Europe’s Green Steel Premiums Squeezed as Costs Climb

Key Moments

Premiums Under Pressure in a Thin European Green Steel Market

As Europe advances industrial decarbonization, the interaction between emerging low-emissions steel supply and buyers’ willingness to pay is increasingly defining green steel pricing. Recent developments underscore how macroeconomic weakness and policy support are simultaneously influencing premium formation in the region.

In the European flat-rolled green steel segment, 2025 proved weak despite the existence of an established market. Broader market softness and challenging conditions kept overall activity muted, with traded volumes staying below 200,000 tonnes. This environment exerted persistent downward pressure on green steel premiums.

Fastmarkets’ premium for green flat steel with emissions below 0.8 tCO₂ per tonne of steel fell to €125 per tonne in the latest assessment, compared with €160 per tonne a year earlier. Three-digit premiums have largely been tied to offtake agreements, while spot market trading has been almost absent since the start of 2026.

Even lower-cost decarbonized alternatives have not been immune. Fastmarkets’ premium for flat steel with reduced carbon emissions in the 1.4-1.8 tCO₂ per tonne steel range has declined by 50% over the past three months and now stands at just €25 per tonne. This sharp compression indicates that many buyers are placing a higher priority on minimizing costs than on incremental emissions reductions.

Policy Support Collides With Structural Cost Challenges

Long-term policy measures are set to reshape competitive dynamics for both domestic and imported steel over the coming decade. The planned phase-out of free allowances under the EU Emissions Trading System (EU ETS) and the implementation of the Carbon Border Adjustment Mechanism (CBAM) will materially alter cost structures and enhance the relative attractiveness of low-emission steel.

These changes provide strong structural backing for green steel but are also likely to create short-term friction. As compliance requirements evolve, buyers may proceed more cautiously with procurement decisions, potentially slowing the pace at which green steel contracts are signed.

On the demand side, momentum is gradually gathering. Industry alliances and expanding corporate Scope 3 emissions commitments are supporting this shift. In parallel, the EU’s forthcoming Industrial Accelerator Act represents a meaningful move toward stimulating demand. By embedding green public procurement, clearer carbon benchmarks, and more efficient permitting processes, the Act is designed to unlock delayed investments and reinforce long-term appetite for low-carbon steel.

On February 10, Leading European steelmaker ArcelorMittal has confirmed plans to build an electric-arc furnace (EAF) in Dunkirk, France; the €1.3 billion ($1.5 billion) project is expected to benefit from state support through the Energy Efficiency Certificates (CEE) mechanism. The company said recent EU policy developments have given the company confidence to confirm the investment in an EAF. However, the producer only confirmed one 2 million tpy EAF, as opposed to initially planned two EAFs with combined capacity of 4 million tpy of crude steel and 2.5 million tpy DRI module.

Even with such investments, cost remains a central obstacle to the steel sector’s decarbonization in Europe. Electrification is anticipated to be the main route to low-emissions production, yet electricity prices across the region remain high. Key feedstocks for direct reduced iron (DRI) – notably natural gas and hydrogen – are also facing elevated cost pressures.

Sustained high input and compliance costs could postpone final investment decisions, slowing the deployment of new low-carbon capacity. Many projects may wait for greater clarity on long-term costs and more robust demand signals before proceeding at scale.

Balancing Willingness to Pay and the Path to Parity

These opposing forces – policy support and cost headwinds – will shape both the speed and scope of the transition. Ultimately, the readiness and ability of buyers to absorb green premiums will determine the strength of demand signals for low-emissions steel.

At present, premium levels pose a challenge for large segments of the market. However, they are expected to become more manageable as the cost gap between green and conventional production narrows over time. This convergence will be influenced by evolving carbon costs, technology deployment, and market response to regulatory frameworks.

Outlook: Green Steel Premiums Expected to Narrow by 2035

Forecasts indicate that hot-rolled coil (HRC) prices will rise across all production routes, primarily due to higher input and compliance costs. The impact is projected to be most pronounced for blast furnace operations, which will bear the brunt of EU ETS and CBAM-related expenses.

Low-emission steel is still projected to trade at a premium in a market constrained by supply, with multiple voluntary and regulatory-driven demand sources competing for flat steel produced via electric-arc furnaces. Nevertheless, this premium is expected to compress as additional EAF capacity comes online and conventional steel producers face mounting compliance burdens.

Under these projections, a 23% green steel premium in 2025 is anticipated to decline to 8% by 2035. This trend reflects both the gradual easing of supply bottlenecks for low-emissions material and the rising cost base of traditional steelmaking routes.

Ongoing Coverage of Europe’s Green Steel Transition

This short article series provides regular insights into the evolving European green steel market, with a focus on supply developments, premium behavior, project pipelines, and demand trends. Based on the latest report, the series follows how shifts in technology, policy frameworks, and market dynamics are influencing competitiveness and growth prospects for low-carbon steel across Europe.