The European Commission’s proposal for the Industrial Accelerator Act (IAA)is a necessary demand-side complement to the EU ETS and CBAM, helping create lead markets for low-carbon materials and strengthening Europe’s clean industrial base. The IAA has the potential to unlock new investments in low-carbon steelmaking in Europe, but only if co-legislators get the details right. The first large-scale European direct reduction of iron (DRI) plants are expected to start in 2027, initially with higher costs but with significantly lower emissions (1) and with plans to supply the ironmaking process with hydrogen made from European and fossil-free energy sources over the long term. Existing private sector offtake agreements with companies like Mercedes-Benz, Scania and Volvo Cars (2) should be complemented by public procurement that incentivises low-carbon and near-zero emission materials to meet the EU’s climate targets, and to bolster new investments in iron- and steelmaking based on homegrown clean energy.

Key messages

• European steel producers are already investing in near-zero emissions steelmaking and are ready to produce low-carbon steel, but policy predictability and clarity are needed to secure investment continuity.
• The EU should introduce an ambitious low-carbon steel definition as soon as possible. Weak thresholds for low-carbon steel definitions, such as the ones proposed by the Joint Research Centre (JRC) risk classifying conventional production as climate friendly. This would undermine the transition to near-zero solutions and jeopardise Europe’s competitiveness in developing future-proof solutions.
• Due to fundamental differences in the production processes, there needs to be separate low-carbon definitions for carbon steel and stainless steel.
• The IAA should retain, clarify and strengthen the proposed low-carbon steel requirement in public procurement and public support schemes. The quota should start at an ambitious yet realistic level and increase over time based on verified supply while remaining ambitious enough to drive meaningful market transformation and help the EU achieve its climate objectives.

Lead markets are needed to boost demand for near-zero emissions steel in the EU

Lack of demand has been one of the key factors limiting the growth of investment and markets for near-zero emissions steel.

Binding EU-wide mandates for low-carbon products are essential because they create the predictable demand base needed to scale the market. Without clear demand signals, investment in new capacity remains too risky and fragmented. This is recognised by the EU Clean Industrial Deal which says it clearly: “Businesses will only make the necessary investments if they are sure there is a market for their products.”

Transitioning to low-carbon and near-zero emission steel production contributes to achieving the EU’s climate goals and can provide significant competitiveness benefits to European steelmakers who can supply climate-conscious steel buyers with futureproof products, while modernizing facilities and maintaining an innovative edge.

Demand-side measures are both crucial and effective. When properly implemented, they enhance market security and ensure reliable offtake, which in turn creates the necessary conditions for private investments. At the same time, these measures preserve healthy competition between green alternatives, rather than picking winners in advance.

European steel industry is ready to scale up the production of low-carbon steel

Nordic and European steelmakers including SSAB, Outokumpu and Stegra are already investing in low-carbon steel. 

Already ~3.7 Mt of hydrogen-based primary steel projects have reached final investment decision (FID) and the full pipeline nearing the FID is ~7.2 Mt, including hydrogen-ready projects with stated plans to switch from natural gas DRI to hydrogen.(3) 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.(4)

On the stainless segment, Outokumpu is already producing steel with 75 % lower emissions than global average in their Finnish and German sites.

To support the creation of the lead markets required for continued investments in the renewal of the European steel industry, we call for the EU to:

1) Introduce ambitious low-carbon steel definitions as soon as possible

The European Commission prepares to define performance classes for low-carbon steel under the Ecodesign for Sustainable Products Regulation (ESPR) and the Construction Products Regulation (CPR). The aim needs to be a framework that recognises early investment in viable breakthrough technologies and remains dynamic and scalable. Due to fundamental differences in production processes, there should be separate definitions for carbon steel and stainless steel.

The low-carbon steel definitions need to incentivise investments in near-zero emission iron- and steelmaking. The crude steel definition should incentivise both iron ore based primary steelmaking as well as increased scrap use, however noting that scrap is a constrained resource and will likely remain so for the foreseeable future.

The JRC published draft ESPR performance classes for steel in April 2026.(5) Stakeholder analysis of the draft outlines that the proposed thresholds risk being too weak to support the IAA’s objective of creating lead markets for genuinely low-carbon and near-zero-emission steel.(6) A classification system that allows conventional fossil-based European steel to qualify as “high performing” would undermine the investment signal for breakthrough technologies and risk turning the IAA mandate into a compliance exercise rather than a driver of industrial transformation. 

