Policy crunch points to decarbonising European steel

Decarbonising the European steel sector is pivotal for achieving the EU’s climate targets due to its significant emissions and central role in the economy. Technologically, decarbonisation will be accomplished by phasing out coal-based steelmaking and shifting toward cleaner technologies such as electric arc furnaces and hydrogen-based direct reduced iron. However, policy makers are confronted with three crunch points that endanger political feasibility: High costs, relocation risks, and declining demand pose key challenges. Using the LIMES-EU model, we find that uniform carbon prices could drive future steel production away from traditional centres toward regions with lower energy costs. While this shift lowers costs and emissions, it may trigger political resistance and could provoke protective subsidies for national steel capacities. Government intervention could slow down the sector’s transition and increase public spending. These effects become more pronounced if future demand for EU steel declines.