Carbon, conflict and the future of steel: Europe’s strategic squeeze

The EU’s steel trade regime has changed substantially. The EU Council formally approved a new Regulation (Regulation of the European Parliament and of the Council addressing the negative trade-related effects of global overcapacity on the Union steel market) addressing the negative trade-related effects of global overcapacity on the Union steel market on 8 June 2026. It replaces the temporary safeguard measures expiring on 30 June 2026, with a permanent framework taking effect from 1 July 2026. The stated aim is to reduce the volume of unfairly priced steel entering the EU, but the measures carry real risks of unintended costs for the industries that consume steel.

 

Three main pressures

Trade defence measures are tightening

The European Commission has reinforced its steel safeguard framework on three fronts. First, following a sunset review, the EU has maintained anti-dumping duties on Chinese steel wheel hubs: 50.3% for cooperating firms and 66.4% for all others. The Commission concluded that dumping would resume if the duties were removed.

Second, the Commission has proposed reducing tariff-free import volumes by 47% and doubling above-quota tariffs from 25% to 50%, alongside a new “melt and pour” origin requirement designed to prevent circumvention. This framework is planned to run from 2026 to 2031.

 Third, EUROFER and affiliated industry bodies have argued that any further delay leaves the sector exposed. According to EUROFER, imports priced at unfair levels hold a 27% share of the EU market, twice the level recorded in 2012.

EU–US tensions are cutting export volumes

EU steel exports to the United States fell by approximately 30% in 2025, following the US decision to maintain 50% tariffs on steel. A broader EU–US trade agreement concluded in 2025 excluded steel, and no sectoral deal has followed. Exports are reported to have fallen by approximately one-third in the second half of 2025 alone, and negotiations remain stalled.

The sustained loss of the US export market is one factor behind the EU’s more assertive defensive posture on imports.

Decarbonisation is generating demand-side pressure

A coalition of approximately 40 European and global organisations has called on the Commission to embed robust demand-side tools in the forthcoming Industrial Accelerator Act (IAA). The central argument is that, without green public procurement requirements, unified low-carbon product standards, and private-sector procurement quotas for low-emission steel, EU-produced green steel will remain materially more expensive than high-carbon imports. That price gap deters investment in hydrogen-based steelmaking, carbon capture and storage, and new industrial capacity.

Underlying geopolitics

The regulation responds to a structural imbalance in global steel markets. Global overcapacity is projected to reach 721 million tonnes by 2027, a volume cited in the Commission’s explanatory material as more than five times the EU’s total annual consumption. Blocked from other major markets by trade barriers, surplus steel has been increasingly redirected into the EU. Domestic capacity utilisation fell to 67% in 2024, according to industry data, weakening the sector’s ability to fund decarbonisation investment internally.

The European Parliament, Council, and Commission have also issued a joint declaration stating their intent to phase out Russian steel imports systematically and to accelerate diversification of the EU’s supply base.

Principal concerns

The regulation has drawn substantive objections from steel-using industries on four grounds. The common thread is a tension between protecting domestic steel producers and maintaining the cost competitiveness of the much larger industrial base that depends on steel as an input.

Cost increases for steel-using industries

The most direct concern is cost. European automotive manufacturers (ACEA), home appliance producers (APPLiA), and technology sector associations (Orgalim) have collectively estimated that the 50% out-of-quota tariff will add between €5 billion and €9 billion per year in raw material costs for EU manufacturers.

The European Commission’s own impact assessment estimated a more modest average steel price increase of 3.25%. However, trade associations warn that specific product categories, particularly specialty steel grades, could see price rises of up to 30%. The APPLiA and Orgalim €5 billion to €9 billion annual cost projection directly challenges the EU 3.25% price increase forecast, framing it as an extreme underestimate.

Appliance manufacturers warn that sustained cost pressures will accelerate plant closures already under way in the EU, pushing assembly operations to third countries.

Supply adequacy and product availability

Downstream industry groups argue that EU producers cannot currently meet total market demand, nor match the cost efficiency of foreign suppliers across all product segments. The concern is especially acute for highly specialised steel grades used in advanced manufacturing, grades that, in some cases, are not available from European sources at any price. Reducing import volumes without a credible domestic supply alternative risks creating bottlenecks that affect production across multiple sectors.

