Cleaning up steel in cars: why and how?

As carmakers continue their transition to selling only electric cars and thereby reducing tailpipe emissions to zero, the climate impact of the materials used to make a car will fall increasingly under the spotlight and will need to be addressed as the sector strives to become net zero by 2050 at the latest. Indeed, a vehicle’s embedded, or production, emissions are expected to account for around 60% of an electric carʼs total lifecycle emissions by 2030, with steel making up an important part, with estimates ranging from 16% to 27%.

With global steel demand projected to grow by more than a third by 2050, there is a pressing need to develop green steelmaking processes for all steel using sectors. Government subsidies are coming thick and fast to support the transition from the current coal-based steelmaking to one powered by renewable electricity and hydrogen. Securing the billions of investment needed to green steel production will be highly dependent on having a clear market demand and offtake, however. Green steel is defined as either produced via green hydrogen, direct electrification processes, or as recycled steel.

The automotive sector is well positioned to create this demand and be a lead market for green steel in Europe. Steel is a vital component of the automotive sector, accounting for approximately 17% of EU steel consumption, which makes the automotive industry the number two consumer of steel in Europe, behind only the construction sector. The relatively high value of cars, especially of premium brands, also means they can absorb the short-term green premium of greener steel. However, despite the promising potential and growing excitement around green steel and its use in cars, many questions remain unanswered about its feasibility, climate benefits, and cost. This paper, published alongside a new report by Ricardo, The use of Green Steel in the Automotive Industry, seeks to answer some of these questions.

First, there is projected to be enough green steel available for an ambitious uptake in new cars already by 2030. Based on tracking and assessments of new green steel production announcements, including existing scrap steel production, total green steel production capacity is projected to reach 172 Mt in Europe by 2030. This is more than enough to cover total projected demand from the automotive sector, which reaches just 21 Mt by then (assuming a shift to lightweighting and less steel use in the sector), and still enough to cover higher expected demand if we take the sector’s 2022 annual consumption of 35.7 Mt (and assume no lightweighting takes place at all).

Second, shifting away from conventional steel to using just 40% green steel can reduce the CO2 emissions of producing cars in Europe by 6.9 Mt in 2030. That’s equivalent to the annual emissions of 3.5 million fossil fuel cars. Switching to 100% green steel in new cars by 2040 will reduce emissions equivalent to taking 8.1 million ICEs off the road, demonstrating the significant climate potential that green steel offers carmakers as they look to reduce their scope 3 emissions on the way to net zero.

Finally, switching to green steel in cars, in line with T&E’s recommendations (40% in 2030, 75% in 2035 and 100% in 2040), will have a negligible impact on the price of a new car, adding only €57 to the sticker price of a BEV in 2030, an additional €49 in 2035, before almost reaching cost parity by 2040 (just €8 more). The cost increase is slightly higher if we assume the steel content of the BEV remains constant based on current levels - i.e. no lightweighting - coming in at just over €69 in 2030 - less than the cost of fitting a new car floor mat.

Although a higher CO2 price and a lower price for renewable electricity (also as an input for green hydrogen production) is expected to make green steel more competitive in future years, policy makers have an opportunity to put in place regulations and incentives that can help kick start a shift to green steel in the automotive industry and the steel sector as a whole in Europe. T&E proposes policymakers adopt the following:

Ricardo modelled and compared different scenarios for the uptake of green steel in cars, reflecting a ‘do nothing’ Conventional scenario assuming that the current share of automotive steel produced from primary BF-BOF and secondary EAF production technologies remain constant; a Baseline scenario based on publicly available automotive OEM targets for lower-carbon steel supply and wider decarbonisation of production supply chains; and an Ambitious scenario, in line with the highest announced proposed uptake of green steel in the automotive sector by OEMs.

This paper summarises the findings of the Ricardo study and includes conclusions and recommendations for policymakers.

As policymakers and companies grapple with implementing commitments to deliver significant emission reductions on the way to reaching climate neutrality by 2050, the concept of "green steel" is gaining prominence. Europe, in particular, is driving initiatives to produce steel with significantly reduced environmental impact. Various projects focused on manufacturing green steel are underway, albeit at different stages of maturity and commercialisation. Government funding is on the rise to support these efforts. For instance, the EU has allocated substantial funding for hydrogen technologies, aiming to accelerate the transition to sustainable steel production. One notable example of progress is the Swedish steelmaker H2 Green Steel, which will start in 2025 producing "green steel" using renewable hydrogen instead of coal.

