EU steelmakers’ climate ambitions judged by their stance on ETS
The EU Emissions Trading System (ETS) is the bedrock of European climate policy and the world’s most rigorous and ambitious carbon pricing instrument. While the EU ETS has existed for 20 years, steelmaking has continued with emissions-intensive coal-based production because the companies have been allocated emissions allowances for free. The planned phase-out of those free allowances from this year has already started to influence company decisions. But now, the legislated phase-out of free emissions allowances is coming under increasing political pressure, and the direction of EU climate and industrial policy is being contested.
Companies across sectors are taking public positions. Some are calling for a strong and predictable ETS. A growing number of Europe’s industrial companies have warned publicly that weakening the ETS would undermine investment certainty and slow the scale-up of clean industrial technologies. Others are arguing for extending the phase-out trajectory to hold on to free allowances. In the steel sector, this is not an abstract debate. It is a crossroads between aligning with a decarbonised future or prolonging current coal dependence.
Steelmakers must decide whether they are serious about building the steel industry of the future or seeking to shore up the 40 coal-based blast furnaces still operating across the EU. Building that future requires investment decisions to transition away from coal-based assets and invest in low-emission production for the years ahead. Any company that is serious about embracing green steel as the future should therefore be demanding a firm and ambitious ETS today.
Against this backdrop, ArcelorMittal stands out.
ArcelorMittal’s position carries weight
As the largest steelmaker in Europe, ArcelorMittal’s position carries outsized influence. SteelWatch has recently written a letter to the company’s CEO to seek clarification of its position and to call for clear support for maintaining the agreed phase-out trajectory of free emissions allowances.
So far, ArcelorMittal has broadly welcomed the new European policy framework, including CBAM and stronger trade measures in the form of import quotas and tariffs, arguing that these measures restore a level playing field and improve the outlook for the European steel industry. The company has also repeatedly stated that once the right policy conditions are in place, it would move forward with its decarbonisation investments.
By the company’s own assessment, many of these conditions are now in place. The question is therefore no longer whether the policy framework is sufficient. The question is how ArcelorMittal chooses to respond to it.
A litmus test for ArcelorMittal
ArcelorMittal has, so far, not taken a clear public position in support of maintaining the agreed phase-out trajectory. At the same time, the company has emphasised that trade protection instruments and CBAM now provide a level playing field for its European operations and has indicated that the continuation of free allowances isnot necessarily a precondition for its European business. If that is indeed the case, the logical conclusion would be clear support for the agreed phase-out trajectory.
ArcelorMittal’s position on this issue is therefore more than a policy preference — it is a signal of its strategic direction. It will indicate whether the company intends to align its European business with the transition to a net-zero economy or whether it intends to continue relying, for as long as possible, on a production system based on coal supported by free emissions allowances.
The debate on the phase-out of free allowances under the EU ETS is a litmus test. The position that ArcelorMittal now takes will reveal whether it intends to lead the industrial transition or remain as a legacy steelmaker burdened by outdated coal-reliance.
The phase-out of free allowances is decisive
For the steel sector, the phase-out of free allowances is not a technical detail. It is the proxy for early investments in low-emissions technologies and decarbonisation in Europe and beyond. An ambitious and credible phase-out trajectory signals the future carbon price and strengthens confidence in investments in low-emissions iron and steelmaking. In contrast, weakening or delaying that trajectory benefits those who continue operation of existing blast furnace assets.
In that sense, the debate around phasing out free allowances has become a dividing line within the European steel industry: between companies positioning themselves for the future production system and those seeking to prolong the economics of the existing one. The outcome of this debate will shape the pace and direction of the European steel sector’s transition.
