The Near Zero Emission Steel (NZES) coalition welcomes the Commission's efforts to support a more competitive, sustainable and circular European steel industry by preparing to define performance classes for low-carbon steel under the Ecodesign for Sustainable Products Regulation (ESPR). Done well, the ESPR could unlock new investment and boost production of low-carbon steelmaking across Europe, by reinforcing key recent initiatives such as the Clean Industrial Deal, the Steel and Metals Action Plan, and the Industrial Accelerator Act (IAA).Leaving gaps unaddressed would undermine the market signal the label is meant to create, risking continued demand for fossil-based production.
To ensure these technologies define the future of Europe's steel sector, the ESPR must design a framework that rewards early investment in viable breakthrough technologies, while remaining dynamic and scalable.
Key messages
- European steel producers are already investing in near-zero emissions steelmaking and are ready to produce low-carbon steel, but policy predictability is needed to secure investment continuity.
- Weak thresholds for the steel classes of environmental performance, such as the ones proposed by the Joint Research Centre (JRC) study, risk undermining the transition to near-zero solutions.
- Due to fundamental differences in the production processes, there needs to be separate approaches for carbon steel and stainless steel in the label.
European steel industry is ready to scale up the production of low-carbon steel
Many European steelmakers, both established actors, such as SSAB, and cleantech players, such as Stegra, are already investing in low-carbon steel. As of today, ~3.7 Mt of hydrogen-based primary steel projects have reached final investment decision (FID) and the full pipeline nearing FID is ~7.2 Mt, including hydrogen-ready projects with stated plans to switch from natural gas DRI to hydrogen.1 According to Agora Industry, Europe has 25 Mt near-zero capable steel projects pipeline. These projects are at varying stages, from permitting and FID through to construction phases.2 On the stainless segment, Outokumpu is already producing steel with 75 % lower emissions than global average in their Finnish and German sites.
To boost the economic viability and global competitiveness of these clean steel projects, an ambitious label is needed, supporting the creation of lead markets required for continued investments in a clean European steel industry. This should be done by:
1) Introducing ambitious thresholds that truly reward first-movers
In line with the ESPR requirements, the JRC's Preparatory Study on Iron and Steel Products has proposed a methodology to establish classes of environmental performance for iron and steel.3
Stakeholder analysis of the draft outlines that the proposed thresholds risk being too weak to support Europe’s objective of creating lead markets for low-carbon and near-zero-emission steel, by qualifying European conventional steel (coal blast furnace) production within the label's top two performance tiers.
A classification system that allows conventional fossil-based European steel to qualify as "high performing" would undermine the investment signal for breakthrough technologies, and risks turning the IAA low-carbon quota, tied to the ESPR label, into a simple compliance exercise rather than a driver of industrial transformation.
Regulatory measures should create lead markets by rewarding products with low and near-zero emissions, while ensuring harmonised methodologies for carbon footprint calculation and verification across the EU. If the thresholds are not ambitious enough, they could defeat the very objective the IAA is meant to advance:incentivising producers to make genuine low-carbon and near-zero-emission steel in Europe.
This is why, regardless of the type of label proposed, it should set thresholds that clearly separate low-carbon and near-zero emission iron and steel from conventional production. It should also reward further emissions reductions among producers that are already relatively low-emission, including scrap-based electric arc furnace (EAF) steelmakers, by keeping meaningful performance tiers above the threshold. This preserves the incentive for even cleaner producers to keep improving, for example by switching fully to clean electricity and adopting other low-carbon and near-zero emission solutions.5
2) Providing adapted approachesto reward all production routes
Different steel product groups have fundamentally different emissions profiles, so the ESPR label should apply tailored methodologies: (i) a sliding-scale approach that rewards recycled content for carbon steel, where route and scrap drive emissions, and (ii) a product carbon footprint (PCF) approach for stainless steel, whose footprint is dominated by alloy inputs rather than route.
