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The automotive sector is one of the largest consumers of steel, accounting for around 20% of total European Union steel consumption[1]. Steel-related emissions represent a significant share of a vehicle’s embedded emissions, contributing an estimated 16-34%[2] to non-use phase emissions in vehicles.
However, while automotive remains a key demand driver for green steel, recent market dynamics have been more subdued. In 2025, new EU car registrations grew by 1.8% year-on-year to 10.8 million units[3], but volumes remain below pre-pandemic levels, indicating a slower recovery in underlying demand.
Despite this, automakers are among the most active sectors in steel decarbonization, with 13 of the world’s 18 largest manufacturers having low-carbon steel policies in place. As a result, decarbonization of the sector is still expected to play a critical role in unlocking future demand for green steel in Europe, albeit with growth likely to be more gradual in the near term.
Compared with other steel-using sectors, automotive manufacturing combines large volumes of flat steel demand with high value-added end products, making it better positioned to absorb the cost premium of green steel.
Besides, EU automakers face legally binding, stringent CO2 targets under the Fit for 55 package, requiring a 55% reduction for new cars by 2030 and 100% by 2035 compared to 2021 levels. As a result, the shift toward green steel is not only a reputational or voluntary sustainability move – it is increasingly a compliance-driven necessity. Combined with strong consumer expectations and brand visibility, this regulatory pressure gives automakers both the incentive and the pricing power to adopt low-carbon materials at scale, positioning them as early movers and key drivers of green steel demand.
As a consumer-facing industry, automakers face greater exposure to brand risk and public scrutiny than most industrial steel users. A 2024 survey found that among consumers willing to pay more for a sustainable car, nearly half would pay up to 10% more, while around a quarter would pay up to 25% more, highlighting strong preferences for lower-emissions vehicles.[4]
Steel accounts for a relatively small share of total vehicle costs but a significant share of scope 3 emissions—particularly for electric vehicles (EVs). This allows automakers to reduce emissions while passing through most of the green steel premium, adding as little as $100–200 to the cost of a vehicle in some cases.[5]
Regulation is set to reshape the automotive steel market, both directly and indirectly. The revised European Union automotive package supports the case for low-emissions steel by easing EV sales mandates while introducing flexibility mechanisms that allow up to 10% of required emissions reductions to be achieved through alternatives such as low-carbon steel produced in the EU, alongside e-fuels and biofuels.
At the same time, the introduction of the Carbon Border Adjustment Mechanism (CBAM) and the tightening of the EU Emissions Trading System (EU ETS) are expected to increase the cost of conventional blast furnace steel, further incentivising the shift toward low-emissions procurement.
Despite strong demand-side drivers, stringent quality requirements for automotive-grade flat steel could constrain adoption. Tighter residual element thresholds limit the use of scrap, meaning only the highest-quality scrap can be utilised, while lower-grade scrap must be supplemented with significant volumes of DRI. As a result, there is a growing reliance on DRI more broadly, with hydrogen-based DRI-EAF pathways—being more expensive—primarily associated with the most ambitious decarbonization targets. Consequently, the widespread adoption of low-carbon automotive steel will depend on the overall expansion of DRI capacity, alongside the gradual scale-up of hydrogen-based facilities.
Early decarbonization efforts in the automotive sector are likely to be concentrated in premium segments, where higher margins provide greater capacity to absorb green steel cost premiums. High-end manufacturers such as Porsche and Mercedes exhibit significantly higher profit-to-emissions ratios than the sector average, enabling greater allocation of procurement budgets toward low-carbon materials.
Over the next decade automakers are expected to scale up their low-emission steel procurement, with only 42% of purchased volumes expected to come from conventional blast furnaces in 2035. Average intensity is expected to come down in line with this, as manufacturers procure a mix of different emission intensities of steel, balancing decarbonization aims and cost pressures.
This short article series provides regular insights into the evolving European green steel market, focusing on supply developments, price premiums, project pipelines, and demand trends. Drawing on our latest report (see link below), the series tracks how technological shifts, policy developments, and market dynamics are shaping the competitiveness and growth outlook for low-carbon steel across Europe. For a complete view of how decarbonization, CBAM, and ETS developments are reshaping automotive supply chains — including steel, carbon, and metals pricing — explore our Automotive Bundle.For more information or support, reach out to carbonsupport@fastmarkets.com.
Scenario-based forecasts across six emissions intensity bands, built to inform procurement, investment, and decarbonization planning.