope that this offsetting mechanism can help stimulate demand and investments.”