Europe implemented new protective measures on steel imports effective July 1. Is this a breakthrough – or just the beginning?
It is an important breakthrough, but not a reason to let our guard down. Europe has long talked about fair competition; now it is taking action. Given global steel overcapacity of around 620 million metric tons, this was urgently needed. This overcapacity is putting pressure on the markets, and international trade conflicts increase the risk that additional volumes will be diverted to Europe.
The new measures address precisely this issue: They significantly limit duty-free import volumes, raise the tariff rate to 50 percent when quotas are exceeded, and improve traceability. This sends a clear signal: Europe will no longer accept its markets becoming a dumping ground for global overcapacity.
At the same time, this does not solve the problem. We continue to see massive import pressure along the value chain – especially for processed steel products and certain specialty steels. That is precisely where we must now be very vigilant.
What does the new regulation protect – and where are the gaps?
First and foremost, the new regulation protects the core market for steel products significantly better than the previous safeguards. The key is the combination of lower quotas, a more effective tariff rate outside the quota, and greater transparency regarding the actual origin of the steel.
The “melt-and-pour” principle is also important. It makes it more difficult to circumvent the rules by reclassifying steel via third countries or subjecting it to only minor further processing. At the same time, the instrument remains a system of controlled market access. The goal, therefore, is not to prevent imports, but to curb excessive and market-distorting imports.
The weak spot lies in steel derivatives. If primary steel is better protected but processed products are not covered, the pressure can simply shift. Then we lose value creation not at the beginning, but at the next stage of the chain. That is why we need a risk-based expansion of trade defense measures and the CBAM to include downstream products that are particularly affected.
Critics warn of protectionism and rising costs. How do you respond?
The accusation of protectionism misses the mark. Protectionism would mean closing off the market. That is not the case here. Imports remain possible, but they must take place under fair conditions.
A market is not fair if European companies bear high energy prices, CO2 costs, transition requirements, and social standards, while competitors from third countries benefit from overcapacity, subsidies, or weaker climate regulations.
Of course, protective measures can drive up costs in individual supply chains. That is why we need a balanced instrument that also takes into account security of supply for downstream processors. But the alternative would be far riskier: If Europe loses its steel base, dependencies will arise that will ultimately be more costly – for industry, employment, security of supply, and the transition.
Why are processed steel products so crucial?
Because competitive pressure doesn’t simply disappear – it finds new avenues. If steel imports are restricted but steel-intensive finished and semi-finished products are not adequately regulated, this can lead to displacement effects. Then it’s no longer the steel that’s imported, but the product in which the steel is incorporated.
That would be disastrous from an industrial policy perspective. Steel is not just a raw material, but the starting point for many value chains: automotive manufacturing, mechanical engineering, the construction industry, energy infrastructure, and electrical engineering. If we protect only the first step but leave the downstream stages open, we jeopardize jobs and investments along the entire industrial chain.
That is why Europe must thoroughly assess which processed steel products are particularly at risk. This is not about blanket protectionism, but about targeted rules to prevent circumvention, carbon leakage, and market-distorting waves of imports.
In addition to trade defense, the reform of the EU Emissions Trading System is a key focus. Why is it so crucial?
Because this is where the next major competitive decision will be made. In July, the European Commission presented its proposal to reform the EU Emissions Trading System. The aim is to anchor the European climate target for 2040 in the EU’s central climate protection instrument. The target is the right one. But the reform must be aligned with the real-world conditions of industrial transformation.
For the steel industry, this means that during the transition phase, it must be possible to operate conventional and low-carbon production processes in parallel in an economically viable manner. Companies are investing billions in new technologies but must simultaneously keep their existing facilities competitive. After all, a large portion of the transformation is financed through ongoing business operations.
If rising CO2 costs force existing facilities out of the market too quickly – before hydrogen, competitive energy prices, infrastructure, financing, and demand for low-carbon steel are available – a dangerous disruption will occur. This will not accelerate investment but rather weaken industrial value creation in Europe.
How do you assess the European Commission’s proposal for ETS reform?
The proposal contains important approaches and, in some respects, is heading in the right direction. It recognizes that the transformation of industry does not take place in a vacuum. At the same time, in our view, it underestimates the scale of the economic challenges during the transition phase.
Crucially, the proposal does not yet establish a sufficient framework to effectively limit the expected rise in CO2 costs, ensure competitiveness, and enable further investment. But that is precisely the point. The EU ETS must facilitate the transition to climate neutrality, promote investment in climate-neutral technologies, and must not further weaken the international competitiveness of European industry.
We view the planned conditionality for free allocation with particular concern. If free allowances are tied to additional investment requirements in the future, their function will change fundamentally. They would then no longer be primarily a tool to protect against carbon leakage but would become a bureaucratic instrument for steering investment. That is the wrong approach.
Why is the distinction between the CO2 price and CO2 costs important?
Because it explains what the debate is actually about. The CO2 price in the EU Emissions Trading System is essentially determined by the cap – that is, by the annually decreasing limit on available allowances. This price will continue to rise. That is part of European climate policy.
However, what matters most for industrial competitiveness is what CO2 costs actually result from this. These costs depend primarily on how many allowances companies receive for free. This is precisely where benchmarks and the CBAM factor play a central role.
One example is the hot-metal benchmark. It determines how free allocation for steel production is calculated. Until 2030, low-carbon direct reduction plants are not included in this benchmark but receive a free allocation at the blast furnace level. This has helped make investments in new production processes economically viable without immediately forcing existing plants out of the market.
