The Green Steel Market: Evaluating the OEM Business Case and the Role of Decarbonisation Targets as Strategic Drivers in the Automotive Sector

Abstract (Swedish)

Stålindustrin står för ungefär 7-8% av världens växthusgasutsläpp, och fordonsindustrin är en av dess viktigaste kunder. Fordonstillverkare som Volvo, Mercedes och Scania möter idag hårdare krav på att minska utsläppen i sina försörjningskedjor, genom regelverk i EU som förändras snabbt och ett växande tryck att ansvara för sina koldioxidavtryck. I detta sammanhang har grönt stål blivit en strategiskt viktig fråga. Men trots att viljan att ställa om finns har omställningen i stort sett avstannat.

Den här studien undersöker hur biltillverkare resonerar kring affärsnyttan med grönt stål, baserat på intervjuer med biltillverkare, bransch- och policyexperter samt stålproducenter. Totalt ingår 19 semistrukturerade intervjuer. Studien utgår från två frågor: hur biltillverkare bygger ett affärscase för grönt stål och vad som påverkar deras vilja att betala mer för det, samt hur mycket utsläppsmål och EU-regler faktiskt driver efterfrågan.

Resultaten visar att affärscaset bygger på flera sammanlänkade faktorer: Scope 3-mål, intern koldioxidprissättning, risker kopplat till stigande koldioxidkostnader i framtiden, leveranssäkerhet och krav från fleet-kunder. Men endast affärscaset räcker inte för att driva omställningen framåt. Den gröna premien slår direkt mot fordonstillverkarens marginaler i en bransch där vinstmarginalerna redan är pressade, och eftersom slutkonsumenten inte bedöms vara beredd att betala mer behövs externa mekanismer för att hålla efterfrågan uppe. Frivilliga ramverk som Science Based Targets Initiative (SBTi) har olika funktion beroende på aktör. För de flesta fordonstillverkare handlar det snarare om att förbereda sig inför kommande reglering än att SBTi faktiskt driver efterfrågan. För andra är SBTi just nu det enda som driver arbetet framåt, i avsaknad av bindande krav. EU:s regelverk, inklusive Industrial Accelerator Act och Automotive Package, signalerar en vilja att fasa ut fossila bränslen men skapar inte den typ av säkerhet av efterfrågan som stålproducenter behöver för att våga göra stora investeringar. Det faktum att det fortfarande saknas en gemensam EU-definition av grönt stål bidrar också till osäkerhet och blockerar både upphandlingssamtal och marknadsutveckling.

Studien drar slutsatsen att även om en viss efterfrågan existerar, hindrar ett strukturellt koordinationsproblem mellan aktörer längs hela leveranskedjan och brist på rättsligt tryck övergången från att röra sig framåt. Varken frivilliga åtaganden eller det nuvarande regelverket ger tillräckliga koordinerade bindande signaler genom hela värdekedjan för att slutgiltiga investeringsbeslut ska kunna fattas och utbudet skalas upp. Men argumentet med koordinationsproblemet har begränsningar: även om obligatoriska åtaganden hade existerat kvarstår en grundläggande kostnadsskillnad mellan konventionellt och grönt stål. För att åtgärda detta krävs inte bara starkare reglering utan också trovärdig och långsiktig politisk säkerhet över de investeringshorisonter som infrastruktur för grönt stål kräver.

Abstract

The steel sector accounts for approximately 7-8% of global greenhouse gas (GHG) emissions, and the automotive industry stands for a large part of its customer base. As Original Equipment Manufacturers (OEMs), such as Volvo, Mercedes and Scania etc., face tightening Scope 3 emission targets, evolving EU regulatory frameworks, and growing pressure to decarbonise their supply chains, the question of whether and how to adopt green steel has become strategically significant for the industry. Yet despite genuine demand intent, the green steel transition has stalled.

This study investigates the business case for green steel within the automotive sector, drawing on perspectives from OEM representatives, industry and policy experts, and steel producers. The empirical foundation consists of data from 19 semi-structured interviews across these groups. Two research questions guide the study: how OEMs construct a business case for green steel and what factors influence their willingness to pay a premium, and to what extent emission targets and EU regulatory frameworks drive green steel demand.

