Steel is essential to the modern world as a fundamental material for construction, manufacturing, and many other industries, supporting the development of our civilization. The steel industry is responsible for around 7 percent (IEA, 2020) of global carbon dioxide emissions. Hence, decarbonizing steel is a critical challenge in the fight against climate change.
The importance of decarbonizing steel globally is reflected in growing regulatory and stakeholder pressure, especially in the value chain, for the industry to reduce its carbon footprint. The European Union (EU) is the first to launch such a regulation, with its Carbon Border Adjustment Mechanism (CBAM) expanding on the intra-Europe EU-ETS. The CBAM, which aims to provide a fair price, is essentially “leveling the playing field” with the EU-ETS as the term commonly being used on carbon-intensive goods such as steel and other hard-to-abate sector categories—providing a commercial incentive for producers to explore ways to reduce emissions.
A recent study by Harvard Kennedy suggests that the United States is exploring a CBAM-style mechanism, providing a push to price carbon at the border.
Understanding the business benefits of sustainability
Compliance is arguably a “ticket to trade”, and although it may exclude/limit certain non-compliant market players from specific opportunities, being compliant and building compliance does not inherently guarantee competitiveness.
Carbon emissions are being anchored in reporting frameworks (Sustainability Disclosure Standards (IFRS S2) now explicitly include Scope 3 emissions, raising the bar for value chain transparency. Greenhouse gas emissions disclosure requirements applying IFRS S2 Climate-related Disclosures, and investors are looking for carbon-competitive and carbon-transparent companies (source: 2025 Climate action plan, Norges Bank Investment Management) to which they allocate their funding. Managing and mitigating carbon emissions alongside wider climate-related risks is arguably becoming a currency and a strong business imperative.
Therefore, it is crucial that steel producers and their value chain view decarbonization not just as a matter of compliance but rather as an integral part of a core business strategy. Regulators are not alone in pushing the industry to decarbonize. Investors, customers, and employees also want to see the industry’s carbon footprint shrink. There is a growing market demand for high-quality, low-emissions steel, as steel users look to limit their own Scope 3 emissions. The current scarcity of low-emissions steel and the general lack of understanding from buyers on what green steel is (as this means different things for scrap recycled steel and prime steel) mean early movers will have a great urgency in understanding what is considered a sustainable product performance for steel. They must identify their options and a good opportunity to secure long-term contracts while their rivals are playing catch-up or picking risky and potentially uncredible or unverified low-carbon steel positions, with their steel products having dubious and unsubstantiated claims, putting them at risk of greenwashing allegations.
The question facing the industry—and individual steel producers—right now is how to take advantage of those opportunities with credibility around these efforts and certainty and confidence around the assessed environmental profile of the products. How do we deliver a low-carbon transformation in the steel industry as cost-effectively and efficiently as possible?
At a steel industry event in late 2024, I polled an audience of business leaders and decision makers about their organizations’ top decarbonization priorities for 2025. The top three priorities were:
- Taking concrete measures to reduce their carbon footprint.
- Measuring and verifying their carbon footprint.
- Turning sustainability into a competitive advantage.
This shows that, after defining strategies and setting targets, the industry is now in a position to start taking real action. It understands that the first step towards real reductions is knowing the baseline and that decarbonization can be a business enabler that benefits their company rather than some unnecessary and onerous exercise forced on them by outside forces.
What will it take to decarbonize steel?
At DNV Supply Chain and Product Assurance, we carried out research among key players in the European steel industry to understand what the global industry needs to decarbonize the sector. The results suggested that a significant technological and financial transformation is required.
Greater use of recycled steel will deliver some carbon footprint reductions, but the scrap and used steel supplies are not enough to meet the total demand. Hence, research and development on manufacturing processes to decarbonize prime, non-recycled steel will be key. In the meantime, emissions reductions can be made by switching to renewable energy sources, innovations to improve the performance and lifetime of (recycled) steel, and the careful choice of iron ore supply for new steel production.
Funding this long-term transformation will require billions of dollars of investment. The industry can use various novel financing options, including green bonds, sustainability-linked loans, and government incentives. In addition, with many steel users eager to reduce their own supply chain emissions, steel manufacturers may be able to charge a premium for more sustainably produced steel and use the proceeds to fund innovations to further emissions reductions. Initiatives to reduce emissions within older, more carbon-intensive manufacturing processes across legacy plants are also a key factor in the overall decarbonization of the steel industry. Not every plant will change overnight, so existing steel-making infrastructures are also able to make immediate carbon emission reduction efforts and execute on sound transition plans.
Having said this, as industry and individual manufacturers choose to finance the development of sustainable steel, one thing is clear: People will not pay for green steel unless they believe it makes a difference. The steel industry must provide customers with reliable and convincing evidence that stated emission reductions are real.
With scrutiny of green claims intensifying in all sectors, transparency and trust throughout the sustainable steel supply chain will be essential. Third-party verification of any carbon reduction claims provides a well-established route to build trust and avoid any attempts at greenwashing.
Digitalization: Transparency and efficiency
Digitalization is expected to play a fundamental role in the decarbonization of steel, acting as the catalyst for the transformation that needs to happen. As in many industries, digital tools are expected to help improve the overall efficiency of manufacturing processes, enabling reductions in energy consumption and emissions levels. Digitalization will also be crucial in supply chain transparency and the verification of emission reduction claims that underpin the sustainable steel market.
