Low-carbon steel: an overview of the current EU legal framework

This blog was originally published here, as part of the Green Clause newsletter. 

Steel plays a key role in industrial decarbonization.

This is primarily due to the fact that steel production itself is highly CO2-intensive, particularly when produced through conventional production routes.

On the other hand, steel is required by numerous downstream industries for further processing and the manufacturing of end products.

Therefore, CO2 emissions reduced in the steel production process have a direct impact on the downstream value chain and life cycle emissions of end products. From a legal perspective, this raises the question of what criteria must be met for steel to actually be considered low-carbon.

In the absence of an EU-wide legal definition, a variety of definitions and labels has emerged in recent years aiming at classifying steel according to its carbon intensity – a prominent example being the LESS standard.

However, some argue that this is not sufficient to provide the urgently needed legal certainty for economic actors concerned. In particular, steel producers might only invest in (expensive) climate-friendly production processes once it is legally certain that the steel produced using these methods is formally “low-carbon”.

This article aims to outline the current EU legal framework in the field of low-carbon steel and highlight where interactions and challenges lie.

The legal epicentre: Ecodesign Regulation

The Regulation (EU) 2024/1781 establishing a framework for the setting of Ecodesign requirements for sustainable products (Ecodesign Regulation, “ESPR”) is central to the question of when exactly steel is considered “low-carbon” and what requirements it must meet to qualify.

The ESPR came into force on July 18, 2024, but functions only as a framework regulation and will essentially be effectively applied once delegated acts for individual product groups have been published.

The potential Ecodesign requirements are diverse, ranging from energy efficiency and recycled content to the carbon footprint of products (Art. 5 para. 1 ESPR).

The ESPR itself gives priority to steel products among other product groups (Art. 18 para. 5a ESPR), and this is further specified in the corresponding ESPR Working Plan 2025–2030 through the announced publication of the respective delegated act for 2026. The ESPR provides that affected economic operators are entitled to an 18-month transition period following the publication of the delegated acts.

With regard to steel, the respective delegated act should provide long-awaited answers to key questions: Will a standardised label be required in future to classify steel according to various CO2 performance classes? Will certain steel production routes that even lead to CO2 emission savings thus become obsolete? What role do the highly ambitious RFNBO requirements arising from the EU Renewable Energy Directive (“RED”) for the production of green hydrogen play, which would undoubtedly lead to CO2 emission savings in steel production but presumably would entail significant market availability issues as well? To what extent can scrap be credited, and will there even be a mandatory quota for recycled content?

The answers to these questions will not only play a role within the (narrow) scope of the ESPR itself – rather, it is to be expected that the delegated act on steel in the ESPR, if actually providing a legal definition of “low-carbon”, will find its way into other EU legislation.

The legislators are therefore faced with a balancing act here: through the legal definition of the term “low-carbon” for steel under the ESPR, they must, on the one hand, set the course for industrial decarbonization and create (green) market incentives, whilst at the same time ensuring that sufficient low-carbon steel remains available in the future to meet industrial needs.

Low-carbon steel and geopolitical resilience: Industrial Accelerator Act

On 4 March 2026, the EU Commission presented a draft for a new regulation designed to link trade and geopolitical issues with industrial decarbonisation – the Industrial Accelerator Act (“Draft-IAA”).

The legislative proposal could be seen as an admission: the EU’s existing economic model, characterised in particular by free trade and ambitious climate protection targets, is reaching its limits in the face of protectionist trends in many parts of the world and rising energy costs. The Commission has therefore set an ambitious target: according to Article 2 of the Draft-IAA, the aim is to ensure that the manufacturing industry of the EU accounts for at least 20% of the Union’s gross domestic product by 2035.

To this end, the Draft-IAA sets out measures designed to drive industrial growth (in key sectors) in the short term, whilst simultaneously leading to (sustained) decarbonization through the creation of green lead markets – a supposed win-win situation.

To achieve this, the Draft-IAA sets out two specific requirements that certain products must meet in future in order to be eligible for consideration in public procurement procedures and public funding schemes – in addition to being manufactured in the EU (“Made in the EU”), they must also be “low-carbon”.

Steel also falls within these product groups and is to be subject to at least one specific quota or requirement in future: according to Annex II of the Draft-IAA, a minimum share of 25% low-carbon steel is to be mandated in public procurement and public support schemes, with this applying primarily to construction, infrastructure and vehicle projects for civil purposes.