The findings show that the OEM business case rests on several distinct but interdependent drivers, including Scope 3 emission reduction aims, internal carbon pricing, risk management in relation to carbon pricing trajectory and supply security, as well as the commercial logic of fleet customer demand. However, the business case does not rely on commercial logic alone. The green premium constitutes a direct margin hit that OEMs in a low-margin competitive environment cannot absorb independently, and end-consumers are perceived as not willing to pay for it, making external mechanisms necessary to stimulate demand. Voluntary emission targets such as the Science Based Targets initiative operate differently depending on the actor: for most OEMs they function primarily as mechanisms for regulatory readiness rather than direct sourcing requirements, while for others they are currently the primary operative driver of green steel work in the absence of mandatory obligations. EU regulatory frameworks including the Industrial Accelerator Act and the Automotive Package signal decarbonisation ambition but fall short of creating the mandatory demand certainty that steel producers require to take final investment decisions. The absence of a standardised EU definition of green steel reinforces this, blocking procurement conversations and market formation simultaneously.

The study concludes that while demand intent is real, a structural coordination failure between actors across the supply chain and a lack of legal pressure prevent the transition from advancing. Neither voluntary commitments nor the current regulatory environment produce the sufficient simultaneous binding signals across the value chain that would allow final investment decisions to be taken and supply to scale. However, the coordination failure framing has limits: even with mandatory commitments, pricing captivity and a fundamental cost gap could persist. Addressing this requires not only stronger regulatory pressure but credible and long-term policy certainty over the investment horizons that green steel infrastructure demands.

Popular Abstract

The steel industry accounts for 7-8 percent of global greenhouse gas emissions. The technology to make steel without fossil fuels already exists, but it comes at a higher cost. This study investigates why carmakers are not buying more of it, despite ambitious climate commitments.

Every passenger car contains around one tonne of steel. Most of that steel is produced today using coal, generating enormous carbon emissions. Alternatives exist: steel made with hydrogen and renewable electricity, or by melting recycled scrap in electric arc furnaces. Both are commonly called green steel, and both are already on the market – the first in limited volumes, the second at somewhat larger scale. The problem is that the price is significantly higher than for conventional steel, and supply remains scarce.
Outside experts often argue that the cost premium for green steel is so small it barely registers for the end consumer – less than one percent of the vehicle price. Carmakers disagree. Their reality looks different: customers are not willing to pay extra for this feature, and the additional cost lands directly on their own margins. In an industry already under pressure from electrification and global price competition, even a small extra expense is hard to justify internally.

The most striking finding is that the transition is not primarily held back by a lack of willingness to pay for green steel – but by a coordination failure. Steel producers cannot make the investments needed to scale up production without knowing that buyers will commit. Carmakers will not commit without knowing that prices are reasonable and volumes sufficient. Financiers will not fund projects without long-term agreements. Everyone is waiting for someone else to move first, and the market stays stuck. However, the study also shows that better coordination alone would not solve the problem: there is a fundamental cost gap between what green steel costs to produce at scale and what the automotive industry can actually absorb.

EU regulation plays a role, but not always in the expected way. Upcoming requirements on climate reporting and carbon tariffs on imported steel create incentives, but nothing currently forces carmakers to actually purchase green steel. The voluntary climate framework SBTi – which many companies have signed – functions more as a way of lending credibility to an ambition already held than as a direct driver of purchasing decisions, even if it currently drives some green steel demand from specific carmakers.

The conclusion is clear: the gap between climate ambition and actual purchasing cannot be closed through
voluntary action alone. Mandatory requirements calibrated against the industry’s real margin situation –
not against what consumers might theoretically be willing to pay – are a necessary condition for moving
the market forward.

The study is based on in-depth interviews with representatives from European automotive manufacturers,
the steel industry, and independent experts.

• author: Aflaki, Lucian and Nordberg, Hannes
• supervisor: Lars J Nilsson
• organization: Environmental and Energy Systems Studies
• alternative title: Marknaden för grönt stål: En utvärdering av OEM:ers affärscase och dekarboniseringsmålens roll som strategiska drivkrafter inom fordonssektorn
• course: FMIM01 20261
• year: 2026
• type: H3 - Professional qualifications (4 Years - )
• subject: Technology and Engineering
• keywords: Green steel, Automotive sector, Europe, EU regulatory frameworks, Industrial Accelerator Act (IAA), Automotive Package, Coordination failure, SBTi, Willingness to pay, Green premium
• report number: ISRN LUTFD2/TFEM—26/5249--SE + (1-114)
• ISSN: 1102-3651
• language: English
• id: 9228595
• date added to LUP: 2026-05-29 10:31:53
• date last changed: 2026-06-01 13:33:07