The transition toward a sustainable global economy hinges critically on the decarbonization of energy-intensive industries, with steel production playing a pivotal role. Steel, a fundamental material underpinning modern infrastructure, transportation, and manufacturing, is notoriously carbon-intensive, responsible for approximately 7-9% of global CO2 emissions. As the world intensifies efforts to combat climate change, understanding emerging markets for green steel—steel produced with significantly reduced carbon footprints—is paramount. Recent research sheds new light on how the EU’s Emissions Trading System (ETS) and the Carbon Border Adjustment Mechanism (CBAM) are catalyzing the growth of these green steel markets, presenting profound implications for regional economies and international trade.
At the heart of the European climate strategy lies the EU ETS, a pioneering cap-and-trade system that imposes costs on carbon emissions from major industrial sectors, including steel production. By setting a gradually decreasing emissions cap and allowing market trading of allowances, the EU ETS creates a robust financial incentive for steel producers to innovate and decrease their carbon intensity. This mechanism has prompted steel manufacturers within the EU to explore and adopt low-carbon technologies—such as electric arc furnaces powered by renewable electricity and hydrogen-based direct reduction methods—that can yield what is termed “green steel.” However, transformation is neither uniform nor universal within the EU steel sector due to technological, economic, and infrastructural disparities.
Complementing the EU ETS, the Carbon Border Adjustment Mechanism (CBAM) aims to level the playing field by imposing carbon costs on imports of carbon-intensive products, thereby reducing the risk of “carbon leakage” where production—and emissions—shift outside EU borders to evade stringent regulations. CBAM’s implementation threatens to reshape global steel markets by incentivizing exporters to match or even exceed the EU’s environmental standards, pushing manufacturers in non-EU countries toward decarbonization. Early signals indicate that CBAM is encouraging international steel producers to develop green steel offerings to maintain market access and competitiveness in Europe’s environmentally conscious market.
The confluence of the EU ETS and CBAM is fostering a dynamic marketplace where green steel is increasingly demanded and supplied. This emerging green steel market does not exist in isolation; it is intimately tied to broader energy transitions, raw material availability, and geopolitical factors. For instance, ramping up green steel production necessitates substantial green hydrogen supplies and renewable energy infrastructure. The complexity and capital intensity of these requirements favor regions with abundant clean energy resources and supportive policy frameworks, thereby influencing the geographical distribution of green steel production hubs.
Moreover, the nature of market signals from the EU regulatory frameworks is stimulating innovation across the steel value chain. Steelmakers are investing in novel technological pathways such as direct reduction of iron using green hydrogen, enhanced scrap recycling with electric arc furnaces, and carbon capture and storage integrations. Each technological trajectory involves distinct advantages and challenges in terms of scalability, energy requirements, and cost efficiency. The resulting diversification of production mechanisms highlights the complexity facing policymakers and industry leaders in defining sustainable pathways.
Economic modeling within recent studies projects that the green premium—the additional cost associated with producing environmentally friendly steel—will initially constrain demand. However, as climate regulations tighten globally and green technology costs decline, green steel is expected to transition from niche markets to mainstream production. Importantly, stringent regulatory environments like those orchestrated by the EU serve as bellwethers influencing policy reforms in other jurisdictions, potentially leading to a cascading global adoption of carbon pricing and offsets.
Trade dynamics are another arena dramatically transformed by the advent of green steel markets. Countries lacking stringent environmental regulations face dual pressures: adapt swiftly or risk market exclusion. This dual pressure is reshaping trade alliances and compelling bilateral negotiations on climate standards embedded within trade agreements. The cost structures introduced by CBAM also provoke strategic reassessments among multinational steel corporations, some of which contemplate relocating production to jurisdictional spaces offering renewable energy competitiveness and technological synergies.
Social considerations stem from these industrial transformations. The steel sector employs millions globally, and shifts toward green technologies demand a rethinking of workforce skillsets, job compositions, and community impacts. Policymakers must orchestrate just transition frameworks that mitigate negative social consequences while maximizing new green employment opportunities. The ratcheting up of carbon constraints can produce uneven economic effects, influencing local economies dependent on traditional steel manufacturing.
Importantly, the analysis reveals that the interaction between the EU ETS and CBAM is creating a ripple effect beyond immediate borders. Neighboring countries and key steel-exporting nations are increasingly aligning their policies with the EU’s green ambitions, spurred by both regulatory pressures and opportunities within emerging green steel markets. This alignment may facilitate international cooperation on carbon accounting standards and technology transfers, ultimately accelerating the global steel sector’s decarbonization.
However, significant challenges remain. A key obstacle is the current insufficiency of robust measurement, reporting, and verification (MRV) systems capable of tracing the carbon footprint throughout complex steel supply chains. Accurate MRV is essential to ensure the integrity of green steel labels and to facilitate trust in cross-border trade mechanisms. The development of standardized carbon content certificates and transparent blockchain-based tracking systems is underway but demands rapid scaling and international harmonization.
Furthermore, investment risks associated with pioneering green steel technologies and infrastructure are high due to technological uncertainties and fluctuating policy landscapes. Financial institutions and governments are called upon to develop de-risking mechanisms and innovative financing models to mobilize private sector investments. Public-private partnerships and international climate finance initiatives could play critical roles in bridging financing gaps for green steel deployment, especially in emerging markets.
The urgency of global climate goals anchors the importance of this research. Steel’s decarbonization pathway is emblematic of broader industrial transformations needed to achieve net-zero ambitions. The European Union’s regulatory frameworks serve as a laboratory for systemic shifts, illustrating how market mechanisms combined with border adjustments can influence industrial behavior on a global scale. Yet, the success of green steel markets depends not only on regulatory stringency but also on international dialogue, cooperation, and inclusive economic strategies.
Lastly, consumer awareness and procurement policies are gaining traction as powerful levers in green steel market development. Buyers in construction, automotive, and machinery sectors increasingly demand responsibly produced steel, compelling supply chain actors to prioritize decarbonized inputs. Voluntary corporate commitments, backed by third-party certification systems, augment regulatory pressures, cultivating an ecosystem where sustainability drives competitiveness.
As industries, governments, and researchers navigate this complex landscape, this emerging consensus on green steel markets underscores a broader realization: climate resilience and economic prosperity are intertwined. The integration of emissions trading, border carbon adjustments, and technological innovation reveals a multifaceted strategy poised to redefine one of the world’s most foundational industrial sectors. The coming decade will be critical to watching these nascent markets mature, evolve, and potentially transform global climate trajectories through sustainable steel production.
Subject of Research: Emerging green steel markets influenced by the European Union Emissions Trading System and Carbon Border Adjustment Mechanism.
Article Title: Emerging green steel markets surrounding the EU emissions trading system and carbon border adjustment mechanism.
Article References:
Johnson, C., Åhman, M., Nilsson, L.J. et al. Emerging green steel markets surrounding the EU emissions trading system and carbon border adjustment mechanism. Nat Commun 16, 9087 (2025). https://doi.org/10.1038/s41467-025-64440-9
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