16% - 27% Car production emissions that come from steel
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With the elimination of tailpipe emissions through electrification, decarbonising the production of cars is a crucial next step.
Steel has a major role to play in this transition, being one of the main emission hotspots of car production (16% to 27% of embedded emissions depending on the model and type of car). Moving away from coal-based steel is the main way forward, but how well are carmakers doing in switching away using coal-based steel?
This briefing focuses on the green steel results of the yearly ‘Auto Supply Chain Leaderboard Ranking’ from US-based “Lead the Charge” initiative. These are based on three key indicators: transparency, targets for low-carbon steel and recycled steel, and signed agreements for near-zero emissions steel.
Volvo scores well across all indicators, having set ambitious targets and having already signed a number of offtake agreements. Mercedes comes in second place overall due to its purchase agreements with steel suppliers and having disclosed multiple agreements with suppliers in both Europe and North America. Tesla, GM and Ford make up the rest of the top five. Tesla continues to be the only company to disclose detailed scope 3 emissions from its steel supply chain. Overall, both US and European car manufacturers are performing significantly better than their counterparts from Korea, Japan and China.
Despite some carmakers scoring well in certain categories, the ‘Green Steel Leaderboard’ shows that the actual use of lower emission steel is rather low. Scaling up green steel production requires major infrastructure investment – which comes at a cost and requires clear demand offtake.
Policy recommendations
The EU should use the upcoming Industrial Decarbonisation Accelerator Act (IDAA) to send a strong demand signal and position the automotive industry as the lead market for green steel.
The EU Commission should set the following requirements in IDAA:
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Introduce green steel targets in new cars: the evidence shows that 40% in 2030, 75% in 2035 and 100% in 2040 are feasible thresholds, covering both recycled and primary green steel.
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Incentivise made-in-EU green steel: To strengthen the resilience of the European economy, support the EU steel industry’s effort to decarbonize, and prevent loopholes from foreign resource shuffling.
To set such targets, the EU needs harmonised steel carbon labels. The labels should cover the carbon intensity of steel (in tCO2/t of steel produced) and should rely on a simple methodology based on location-based electricity grid carbon intensity averages.
With the right design and support policies, green steel labels and quotas offer European OEMs a strategic opportunity to gain a competitive advantage. To complement the targets the EU should set national and EU policies to boost demand for locally made green steel through public procurement, fiscal incentives (e.g. bonus-malus, eco-bonuses, tax credits), and local content rules tied to EU and national funding.
