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“We’re in the beginning of a new era where green premiums and market demand are beginning to support the first wave of green or low-emissions steel,” Roger Smith, Asia lead at non-governmental organization SteelWatch, told Fastmarkets on Friday March 6.
The auto sector is a key sector for the decarbonization of the steel industry because of its ability to support a green premium, Smith said. He estimated a 20%-30% premium per tonne of green steel produced by hydrogen-based direct reduced iron (DRI) compared with traditional coal-based blast furnace steel.
The effect on the final price of an automobile is minimal, typically adding “a few hundred dollars” to the cost of the vehicle based on the vehicle weight and the amount of steel used, Smith explained.
Automakers are increasingly using low-carbon steel and aluminium to increase competitiveness in new EV models, according to the fourth edition of the Lead the Charge Auto Supply Chain Leaderboard report.
The leaderboard ranks and assesses the supply-chain sustainability of 18 carmakers globally, including Tesla, Ford, Volvo, Mercedes and Hyundai.
The report, published on Wednesday March 4, showed that demand for green steel among automakers has increased in recent years. The number of automakers taking action to decarbonize the steel used in their vehicles rose from 7 out of 18 in 2023 to 13 out of 18 in 2026.
The analysis was published by a network of climate, human rights and investor groups, including SteelWatch.
“The Lead the Charge leaderboard is only a few years old. At the beginning, most companies scored 0 on the steel section. There was really no procurement, no talk about procuring low-emission steel and that’s changed,” Smith said.
“Today, green steel is likely getting used in what [automakers] see as the greenest cars. [Automakers] ultimately need to transform their production of everything that they make,” Smith said.
The volume of steel consumption in the auto sector is large enough to support new green steel projects, spurring scalability and long-term offtake commitments for low-carbon steel, Smith added. “That’s what’s going to actually get new facilities built and become investable.”
“The demand for genuine green steel continues to grow,” the report said. “Automakers such as BMW Group, Mercedes-Benz AG, Volkswagen and Volvo Group are continuing to stick with credible sources of green steel.”
Our 10-year forecast report provides scenario-based premium outlook across six emissions intensity bands and production routes for investment and procurement decisions.
Tesla, the largest producer of EVs in the US, disclosed that it is “working with mainstream steel mills for a mid-term transition away from blast furnace production and toward direct reduction without coal that will systematically reduce emissions,” the report said.
Asian automakers Hyundai and Kia disclosed intentions to expand their use of low-carbon steel but did not provide additional details, according to the report.
Notably, Hyundai has begun mass production of lower-emissions steel sheet at its Dangjin plant in South Korea, Fastmarkets reported in February.
In the US, Hyundai’s integrated electric-arc furnace (EAF) facility in Louisiana is under construction and scheduled to begin production in 2029, specializing in automotive steel sheets.
In Europe, Volvo published a paper on sustainable steel outlining the challenges in steel decarbonization and how the Sweden-based company intends to use its leverage to address those challenges.
Meanwhile, German automaker Mercedes has signed multiple offtake agreements for low-carbon and fossil-free steel and aluminium across several regions and has disclosed specific quantities for some of these agreements.
“To remain competitive, other automakers must disclose disaggregated emissions and sourcing information on their steel, aluminium and battery supply chains,” Abhilasha Bhola, director of the Auto Supply Chain Campaign at nonprofit group Public Citizen, said.
Technology to produce low-carbon steel already exists, Smith said, highlighting the DRI steelmaking route, which reduces carbon emissions by replacing coal with cleaner gases. The cleaner the reducing gas, the lower the emissions.
For example, Swedish joint venture Hydrogen Breakthrough Ironmaking Technology (HYBRIT) aims to replace coal with fossil-free electricity and green hydrogen.
The collaboration was launched in 2016 by steelmaker SSAB, iron ore miner LKAB and energy company Vattenfall.
As of early 2026, the project has demonstrated the technology and is extending pilot operations for hydrogen storage to prepare for full-scale industrialization, targeting commercial-scale production by 2027.
The challenge, Smith said, is scaling the technology to produce low carbon steel at a commercial scale.
“Some of the real lead markets for purchasing low-emissions steel include the automotive sector, the tech sector and even some of the construction industry. I think that’s enough to get a first wave of projects globally,” Smith said. “The real question then is, how do they take that to scale?”
A key component in scaling decarbonization operations is government incentives, Smith said, which can really play a role in helping build those markets and put a price on emissions.
The European Commission (EC) approved €200 million ($232 million) in grants to strengthen the EV supply chain in Spain in early February.
The funding aims to accelerate the production of EV batteries and energy storage, as well as hydrogen technologies, according to Teresa Ribera, executive vice president for Clean, Just and Competitive Transition at the EC.
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