Currently though, there is no universally agreed definition of green steel. The most common steel production route today requires reducing iron ore with a type of coal (coke) in blast furnaces at very high temperatures. If you take this as a baseline, then many production pathways could be considered as green or low-carbon, as they still reduce emissions in relative terms. For example, coke can be replaced in the manufacturing process with unabated natural gas, gas with CCS, or with grey, blue, or green hydrogen - all offering varying emission reduction potential. Producing steel from secondary scrap sources in so-called Electric Arc Furnaces (EAF), representing around 40% of current EU production, delivers significant environmental and climate benefits compared to the conventional blast furnace route. In addition to preventing recycled materials from being wasted, scrap EAF steel offers a reduction of around 80-85% of GHG emissions, and 90-95% if only powered by renewables, compared to the conventional route.

The definition and thresholds proposed are, furthermore, technology neutral and do not imply a specific production pathway or exclude a specific strategy and the focus is on the production processes of the materials. The threshold sets a uniform and clear end-point in these processes that ensures comparability for the production of crude steel. There are several technologies and technology pathways that should be viable to meet the proposed threshold, depending, of course, on the amount of renewable energy used and associated upstream emissions produced. These include, but are not limited to: scrap steel produced in an EAF; steel made from green hydrogen based direct reduced iron fed into an EAF (the integrated DRI-EAF route); and ironmaking through electrolysis.

When talking about green steel, the technology mix from a longer-term decarbonisation perspective and that is compatible with the EU’s climate goals, is still open, with secondary (or scrap) EAF steel (powered by clean electricity), green H2-DRI-EAF steel and direct electrolysis (though less developed today), powered by green energy all possibilities. None of these options are likely to be a silver bullet in their own right, with uncertainties over the cost and availability of green H2 or the sufficiency of scrap in order to close the decarbonisation gap fully. It is therefore crucial that policy allows all of these to develop and improve, focusing on the scale and quality of scrap, and scaling of the other two green production methods.

The low-carbon status of blue hydrogen depends on optimistic assumptions about emissions throughout the full supply chain: upstream emissions, the capture rate of CCS, leakage of CO2 during CO2 transport and storage. These issues are unlikely to be resolved by 2030. Therefore, blue hydrogen, and any associated steel making pathways, is not a realistic long-term solution to achieving full decarbonisation.

As carmakers and policymakers alike consider how best to reduce emissions related to steel use in vehicles, a guiding principle to follow should be: as much scrap steel as possible and, then, as much green primary steel as necessary.

Europe needs to put in place policy instruments which allow all climate compatible technology routes to scale, while leaving enough flexibility for the market and businesses to decide on the relative role of each pathway.

Having looked at the different green and low-carbon technology options for greening steel in cars, it is important to understand whether there will actually be enough of it to meet demand from carmakers. In 2022, total automotive steel consumption in the EU reached 35.7 Mt, whereas total automotive finished steel demand in the EU reached 23.7 Mt, representing 17% of total EU steel demand. This makes the automotive industry the second largest consumer of steel in Europe, behind only the construction sector. Total annual steel consumption was almost 148 Mt in 2022, whilst European steel demand (or apparent consumption) for 2022 was nearly 140 Mt.

In 2022, actual steel production in Europe reached 136 Mt. 56.3% of this came from the conventional Blast Furnace – Basic Oxygen furnace (BF-BOF) primary route, whilst 43.3% was fully electrified using an Electric Arc Furnace (EAF) following the secondary scrap route (ibid).

Improved scrap sorting of grades - proposed under the new End of Life Vehicles regulation proposal - and voluntary OEM targets and mandatory recycled content targets hold potential for recycled steel from EAFs to play a much bigger role in the decarbonisation of automotive steel, however. Volvo has committed to use 25% recycled steel by 2025 and 35% by 2030. BMW plans to use 50% scrap steel by 2030.

Despite this optimistic outlook on the future supply of green steel, a word of caution should nevertheless be added. Several steelmakers who have committed, and received billions in state aid, to produce steel using green hydrogen are already publicly rolling back on and delaying these commitments due to concerns regarding the availability and cost of green hydrogen, promising instead to use natural gas as a transition feedstock (see also below: Case Study Germany: Green steel production and demand in the automotive industry).

As part of the study done by Ricardo, the impacts of varying lower-carbon steel uptake scenarios within the automotive sector were modelled. The “Baseline” scenario is informed by publicly available automotive OEM targets, both for use of lower-carbon steel and wider decarbonisation of production supply chains. As such, the Baseline scenario has a gradual increase of lower-carbon steel from an initial share of 15% of total domestic steel demand in 2020 to 100% by 2050 (when it is assumed all steel will need to be decarbonised in line with EU long-term climate targets), reaching 25% and 57% lower-carbon steel shares by 2030 and 2035 respectively. An “Ambitious” scenario was developed in line with the highest proposed uptake of green steel in the automotive sector by OEMs, with lower-carbon production pathways reaching roughly 50% of total steel demand by 2030, 88% by 2035, near-100% by 2040, and 100% by 2050.