(i) A sliding scale approach for Carbon Steel
The ESPR environmental performance requirements should follow a sliding-scale approach aligned with the Low Emission Steel Standard (LESS), rather than the JRC's lifecycle approach.6 While scrap availability and quality will improve through initiatives such as the end-of-life vehicle (ELV) regulation, high-quality supply is likely to remain constrained against growing demand.
A lifecycle approach would alsopenalise primary producers making precisely the breakthrough investments the ESPR is meant to accelerate, such as hydrogen-based DRI, for the fact that they make steel from ore rather than scrap. Because a sliding scale sets the emissions threshold as a function of scrap content, it applies a route-fair benchmark that keeps the incentive to decarbonise alive across both primary and secondary production, rather than rewarding access to scrap over genuine abatement effort.
(ii) A separate product carbon footprint-based approach for Stainless Steel
Stainless steel should benefit from a distinct methodology from carbon steel under the upcoming ESPR label, because the two are fundamentally different products with different emissions profiles.
Stainless steel's carbon footprint is dominated by its alloying content whose extraction and ferroalloy production are highly emissions intensive and lie largely outside the steelmaker's direct control7. As a result, even a stainless producer using best-available, low-carbon practices will show a substantially higher absolute emissions intensity per tonne than a decarbonised carbon steel producer, meaning a common threshold would unfairly penalise stainless steel regardless of the genuine decarbonisation effort behind it.
For stainless steel, as the production is already 100% based on electric arc furnaces in Europe, the strong recommendation from the stainless steel industry is to adopt a product carbon footprint-based label. A PCF-based label, by measuring the actual cradle-to-gate emissions of the specific product, captures precisely the levers that matter for stainless decarbonisation and so it can reward real reductions within the segment to send the demand signal that underpins lead-market creation.
3) Ensuring that information in the Digital Product Passport (DPP) is comparable, traceable, easy to understand and interoperable
The information included in the DPP should be easy to understand and meaningful, based on robust, verified data, and sufficiently detailed to capture the most relevant impacts. This will help ensure comparability of GHG performance across products and enable buyers, investors and regulators to make informed decisions by ensuring transparency, traceability and sustainability across product value chains.
It is also necessary to ensure easy interoperability between different standards, for example the Environmental Product Declarations (EPDs). There is a risk that proliferation of different standards and labels will increase regulatory burden of for example complex construction projects.
Whatever methodology the label ultimately adopts, verified, robust information covering all the value chain emissions will be essential. This means starting with the emissions of the specific low-carbon source, actually contracted by a manufacturer, including its scope 2 emissions, instead of the diluted grid average.
Enabling conditions beyond the label
A well-designed label is necessary but not sufficient. To make near-zero iron and steel production genuinely competitive with fossil-based alternatives, NZES continues to call for:
- A meaningful ETS carbon price, high enough to close the cost gap between low-carbon and near-zero emission steel and conventional production;
- Carbon Contracts for Difference (CCfDs) as part of the EU’s Investment Booster and Industrial Decarbonisation Bank to bridge the gap between the EU ETS price and the price required for low-carbon and near-zero emission iron and steel to be competitive;
- A strong, robust Carbon Border Adjustment Mechanism (CBAM), so that EU producers investing in decarbonisation are not undercut by carbon leakage; and
- Affordable, available clean electricity, given the very large power demand that hydrogen-based direct reduction requires.
About NZES
The Near Zero Emission Steel (NZES) initiative is a frontrunner coalition of members including Outokumpu, SSAB, Stegra, Fortum, YIT and Metso whichrepresents Europe's most advanced effort to decarbonise steel production across the full value chain.
Steelmaking accounts for roughly 2.8 gigatonnes of CO₂ each year, 8-10% of global energy-system emissions, and NZES exists to accelerate the sector's decarbonisation by aligning efforts across the value chain and coordinating policy action. The coalition works to advance high-impact policy solutions, defend the core EU frameworks underpinning steel decarbonisation, and coordinate public-private action across Europe with the long-term aim of building a model for near-zero-emission steel that can scale across Europe and beyond.
