European steelmakers could face annual carbon costs of €8.2 billion by 2031, more than twice the level projected for 2026, according to industry association EUROFER. The association says the timing of the reduction in free allowances is advancing ahead of the conditions required to replace conventional steelmaking capacity.
EUROFER’s modelling puts the sector’s carbon bill at approximately €3.4 billion in 2026. Its €8.2 billion 2031 projection assumes that planned green investments move forward, rather than modelling a scenario in which European producers make no progress on decarbonisation.
The association also estimates that carbon costs for conventional blast-furnace steel could reach around €100 per tonne in 2030 and exceed €200/t in 2031. These figures are industry scenarios based on the policy assumptions examined by EUROFER, rather than observed costs already being paid by every European steel mill.
Free allocation withdrawal and investment timing
The carbon-cost estimates relate to the expenditure faced by EU steel producers. They should not be treated as forecasts for CBAM revenue from imported steel or as estimates of the liability applicable to an individual foreign supplier.
EUROFER links the investment challenge to energy prices, infrastructure, access to suitable inputs and demand for low-emission steel. The association is calling for a different trajectory for free allocation, with less pressure during the earlier stages of the transition.
The policy creates a timing issue for steel producers. Reducing free allocation increases the financial incentive to change production processes, while the additional carbon expenditure can simultaneously compete with capital needed to develop replacement assets.
Energy and infrastructure remain part of the investment equation
For investors, the economics of a low-carbon steel plant therefore extend beyond its potential future reduction in emissions costs. Producers must also finance construction and continue operating existing facilities during the period before replacement capacity begins generating revenue.
EUROFER’s projections place the timing of those factors alongside the evolution of carbon costs. Even where the long-term policy direction has been established, the sequence involving carbon expenditure, infrastructure availability and new production capacity can affect whether investment proceeds or is postponed.