The primary tool for determining a product’s environmental impact is the lifecycle assessment (LCA), which involves collecting and analyzing data from every stage of the product’s life. This significant task involves massive amounts of data and can, realistically, only be done with digital tools.
To enable transparency and trust, some of that data and analysis will need to be shared with the third parties who verify the LCA and carbon reduction claims and customers. This sharing must be efficient, reliable, and secure (this last factor is essential as much of the data will be business-sensitive). Again, this will rely on digital tools.
Of course, many steel manufacturers are already collecting and storing much of this data digitally. However, our research found that the maturity levels in digitalization vary hugely across the industry. While some manufacturers have built dedicated digital data collection platforms, others still rely on multiple non-standardized and barely interoperable spreadsheets.
Standardization in what data is shared and in what format is necessary for maximum transparency and business efficiency. This will allow customers and regulators to make informed decisions quickly. To this end, many markets are considering introducing regulations around sharing data relevant to a product’s environmental impact. The EU’s Digital Product Passport (DPP) is the first to come into force.
Digital Product Passports
As part of the EU’s Ecodesign for Sustainable Products Regulation and EU Circular Economic Action PLAN, CEAP, a future is envisioned in which all products will have a DPP. The DPP serves as a digital repository and electronic data carrier containing detailed information about a product’s lifecycle, including its origin, material composition, environmental impact, and disposal guidelines.
Key features of the DPP include:
- A physical data carrier that connects the product to a unique product identifier
- The data carrier and unique product identifier must comply with the standard ISO/IEC 15459:2015
- All data in the passport must be based on open standards, developed with an interoperable format and machine-readable
While this may initially seem like an extra regulatory burden, if implemented correctly, it brings many benefits for sustainable steel. When combined with verified sustainability performance, it may also provide additional value chain leverage and yields. It will greatly enhance the transparency and traceability needed to build trust in low-emissions steel. It allows stakeholders to monitor and verify the sustainability credentials of steel products and ensure that environmental standards are maintained throughout the supply chain.
Further, it will facilitate circular economy practices that further reduce the steel industry’s carbon footprint. The DPP offers essential data on the recyclability and reusability of steel products, enabling manufacturers and consumers to make choices that extend product lifespans and promote resource efficiency. By encouraging the reuse and recycling of steel, DPPs contribute to reducing waste and conserving natural resources.
DPPs also make regulatory compliance and risk management more efficient. Sustainability regulations and standards are likely to evolve over the coming years, and having accurate and accessible records of product information will allow companies to navigate compliance requirements and mitigate risks more effectively.
Additional challenges in decarbonizing steel
The steel industry still faces several challenges in its efforts to decarbonize, in addition to the cost and need for technical innovation. Among the most critical is the lack of clarity over regulation. Many authorities are introducing regulations, incentives, and initiatives to encourage decarbonization. Yet there is no uniform standard against which to assess low-emission or green steel, although we see national-level definitions as well as industry group and association-bound definitions.
This causes uncertainty for steel producers. As a result, our research among European manufacturers found that just 40 percent of the steel producers interviewed felt they were compliant with EU regulations such as the EU Claims Directive, Carbon Border Adjustment Mechanism (CBAM), and Corporate Sustainability Reporting Directive (CSRD).
The impact of tariffs
The current geopolitical situation regarding tariffs on steel imports is amplifying that uncertainty. This situation is still evolving, so the impact is difficult to predict. However, by hindering global trade, tariffs could potentially have a chilling effect on investment and, hence, the transition to more sustainable steel production.
Steel is still in demand to support infrastructure and industry, so high tariffs could cause inflation and economic slowdown. Central banks could then increase interest rates to combat inflation or lower them to counter an economic downturn. In the first scenario, investment becomes more expensive and less likely. In the second, while investment is more attractive, the risk of higher inflation puts pressure on consumer spending, leading to less income for the steel industry from these sectors.
There is also a question over what happens to governments’ revenue from tariffs on steel imports. Will it be kept in the industry and earmarked for safety, quality, and sustainability improvements? In that case, tariffs could actually be a catalyst for change and acceleration of the green steel transformation. Or will governments choose to redistribute the money raised to other industries or societal challenges?
In the long term, the goal of tariffs is, in some instances, to stimulate local production in the countries that impose the tariffs. How this will impact the transition to a decarbonized steel industry is also difficult to foresee. However, it would raise difficult questions for global players over where to focus their production of low-emissions steel: is it best to produce close to plentiful and affordable sources of sustainable energy and raw materials or close to their primary markets
The future outlook
The world will need steel, with or without tariffs. From a planetary-health perspective, we are left to ponder whether tariffs will grant opportunities to carbon-intensive companies or protect those trying to lower their carbon footprint. How this plays out over the coming years will differ from country to country, and the impact on trade winds must be understood.
Understanding the dynamics in the supply chain, including social and environmental risks as well as opportunities for increased safety, quality, and sustainability, will ultimately help businesses become more resilient. It will also provide more robust stakeholder communication and reporting, as well as critical data for strategic decisions. Greater digitalization will also underpin and enable this.
Christopher Lilholm is the global head of sustainability and ESG services within the DNV supply chain and product assurance division.
References
DNV. (2024). Shaping the future of sustainable steel: Lessons from Europe’s steel industry. Høvik, Norway: DNV.
IEA. (2020). Iron and Steel Technology Roadmap. Paris, France: International Energy Agency.