In addition, a “Conventional”, or ‘do-nothing’ scenario was developed, assuming that the share of automotive steel produced from primary BF-BOF and secondary EAF production technologies remain constant between 2020 and 2050 at 85% and 15% respectively.

The lower-carbon steel shares assumed in the different scenarios are split between different technological pathways, as discussed in Section 2 and the Annex and are explained below.

Secondary EAF steel is assumed to make up 15% of domestic automotive steel demand in 2020, after which it is assumed that, by 2050, all scrap steel from the automotive sector is reprocessed in an EAF to produce recycled steel, satisfying 37% of total automotive steel demand by 2050. Under both the Baseline and Ambitious scenarios, Secondary EAF steel is projected to make up 19% of demand in 2030 and just over 30% in 2035. Ricardo also developed a high secondary EAF uptake scenario, which assumes that automotive demand reaches 27% in 2030, 44% in 2035 and 48% by 2050, representative of the current Secondary EAF share of European steel production capacity.

Primary green steel shares for each scenario are informed by the projected volumes of lower-carbon steel demand from the automotive sector from publicly announced OEM supply agreements (see Appendix 1 – Announcements made by automotive OEMs in Ricardo study). Green H2-DRI is expected to be the dominant lower-carbon steel production pathway, making up around 80% of currently announced automotive steel demand by 2030. Under the Ambitious scenario, Green H2-DRI steel is assumed to make up 25% of total steel in cars by 2030, 50% by 2035 and close to 60% by 2040, remaining stable until 2050.

None of the grey H2 or natural gas (NG)-DRI production pathways are assumed to contribute to lower-carbon automotive steel as these pathways have limited automotive demand (8% of announced volume by 2030); are broadly viewed as a transition technology between current production and Green H-DR; and have variable and very limited emission reduction potential (see Section 2 and Annex). Similarly, as no automotive OEM supply announcements indicate demand for the use of CCS technology in combination with either the BF-BOF pathway (Blue BF-BOF) or the hydrogen DR-EAF (Blue H2-DRI) pathway, in addition to their highly questionable climate benefits, these technologies also do not feature in the automotive steel demand scenarios between 2020-2050.

The rest of the steel uptake under the Ambitious scenario that is not either secondary EAF or Green H2-DRI is assumed to come from imports. In 2022, imported steel made up 9% of total European steel consumption. As the majority of announced lower-carbon steel production capacity and automotive steel supply agreements are concentrated within Europe, it is assumed that imported steel from outside the EU27 continues to be dominantly produced via the primary BF-BOF route up to 2050. Due to the introduction of the EU Carbon Border Adjustment Mechanism (CBAM) in 2026, demand for imported steel with a higher carbon intensity is expected to decline, however. As such, it is assumed that the automotive sector reduces its share of imported steel by half to 4.5% in 2050.

To assess the potential climate benefits of using green steel in cars, Ricardo looked at both emissions associated with steel used in cars at the fleet level and the individual vehicle level.

First, when looking at the total cumulative CO2 emissions from the production of steel used in the production of new passenger cars (fleet level), Ricardo shows that, with an accelerated uptake of green steel as per the Ambitious scenario (i.e. close to 50% green steel by 2030 and 88% by 2035) compared to the less ambitious uptake in the Baseline scenario (25% green steel by 2030 and 57% by 2035), 70 MtCO2e can be eliminated between 2020 and 2050. Compared to the Conventional, or ‘do nothing’, scenario, the Ambitious scenario results in significant cumulative emissions savings of 277 MtCO2e by 2050, equivalent to the yearly emissions of Spain.

Switching to green steel in new cars in line with T&E’s recommendation of 40% in 2030 can reduce the CO2 emissions of producing cars in Europe by 6.9 Mt. This is equivalent to avoiding the annual emissions of 3.5m fossil fuel cars (see Figure 6). Ramping up to 75% green steel use in new cars, this will remove the emissions equivalent to 7.2 million fossil fuels cars in 2035 and 8.1 million in 2040 following a shift to 100% green steel.

Moving to the individual vehicle level, for passenger cars, emissions released during the production of (raw) steel for the automotive sector currently comprise between 15% and 30% of total production emissions for BEVs and ICEVs respectively. With tailpipe emissions from new cars reducing and on a path to zero, emissions from the production phase of a vehicle are expected to account for around 60% of an electric car’s total lifecycle emissions by 2030.

