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design of the EU-ETS. Given high uncertainty, the range of possible carbon prices would result in large variations in the added carbon costs( Fig 1b).
Rising global momentum
Carbon pricing is not only building up in the EU. There is action all over the world. The CO2 IQ Carbon Pricing Radar counts 16 non-EU countries with implemented or scheduled carbon prices in the steel industry – some at subnational level. Altogether, these countries make up over 50 % of EU imports of CBAM goods in the iron & steel sector.
Most of these countries charge carbon prices on raw materials like sintered ore, pig iron or crude steel. Countries such as Australia and Canada also price emissions from the manufacturing of some iron or steel products. The majority of emission allowances are handed out for free – as in the EU, but they face much lower prices – at least for now.
Carbon prices are expected to gain further momentum. With national budgets being tight and increasing need to define emission targets and mitigation measures, more and more countries are looking into carbon pricing. CBAM is accelerating this trend, as carbon prices paid in in the country of origin can be deducted from the CBAM charges to be paid in the EU.
Instead of having carbon revenues be rendered at EU borders, non-EU countries have an incentive to capture them at home. Brazil, India, and Türkiye are already in preparation to implement carbon pricing schemes in alignment with EU’ s CBAM. China is extending its national ETS for the power sector to aluminium, cement and iron & steel.
Carbon pricing is not enough
Where does it all leave us for the transition to green steel? It will depend on carbon pricing levels. Globally, they remain low – in most industrial schemes far below 50 EUR per tonne of CO2. The EU is leading the way with the tightest pricing for now. By how much they will rise will also depend on the political will to follow through when social backlash grows.
And even with carbon prices to rise to levels of 200 EUR, in most contexts that will not fully compensate the current economic disadvantage of green
steel technologies( see Fig 1b). To close cost gaps, further subsidies may be needed. Germany is experimenting with carbon-contracts-for-difference as an innovative instrument for industrial policy.
The hope is also on market premiums for green steel. With companies in need to meet their self-set climate targets, rising demand can push-up the price for lowcarbon alternatives. It remains to be seen if this hope can materialize. Meanwhile, the EU is working towards green lead markets – with public procurement and further incentives to kick-off demand.
All in all, carbon pricing will not be enough. Public support for innovation and infrastructure— e. g. for hydrogen networks or green electricity grids – is needed to enable scale-up and cost reductions. Moreover, regulatory clarity and long-term carbon pricing signals are essential for investments in assets that will operate for decades.
About Author
Dr. Ulf Narloch is the founder and managing director of CO2 IQ. As a boutique analytics and advisory firm, CO2 IQ offers specialized services on carbon pricing and climate regulation. Mr. Narloch works with companies from across the steel industry on decarbonization solutions. With a PhD in Environmental Economics, he brings a track record at the interface of policy and industry with previous roles as a management consultant at Roland Berger and a climate economist at the World Bank. For more information please visit www. co2iq. de.
28 Green Steel World | Issue 17 | April 2025