A clear divide has emerged within Europe's steel industry over the future of the European Union's Emissions Trading System (ETS). While several of the continent's largest steel producers are calling for climate rules to be relaxed, a group of companies that have invested heavily in fossil-free steel production is urging Brussels to stay the course.
In a joint letter addressed to the European Parliament, SSAB, Salzgitter, Outokumpu, Stahl-Holding-Saar and its subsidiaries Saarstahl and Dillinger called on the EU to maintain the planned tightening of the ETS.
The companies argue that weakening the carbon market would reduce investment certainty and slow Europe's transition towards low-carbon steel production.
"Weakening the ETS would not strengthen Europe's competitiveness. On the contrary, it would erode investment certainty, penalise early movers and delay the industrial transformation Europe needs," the companies wrote.
Response to calls for ETS reform
The letter is a direct response to an appeal made in June by ArcelorMittal, Thyssenkrupp Steel Europe and Voestalpine, which urged the EU to carry out what they described as a "reality check" of the ETS.
Those three steelmakers argued that the high cost of green hydrogen and carbon capture technologies has made industrial decarbonisation far more difficult than originally anticipated and called for a more pragmatic regulatory approach.
Although they did not specify concrete legislative proposals, their position was widely interpreted as support for delaying the planned tightening of the ETS or postponing the phase-out of free emission allowances.
Green hydrogen investments at stake
The companies behind the latest letter are among Europe's leading investors in hydrogen-based steelmaking.
Salzgitter is currently installing a 100 MW electrolyser to supply green hydrogen to its direct reduced iron (DRI) plant and has also signed a long-term agreement with German utility EWE to purchase 10,000 tonnes of green hydrogen annually from 2030.
Stahl-Holding-Saar is building a new DRI plant together with two electric arc furnaces in Germany's Saarland region, supported by both private investment and public funding. The plant will initially operate on natural gas before switching to 100% hydrogen during the mid-2030s.
SSAB is one of the founding industrial partners in the HYBRIT project, which is pioneering fossil-free steel production using hydrogen instead of coking coal.
Although Outokumpu is not directly producing hydrogen-based steel, it has signed a memorandum of understanding with Norsk e-Fuel to supply carbon dioxide from its steel operations for the production of synthetic aviation fuel.
Calls for a stronger CBAM
The companies also argue that the EU's Carbon Border Adjustment Mechanism (CBAM) should be strengthened rather than weakened.
At present, CBAM mainly covers raw steel and basic steel products. The signatories believe it should also include downstream steel-intensive manufactured products in order to prevent production shifting outside Europe while European producers continue investing billions of euros in low-carbon technologies.
They also call for stronger safeguards against regulatory loopholes and a permanent solution for export-oriented industries.
"A strong ETS combined with a robust and fully implemented CBAM can reinforce Europe's competitiveness, resilience and industrial renewal," the companies wrote.
Transition remains costly
Despite defending the ETS, the six companies acknowledge that the transition to low-carbon steel remains financially challenging.
Several of Europe's flagship green steel projects have encountered significant economic obstacles in recent years.
Thyssenkrupp Steel recently confirmed that it had abandoned a tender for green hydrogen supply to its new DRI plant in Duisburg because costs proved too high. The facility will therefore initially operate on natural gas.
Voestalpine is proceeding with the construction of a hydrogen-based green iron plant, although the project will initially require only relatively modest volumes of hydrogen.
Meanwhile, ArcelorMittal cancelled two planned green steel projects in Germany during 2025 despite receiving billions of euros in government support, concluding that the investments were not economically viable under current market conditions.
However, both sides of the debate agree on one important issue: revenues generated by the ETS and CBAM should be recycled back into European industry to help finance the transition towards climate-neutral production.
The disagreement illustrates the strategic crossroads facing Europe's steel sector. The question is no longer whether decarbonisation should take place, but how the costs should be shared between industry, consumers and governments while maintaining Europe's long-term competitiveness.
Source: Hydrogen Insight.