For a mid-sized battery electric car (e.g. Tesla Model 3) using only conventional steel from the BF-BOF route, the total vehicle production emissions in 2030 equals 36.5 gCO2e/km. By switching to using 100% green steel (a mix of both scrap EAF and green H2-DRI), carmakers can reduce their vehicle production emissions by 10% to 32.7 gCO2e/km. A similar reduction can be achieved in 2040 where replacing conventional steel with green steel can reduce the car’s embedded emissions from 27.5 gCO2e/km to 25.2 gCO2e/km (see Figure 7).

With most carmakers embracing a target-setting process that aligns with the goals of the Paris Agreement and look for solutions to reduce their scope 3 emissions, replacing conventional climate-harming steel with green steel in their cars can be an important contributor to reducing overall emissions on a path to reaching net zero by 2050.

Therefore, on an individual vehicle level, the impact of an ambitious uptake of green steel in cars on the retail price paid by consumers is negligible and reaching cost parity in later years due to a reduction in lower-carbon steel prices relative to conventional steel.

The same also applies for trucks, where the use of 100% green steel from the green H2-DRI pathway leads to a slightly higher retail price increase of between 1-2% increase in 2025 compared to steel from the Conventional scenario. However, this initial premium for 100% green H-DR steel decreases to 0.5% for articulated lorries in 2030, 0.2% in 2040, before introducing price savings of less than 1% between 2040-2050. The greater steel content in non-BEV trucks means that the retail price increase is greater for these vehicle powertrains, particularly in earlier years where steel content reductions from lightweighting is still limited and the cost of lower-carbon steel remains higher than conventional steel.

Policy and regulatory support, coupled with an increase in CO2 emission prices and a reduction in the cost of renewable electricity, are expected to help to make innovative steel production pathways economically and strategically attractive for investment by the steel industry and automotive sector.

T&E recommends policymakers to consider putting in place the following:

Many carmakers are already preparing for this and have set voluntary targets to increase the amount of green and recycled steel in their new cars. However, despite the promising potential and growing excitement around green steel and its use in cars, many questions remain unanswered about its feasibility, climate benefits, and cost. This paper, alongside a new Ricardo study, The use of green steel in the automotive industry, has aimed to answer some of these questions.

First, cars can and should make an ideal lead market for greening steel. Despite the billions of euros of subsidies doled out already, financial investment decisions in green steel production are highly dependent on having a clear market demand and offtake for their product. The automotive sector is uniquely and well positioned to create this demand, as it is heavily dependent on steel, with carmakers making close to half of some steelmakers orders in Europe. The relatively high value of cars, especially premium brands, also means they can absorb the short-term green premium of greener steel.

Second, there is projected to be enough green steel for an ambitious uptake in new cars already by 2030. Based on Ricardo’s tracking and assessments of green steel announcements there have been new green steel production announcements totalling 85 Mt of production capacity by 2030, which, when combined with existing scrap EAF production capacity of 87 Mt, total green steel production capacity is projected to reach 172 Mt by 2030. This is more than enough to cover total projected demand from the automotive sector, which reaches just 21 Mt, assuming a broad shift to lightweighting and less steel use in the sector, and even plenty to cover the 2022 annual consumption of 35.7 Mt if we assume no lightweighting takes place.

Third, shifting from conventional to using only green steel (a mix of secondary EAF and green H2-DRI steel) would reduce the total embedded carbon emissions of a battery electric car by one-sixth (or 17%) by 2030, demonstrating the huge climate potential that green steel offers carmakers as they look to reduce their scope 3 emissions on the way to net zero.

Fourth, switching to green steel in cars will have a negligible impact on the price of a new car, adding only €57 to the sticker price of a BEV compared to one made with conventional steel in 2030, an additional €49 in 2035, and just €8 by 2040. The cost increase is slightly higher if we assume the steel content of the BEV remains constant based on current levels - i.e. no lightweighting - coming in at just over €69 in 2030 - less than the cost of fitting a new car floor mat. For the cost of less than €100 euros per car, we can build a green steel sector in Europe.

Whilst an increase in CO2 emission prices and a reduction in the cost of renewable electricity are both expected to help to make green steel pathways economically and strategically attractive for investment by the steel industry and automotive sector, policy and regulatory support will be crucial to establish a lead market for automotive green steel that will be important to provide a demand signal and de-risk the necessary investments. First and foremost Europe needs to establish an ambitious and harmonised definition of green steel, in line with the IEA definition of near-zero emission steel and using the sliding scale approach (between 400 and 50 kg CO2 per ton of steel produced). Second, a priority for the coming legislative term should be to set mandates from carmakers to use a minimum and growing share of green steel in new cars that are sold in the EU from 2030. Finally, measures to improve the quantity and quality of recycled steel should be included in the revised End of Life Vehicles regulation.