The framework should also reward further emissions reductions among already lower-emission producers, including scrap-based electric arc furnace steelmakers, by maintaining incentives to switch fully to fossil-free electricity and other near-zero emission solutions. There is wide industry support for more ambitious thresholds that reflect real decarbonisation pathways, adopt a sliding-scale approach for technology neutrality, implemented with a lean and operable classification system for lead markets by 2027. (7) For stainless steel, as the production is already based on electric arc furnaces in Europe, the strong recommendation from the stainless steel industry is to adopt a product carbon footprint-based label.

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. 

2) Clarify and strengthen IAA demand instruments on procurement and support schemes

The IAA puts forward a 25% low-carbon steel requirement for covered public procurement and public support schemes involving steel used in buildings, infrastructure and motor vehicles for civil purposes. The aim of the mandates should be to provide a strong enough market demand signal. Unfortunately, initial comments have suggested that the demand signal provided by IAA for low-carbon steel by 2030 would be limited.

We therefore recommend first adopting an ambitious definition of “low-carbon steel,” and then setting minimum quota requirements for its use in public procurement and support schemes.

Quotas should start at a realistic level and rise over time, guided by verified supply and Europe's climate objectives to drive meaningful market transformation. An ambitious definition paired with gradually rising quotas does more to drive investment than weak definitions with high quotas.

Clarity is needed about exact criteria and scope of the proposed mandates to ensure that material-using sectors have legal and operational certainty in a way that requirements do not harm the competitiveness of the European export companies compared to their non-EU rivals.

The 25% low-carbon steel mandate applies to a minimum of 45% of total national budget allocated to the public support schemes meaning those supporting buildings, infrastructure and the lease or purchase of motor vehicles for civil purposes, however, it is not clear exactly which type of support schemes would be covered.

Annex II Part II captures schemes established or updated from 2029 that support buildings, infrastructure and the lease or purchase of motor vehicles for civil transport, but the proposal does not clearly define whether and how tax expenditures, tax exemptions, registration-tax reductions, company-car tax advantages or other fiscal incentives are counted. This is particularly important because the 45% budget-coverage rule is difficult to apply to open-ended tax schemes where support takes the form of foregone revenue rather than an appropriated budget line.

To ensure a meaningful lead market for low-carbon steel, the IAA should clarify that vehicle purchase and lease incentives, including fiscal incentives, are covered where they support motor vehicles for civil transport, and should specify how such schemes count toward the 45% national budget threshold.

To strengthen the investment signal for the most ambitious near-zero-emission steel, the IAA should consider a weighted counting mechanism under the low-carbon steel mandate. Steel products meeting the highest performance classes could count more than their physical volume toward the 25% requirement. This would reward buyers for choosing best-performing steel and help steer early lead-market demand toward breakthrough production routes, rather than allowing the mandate to be fulfilled only with the lowest eligible low-carbon class.

Recommended changes to the IAA proposal

1. Develop two separate definitions for carbon steel and stainless steel to better reflect the differences in their production processes.
2. Set a binding timeline for the low-carbon steel definitions, with ambitious ESPR/CPR thresholds operational by 2027.
3. Clarify which “public support schemes” are covered, including tax expenditures, registration-tax reductions and company-car tax advantages where they support purchase or lease of motor vehicles for civil transport purposes.
4. Specify how open-ended fiscal incentives count toward the 45% national budget threshold, including whether foregone tax revenue is included.
5. Limit exemptions and require transparent justification when Member States or authorities do not apply the requirements.
6. Introduce a review and escalation mechanism so the 25% steel quota can rise over time guided by verified supply and Europe's climate objectives to drive meaningful market transformation.
7. Introduce a weighted counting mechanism to the most ambitious near-zero emissions steel classes for low-carbon steel mandate.

(1) LESS: Public Statement: A Credible and Operable Framework for Low-Carbon Steel in the ESPR Delegated Act (2026) https://hydrogeneurope.eu/wpcontent/uploads/2026/05/20260512_LESS_Public_Statement_ESPR_Delegated_Act.pdf

(2) https://buildcleannow.missionpossiblepartnership.org/bright-spot/stegra/; https://www.ssab.com/en/news/2025/06/ssab-and-volvo-cars-sign-ssab-zero-supply-agreement-for-serial-production

(3) Project Tracker, Mission Possible Partnership

(4) https://www.agora-industry.org/news-events/the-automotive-sector-could-be-the-main-driver-of-green-steel-projects-in-europe

(5) https://susproc.jrc.ec.europa.eu/product-bureau/product-groups/642/documents

(6) https://eu.bellona.org/2026/04/14/the-espr-shouldnt-tell-the-market-that-conventional-fossil-based-steel-is-high-performing/; https://eeb.org/en/library/ecodesign-for-steel-key-concerns-and-recommenations/

(7) LESS Public Statement on the ESPR Delegated Act, available for download at https://lowemissionsteelstandard.org/downloads