ArcelorMittal, thyssenkrupp and voestalpine Demand ETS Pause as Green Steel Transition Costs Surge

Three of Europe's largest steelmakers, ArcelorMittal, thyssenkrupp Steel and voestalpine, collectively representing approximately 60 percent of Europe's integrated steel production, have issued a coordinated warning to Brussels that the EU Emissions Trading System is on a collision course with its own industrial base, calling for a temporary pause in escalating ETS costs until the key enablers of economically viable decarbonisation are in place. The companies argue that without urgent reform, the phase-out of free emissions allowances combined with the lack of affordable green hydrogen, competitively priced low-carbon electricity and large-scale carbon capture infrastructure will trigger widespread deindustrialisation, projecting a 30 to 40 percent decline in steel-intensive manufacturing activity and threatening up to 5 million jobs across European value chains. The joint plea, articulated by ArcelorMittal Executive Chairman Lakshmi Mittal in the Financial Times, frames a critical policy dilemma: how to pursue ambitious climate goals without dismantling the industries needed to build a green future.

 

The ETS Free Allowance Phase-Out and Export Competitiveness Gap

 

The ETS free allowance phase-out is directly linked to the introduction of CBAM, which taxes the carbon content of imported goods including steel, aluminium and cement on the logic that as the CBAM shield against cheaper high-carbon imports is raised the need for free allowances to protect domestic producers should fall. For sectors covered by CBAM, free allowances will be completely eliminated by 2034, but the steel industry argues the transition timeline is disconnected from the technological and infrastructural reality. Critically, CBAM addresses import competition within the EU market but does nothing to help European steel exports compete globally, leaving producers paying escalating carbon costs that make their products more expensive in international markets while competitors from regions without carbon pricing face no equivalent burden.

Industry association Eurofer estimates approximately €45 billion of EU steel exports are at risk under the current ETS framework, with EU steel production costs projected to surge by approximately 50 percent by the early 2030s as free allowances are withdrawn. Marie Jaroni, Chief Executive Officer of thyssenkrupp Steel, said the ETS needs a reality check and does not reflect the current state of Europe's industry where competitiveness and transformation are becoming increasingly difficult to reconcile. The companies are not calling for ETS abandonment but for ETS revenues to be ring-fenced and directed back into industrial decarbonisation, ensuring the system enables rather than inhibits the transition by aligning financial incentives with the capital requirements of green steel investment.

 

Read more: NGO Coalition Challenges EU Commission on Bio-CCS and Biochar Carbon Removal Methodologies

 

The Green Steel Infrastructure Gap

 

The transition from traditional coal-fired blast furnaces to green steel methods using Direct Reduced Iron in Electric Arc Furnaces requires two inputs in vast quantities that Europe currently lacks at competitive cost: affordable green hydrogen and low-carbon electricity. The steel sector alone is projected to need approximately 2 million tonnes of renewable hydrogen annually by 2030, a volume that Europe's nascent green hydrogen production capacity cannot currently supply at prices that make green steel commercially viable against conventional production methods. Without affordable green hydrogen, access to large-scale carbon capture and storage infrastructure and robust lead markets for green steel, the steelmakers argue they are being penalised for failing to achieve a transition for which the fundamental building blocks are not yet available at scale.

Herbert Eibensteiner, Chief Executive Officer of voestalpine, said the phase-out of free allocation is already diverting financial resources needed for the decisive phase of transformation and described the proposed ETS pause as essential to safeguarding the green transformation investments the company has committed to through its greentec steel programme. This framing highlights a central paradox in the current policy architecture: the ETS cost escalation designed to incentivise green investment is, according to the companies, draining the capital needed to fund it, creating a vicious cycle where decarbonisation policy undermines decarbonisation investment. All three companies have committed billions to transformation programmes and stress their opposition is to the policy timeline rather than to decarbonisation itself.

 

The Industry Divide and Policy Response

 

The coordinated appeal does not represent universal industry consensus, with SteelWatch labelling the free allowances a hidden fossil subsidy that has persisted for nearly two decades and urging the EU Commission to stay the course against what it characterises as industry doomsayers. Environmental groups argue that the CBAM threat is already prompting other nations to consider their own carbon pricing, a positive global ripple effect that a policy reversal could halt. There is also a reported split within the steel industry itself, with leaders of companies like Salzgitter that have already made major investment decisions based on the current ETS framework warning that changing the rules now could penalise first movers the system is designed to support.

Reports suggest the EU Commission may already be considering proposals to slow the phase-out of free allowances in response to concerns from member states including Germany, indicating that the industrial pressure is resonating in Brussels. The tension between maintaining policy credibility for first movers and avoiding the industrial contraction that the three major steelmakers project reflects a genuine policy dilemma that has no clean resolution given the divergent interests of different segments of the European steel industry. The outcome of Commission deliberations will establish a precedent not only for steel but for the broader framework of how the EU balances ETS cost escalation with industrial competitiveness across all hard-to-abate sectors.

 

Explore OneStop ESG Marketplace: Regulation and Compliance

 

Outlook for European Green Steel Policy

 

The joint appeal by ArcelorMittal, thyssenkrupp and voestalpine represents the most significant coordinated industry challenge to the ETS framework since the system's inception, coming at a moment when the EU's Industrial Accelerator Act is simultaneously seeking to raise manufacturing's contribution to GDP to 20 percent and strengthen strategic autonomy. As Mittal framed it, the choice is not between climate ambition and competitiveness but between a climate strategy that strengthens Europe's resilience and economic security and one that hollows it out, a formulation designed to reframe the debate in terms that policymakers cannot easily dismiss as anti-climate obstruction. Whether the Commission can develop a recalibration of the ETS free allowance phase-out timeline that maintains climate integrity while providing the investment certainty that green steel transformation requires will be one of the most consequential industrial policy decisions of the current parliamentary cycle.

Sustained engagement between the Commission and steel industry on this issue, culminating in a revised ETS implementation timeline that aligns carbon cost escalation with the availability of affordable green hydrogen and low-carbon electricity infrastructure, would provide the policy certainty needed for the billions in green steel investment commitments to proceed at pace. The convergence of industrial competitiveness concerns, energy transition infrastructure gaps and the employment stakes of European steel value chains creates conditions in which some form of ETS recalibration is politically more likely than a straightforward continuation of the existing phase-out timeline, even if the precise form and extent of any adjustment remains highly contested.