August 2026
The global steel sector faces two problems at once: overcapacity in conventional, high-emission production, and severe undercapacity for the production of near-zero emission primary steel compared to what is needed to meet global climate targets.
The EU’s new Steel Regulation, in force since 1 July 2026, addresses the first problem within the European market. By cutting tariff-free steel imports by 47% and doubling the out-of-quota tariff to 50%, it sharply reduces the European market’s exposure to global overcapacity. Yet without global market conditions that reward investment in clean primary steel, Europe’s climate goals will not be met and its industry is likely to remain exposed to first-mover risk in the transition.
This discussion paper proposes that future iterations of the regulation should include dedicated tariff-free quotas for near-zero emission primary steel. Because the new out-of-quota tariff is so high, an exemption from it would more than offset the cost difference between imported clean and conventional primary steel, an effect the Carbon Border Adjustment Mechanism is unlikely to achieve within the next five years.
In return, the EU could seek reciprocal measures from partner countries such as tariff reductions for EU clean steel exports, commitments on carbon pricing, or the removal of non-tariff barriers to trade in clean iron and steel. Partnerships of this kind could be broadened to cover other forms of steel cooperation, such as common definitions and standards, emissions verification, agreed subsidy acceptability criteria, concessional finance, and green iron offtake agreements. Priority partners could include Brazil, India, Japan, Korea, South Africa, Türkiye and the UK.
The discussion paper also considers a more ambitious option: a plurilateral agreement on clean steel tariff reduction, which would be harder to achieve but higher impact.
Finally, as a fallback option for use if no agreements can be reached, we set out how the EU could instead progressively restrict market access for the most emissions-intensive steel, analogous to its carbon intensity regulations for vehicles.
This discussion paper draws extensively on the work of David Kleimann, Senior Research Associate at S-Curve Economics, who passed away in May 2026. David took earlier work on the concept of a clean steel tariff exemption and developed it into a more detailed set of proposals designed to fit with the EU’s policy objectives and its political, institutional and legislative context. While this paper draws extensively on his work, the arguments do not necessarily reflect all of David’s views, and any mistakes are solely the responsibility of the current authors. We hope that this project will do justice to David’s creativity and commitment.