However, the Draft-IAA does not specify what “low-carbon” means – both in general and specifically with regard to steel. Article 10 para. 1 of the Draft-IAA refers to other legislative acts for this purpose, with Regulation (EU) 2024/3110 being relevant for construction products, and for all other products the pending delegated acts under the ESPR – which should cover industrially used steel in most cases.

This deliberately chosen chain of references once again places the ESPR at the center of the legal framework for low-carbon steel (see chapter II of this article), and currently prevents reliable analyses of market availability and prices in connection with the requirements of the Draft-IAA.

Green steel and the automotive industry

The automotive industry must not be left unmentioned when discussing the importance of low-carbon steel – after all, a significant proportion of a vehicle consists of steel.

In the context of automotive steel, related CO2 emissions predominantly emerge within the supply chain (embedded emissions). Vehicle manufacturers have therefore sought in the past to reduce their overall CO2 emissions by purchasing low-carbon steel – albeit primarily in isolation with regard to the supply chain CO2 emissions (Scope 3).

Some argue, however, that this does not do justice to the actual realities: CO2 emissions from the upstream supply chain should not be viewed in isolation; rather, they affect the lifecycle emissions of the end product.

With regard to vehicles, the EU Commission seems to have recognised this: in its draft revision of the Regulation (EU) 2019/631 setting CO2 emission performance standards for new passenger cars and for new light commercial vehicles (“EU Fleet Regulation”) – which historically has been targeting emissions from the use phase (tailpipe emissions) –  for the first time it envisages that manufacturers can offset a portion of their fleet CO2 emissions from 2035 onwards using (EU-produced) low-carbon steel (see Art. 5b of the draft revision to the EU Fleet Regulation).

However, this option is capped: based on the current legislative proposal, the compensation is to be permitted for a maximum of 7% of the overall fleet CO2 emissions.

In this context, many questions arise that will probably shape the further legislative process: Why should offsetting through low-carbon steel only apply from 2035? Why is it capped at 7%?

Above all, however, the EU Commission does not clarify at this point either what low-carbon steel actually means within the meaning of Article 5b of the draft revision to the EU Fleet Regulation. Instead, the legislators simply extend the chain of references described in chapter III of this article and supplements it with the EU Fleet Regulation: According to Article 14 para. 2a of the Draft-IAA, steel must meet the general low-carbon requirements set out in Article 10 para. 1 of the Draft-IAA in order to be eligible for offsetting fleet CO2 emissions in the context of the EU Fleet Regulation.

However, as this very Article 10 para. 1 of the Draft-IAA then again refers to the ESPR, it must be concluded (again) that legal certainty will exist at the earliest once the relevant delegated act under the ESPR has been published.

An honourable mention: CO2 calculation under EU-ETS1 and CBAM

The EU is relying on the pricing of CO2 emissions to create an incentive, particularly for CO2-intensive industries, to switch to more climate-friendly production. The key instruments in this context are the intra-European EU Emissions Trading System (“EU ETS1”) and the Carbon Border Adjustment Mechanism (“CBAM)”, which targets imported products and is intended to prevent carbon leakage as a complement to the EU ETS1.

However, the approaches differ: whilst the EU ETS1 is designed on an installation-by-installation basis, the CBAM operates on a product-by-product basis.

Both instruments have points of contact with the steel sector: the scope of the ETS1 includes, among other things, energy-intensive industrial installations, which should generally also include steel production.

The CBAM explicitly covers steel at the product level (see Annex I CBAM). The CBAM provides for specific CO2 calculation methods, which are ultimately intended to determine the number of CBAM certificates that the importing entity must procure. Although this at least makes it more transparent and traceable exactly what the CO2 intensity of a steel product is, it does not correspond to an overarching “low-carbon” definition and thus cannot replace it.

Firstly, this is because only a portion of the emissions is calculated here, contrary to a complete product carbon footprint calculation being carried out.

Furthermore, with regard to the CO2 emissions ultimately reported, there is no classification into “low-carbon”, “medium-carbon” or “high-carbon” – only the raw emission value is considered.

Conclusion

Low-carbon steel is a key driver of industrial decarbonization. However, the lack of an overarching legal definition to date has probably resulted in low-carbon steel not yet being able to realise its full potential.

It is expected that this legal definition will be established later this year via a delegated act under the ESPR. It remains to be seen exactly how this definition will then affect other legislative acts. However, current legislative proposals, such as the Draft-IAA and the proposal to revise the EU Fleet Regulation, suggest that the ESPR definition will in future serve as the benchmark under EU law.