Administrative burden of the “melt and pour” requirement

The obligation to trace imported steel to its point of origin at the liquid stage is designed to prevent circumvention and to align with the data requirements of the Carbon Border Adjustment Mechanism. In practice, critics argue it imposes a disproportionate compliance burden, particularly on smaller importers who lack the systems and legal capacity to trace supply chains to this level of granularity. Several trade coalitions have lobbied for UK and Swiss steel to be exempt from these requirements on the grounds that the circumvention risks the rules address do not apply to close European trading partners.

Trade diversion and international friction

Sharply restricting EU market access raises the risk of WTO disputes and retaliatory measures from exporting countries. There is also a structural risk of carbon leakage: if EU manufacturers of steel-intensive goods are priced out of the market by high input costs and relocate production elsewhere, aggregate global emissions may increase rather than fall, directly undermining the climate objectives the regulation is intended to support.

Interaction with the Carbon Border Adjustment Mechanism

A critical gap emerges from reading the Steel Overcapacity Regulation and the Carbon Border Adjustment Mechanism together. CBAM, which entered its definitive financial phase in January 2026, is a climate instrument designed to equalise carbon costs between domestic and imported steel. The Steel Overcapacity Regulation is a separate, trade defence instrument designed to limit import volumes. Together, they create compounding cost pressures on imported raw steel: importers face both CBAM carbon certificates (estimated in the source material at between €150 and €550 per tonne, depending on the carbon intensity of the steel) and a 50% tariff if imports exceed the new quota of 18.3 million tonnes.

The broad range of cost estimates reveals the complexity of the CBAM regime. The €150 to €550 per tonne estimate is driven by the following factors:

• Production Routes (Carbon Intensity): How the steel is made vastly alters its embedded emissions. Blast Furnace/Basic Oxygen Furnace (BF/BOF) routes using coal/coke are highly carbon-intensive. Conversely, Electric Arc Furnaces (EAF) powered by renewable electricity emit significantly less,

• EU ETS Certificate Prices: CBAM certificate prices are linked to the EU Emissions Trading System. In early 2026, the Q1 benchmark was set at €75.36 per tonne of CO2e, though historical peaks and future market volatility push estimated exposure higher,

• Foreign Carbon Price Deductions: Importers are allowed to deduct any carbon price already paid in the country of origin. The net CBAM cost drops if the supplier's country has a robust local carbon tax or cap-and-trade system, and

• Default Values vs. Actual Emissions: Importers unable to precisely verify their supply chain emissions must use European Commission-mandated default values. These defaults are typically set conservatively high, intentionally penalizing unknown or unverified supply chains.

The interplay of the Steel Overcapacity Regulation and CBAM significantly impacts import viability. The Steel Overcapacity framework limits tariff-free imports to 18.3 million metric tons and applies a 50% customs duty on any volumes exceeding that limit.

The “melt and pour” origin requirement serves both regimes: it provides the facility-level data CBAM requires to assess carbon content while preventing circumvention through transshipment. In this sense, the two instruments are mutually reinforcing on the import side.

However, they leave a significant structural gap on the downstream side. Restrictions and carbon costs apply to raw steel imports, but finished goods (cars, household appliances, industrial machinery) can still enter the EU market without equivalent upstream penalties. A foreign manufacturer can build finished products using low-cost, high-carbon steel outside the EU and undercut EU producers who face both higher steel input costs and CBAM obligations. European industry associations are pressing the Commission and Parliament to extend CBAM coverage to steel-intensive downstream products to close this asymmetry. Whether that is feasible within WTO rules remains an open question that the Commission has not yet resolved. What will be the net result when this regulation is contrasted against the WTO rulebook?

There may be winners and losers, but what is the net balance of this regulation? Will the net benefits or costs to the upstream steel producers outweigh the benefits or costs to the downstream manufacturing sectors that rely on steel as an input?

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Dr Mark Bamber is a Senior Consultant at DT Economics and specialises in economic analysis. DT Economics is a boutique economics consultancy specialising in expert witness, competition economics and regulatory advice.