EU Parliament groups back a low-carbon steel credit in car CO₂ rules: up to 7.5 points for EU-made steel

What happened

EU law currently requires the average emissions of new cars and vans to fall by 100% from 2035, which in practice means only zero-emission vehicles, as the European Commission explains. In December 2025 the Commission proposed to soften this. Its proposal COM(2025) 995 sets a 90% cut for 2035 and lets carmakers make up the remaining 10% with credits: up to 7% for low-carbon steel made in the EU and up to 3% for sustainable renewable fuels. The steel credits would be calculated from the quantity and CO₂ intensity of the EU-made low-carbon steel used in the vehicles, the number of vehicles registered and their lifetime mileage. The method for deciding what counts as low-carbon steel would be set later by the Commission in a delegated act.

On 20 October, the European People’s Party, the Socialists and Democrats and Renew Europe reached a compromise on the file. Reuters, which saw the text, reported that it sets an 87.5% cut for cars in 2035 with a 7.5% top-up from low-carbon steel made in the EU, an 80% cut for vans in 2035, and 2030 targets of 55% for cars and 35% for vans. The EPP rapporteur, Massimiliano Salini, gave the same figures to Eunews. He said the remaining 5% would be unconditional, so some cars with combustion engines could still be registered without offsets, and that carmakers could count EU-made low-carbon steel towards up to 3% of their targets as soon as the new rules apply. Brussels Signal described the same structure: a 95% requirement on paper, with up to 7.5 points from green steel taking it down to 87.5%.

The European Steel Association (EUROFER) welcomed the compromise on 21 October. It said the credit would create a market for low-carbon steel, that about 800 kg of a vehicle, or 40–50%, is steel, and that iron and steel make up an estimated 16–27% of the CO₂ emitted in building one. EUROFER also said the compromise includes a “Made in the EU” condition under which only low-carbon steel whose melting and pouring takes place in the EU would count. We could not check that condition in the text itself, which has not been published. EUROFER’s director-general, Axel Eggert, said that “low-carbon steel made in the EU should go into cars made in the EU”.

The deal is not final. The three groups still have to sign it off to establish the Parliament’s position, according to Reuters and Brussels Signal, and EUROFER says a Parliament vote is foreseen later this year. After that, the Parliament and EU governments must agree a common text, and the Council can take a different view on both the target and the credits.

Why it matters for steel buyers

Analysis Until now, the main incentives for low-carbon steel in Europe have been on the supply side: the EU ETS, CBAM and public funding for new electric arc furnaces and direct reduction plants. A steel credit in the car CO₂ rules would be one of the first regulated reasons for a large buyer group to pay for EU-made low-carbon steel. Carmakers would earn compliance value from every tonne they use, which they cannot get from conventional steel or from low-carbon steel melted outside the EU.

Analysis That matters most for flat products. Car bodies use cold-rolled and coated strip, and these are the grades that EU mills plan to make on their new low-carbon routes (see our EAF versus blast furnace guide). If the credit becomes law, carmakers are likely to secure low-carbon volumes early through long-term contracts. Other buyers of low-carbon coil, such as appliance, packaging and construction customers, could then face tighter allocations or higher green premiums, at least until the new capacity is running. EUROFER says more than 60 low-carbon projects could add over 20 Mt of low-carbon automotive steel capacity by 2030; that is the industry’s own estimate.

Analysis The “melted and poured in the EU” condition, if it stays, would mirror the melt-and-pour logic already used in the EU steel import quota regime. Slab or hot-rolled coil imported and then cold-rolled or coated in Europe would not earn the credit. For buyers who source coated coil from EU re-rollers that use imported feedstock, this is a point to raise with suppliers now.

Analysis The effect should not be overstated. The figures come from a political agreement between three groups, not adopted law. The credit size, the start date of the 3% flexibility and the definition of low-carbon steel can all change in the talks with EU governments, and the delegated act on the method has not been drafted.

What to watch

• Formal sign-off by the three groups and the Parliament votes, which EUROFER expects later this year.
• The Council’s position: whether EU governments accept a steel credit at all, and at what size.
• The definition of low-carbon steel: the Commission’s proposal leaves the method and the baseline steel to a later delegated act, which will decide which mills and routes qualify.
• Supplier contracts: whether EU mills start offering low-carbon automotive volumes with credit-linked pricing, and how that affects allocations for other buyers (see our note on the 10 Mt of EU capacity restarted this year).

Sources

Primary sources

• Proposal for a Regulation amending Regulation (EU) 2019/631 on CO₂ emission performance standards for new cars and vans, COM(2025) 995 — European Commission, 16 December 2025
• Cars and vans: CO₂ emission performance standards — European Commission, DG Climate Action
• EU Parliament support for low-carbon steel in vehicles will accelerate industrial decarbonisation, industry says — EUROFER, 21 October 2026

Supporting sources

• EU lawmakers reach deal to weaken car CO2 targets — Reuters (via Yahoo Finance), 20 October 2026
• EPP-SD-Renew agreement on the automotive package — Eunews, 20 October 2026
• European Parliament strikes deal to soften 2035 combustion engine phase-out — Brussels Signal, 20 October 2026

Related on Loharo

• EAF versus blast furnace: what the two routes mean for emissions, costs and the green steel premium
• EU steel tariff quotas three months in: 50% duty, melt-and-pour proof and a looming Q1 2027 crunch
• EUROFER: 10 Mt of EU steel capacity restarted in the first 100 days of the new trade measure

Last fact-check: 22 October 2026 (Europe/Amsterdam).