If direct reduction plants were included in the benchmark calculation starting in 2031, they could set the benchmark in the future. The result would be a massive increase in CO2 costs for the remaining blast furnace route. Yet it is precisely these plants that will continue to generate the funds needed to finance the transformation for the foreseeable future.
Therefore, the current rules for determining free allocation – in particular, the hot-metal benchmark – must remain in effect beyond 2030.
What specific improvements are needed for CBAM?
CBAM must create a level playing field in the European market, effectively prevent circumvention, and protect export-oriented European companies.
To achieve this, the mechanism must be expanded more broadly to include downstream steel products. Otherwise, a downstream gap will emerge. Furthermore, CBAM must prevent circumvention strategies such as “resource shuffling” – that is, the accounting shift of clean production volumes toward Europe without significantly changing global emissions.
At the same time, we need a solution for exports. European steel companies compete not only in the internal market but also on global markets. If they enter those markets burdened by high CO2 costs that their competitors do not bear, Europe will lose market share and industrial strength.
The CBAM-related reduction in free allocation must therefore proceed much more slowly than previously planned and be linked to the actual effectiveness of CBAM. In our view, the CBAM factor should not be lowered further starting in 2028 as long as key weaknesses remain unresolved – namely, the lack of export relief, opportunities for circumvention, and the absence of carbon leakage protection for steel derivatives.
What should be done instead to support investments in climate-neutral technologies?
Investments in climate-neutral technologies should be specifically promoted – but not by turning carbon leakage protection into a bureaucratic quid pro quo system. We need additional instruments that close investment and operating cost gaps and support the development of the necessary infrastructure.
These include instruments such as the Investment Booster and the Industrial Decarbonization Bank. Both send important signals. However, it is crucial that they be designed to be binding, sufficient, unbureaucratic, and practical. They must provide targeted support for major transformation projects in energy-intensive industries.
Equally important: These instruments must not replace free allocation. They must complement it. Free allocation limits ongoing CO2 costs and protects against carbon leakage. New financing instruments create additional investment capacity. Both fulfill different but equally indispensable functions.
Furthermore, ETS revenues from the steel industry must be fully and earmarked for reinvestment in the transformation of the steel industry.
What does this political debate mean specifically for thyssenkrupp Steel’s customers?
For our customers, it ultimately comes down to reliability. Materials must remain available, meet the highest quality standards, and at the same time provide verifiable CO2 credentials. A level playing field, an effective CBAM, and stable ETS rules are therefore not abstract political issues.
They play a key role in determining whether low-carbon steel can be produced in Europe in a predictable manner, used economically, and integrated transparently into our customers’ value chains. Industries such as automotive manufacturing, mechanical engineering, construction, energy infrastructure, and electrical engineering, in particular, need robust supply chains and reliable transformation pathways. That is why industrial policy is always also a matter of customer certainty.
Are trade defenses, ETS reform, and an improved CBAM enough to ensure the transformation?
They are necessary, but not sufficient. Trade defenses prevent unfair imports from crowding out European industry. The ETS and CBAM must ensure that climate protection does not lead to carbon leakage. However, the transformation also requires additional demand.
Low-carbon steel is more expensive to produce – at least during the ramp-up phase. If Europe wants companies to invest billions in climate-friendly facilities, it must also create markets where there is demand for these products. This is exactly where “European Content” comes into play.
This is not simply about giving preferential treatment to individual domestic companies, but about European value creation, resilience, and low-carbon production. Public procurement, subsidy programs, and infrastructure investments should take greater account of where and under what conditions products are manufactured.
How could “European Content” work in practice?
“European Content” can turn climate protection into a business model. Public tenders for infrastructure, energy, transportation, or buildings can include criteria that give greater weight to low-carbon materials and European value creation. This creates lead markets and provides companies with planning certainty.
Another lever is the automotive industry. If CO2 savings achieved through certified low-emission steel were counted toward automakers’ fleet balances in the future, this would create a direct incentive to use low-carbon steel produced in Europe. Both sides would benefit from this: the steel industry would see demand for its transformation products, and the automotive industry would gain additional flexibility in achieving its climate goals.
“European Content” is therefore not a substitute for trade defense measures or CBAM, but rather the third pillar. Trade defense measures stabilize the market. The ETS and CBAM ensure fair climate costs. “European Content” creates demand for transformation.
What must Europe do now?
Europe must turn individual instruments into a consistent industrial policy package. The new steel regulation is an important first step. Four steps must now follow.
- First, trade defense measures must be consistently implemented, monitored, and, if necessary, extended to steel products that are particularly at risk.
- Second, the ETS and CBAM must be designed in such a way that they enable transformation and do not force European production sites out of the market.
- Third, Europe needs lead markets for low-carbon steel – through European Content, public procurement, support programs, and smart incentives in key consumer industries.
- Fourth, the ETS reform must limit the rise in CO2 costs during the transition phase in an economically sustainable manner.
The CBAM-related reduction in free allocations must be linked to the actual effectiveness of CBAM. The current rules for determining free allocations – particularly regarding the hot-metal benchmark – must remain in effect beyond 2030. And free allocations must not be tied to additional investment requirements.
The transformation of the steel industry will not be decided solely in the blast furnace or the direct reduction plant. It will depend on whether Europe creates a level playing field, secures investment, and fosters demand for climate-friendly industrial products. Ultimately, a political compromise is needed that equally strengthens ambitious climate protection, investment security, and industrial value creation in Europe.
