Policy briefs

Policy design, not technology alone, will shape the future of near-zero steel in Europe and China. This new report by Chun Xia, Lukas Hermwille, Anna Leipprand, Maike Venjakob (Wuppertal Institute), Xinyi Shen (CREA) and Hui Kong (Beijing Institute of Technology) compares the policy frameworks for near-zero steel in the EU, with a focus on Germany, and in China. It aims to strengthen mutual understanding, identifies concrete opportunities for mutual learning, and supports more structured dialogue between the two sides. China’s strengths lie in central coordination and closer alignment between climate, industrial and air pollution policy. Its layered CAPEX support architecture, combining public grants, concessional policy-bank lending and transition finance, also offers useful lessons. The EU offers a clearer long-term investment signal through the EU ETS, alongside structured support for R&D on breakthrough technologies. However, a common gap remains as demand-side frameworks for low-carbon steel are not yet strong enough to create reliable market pull at scale.

Transitioning to net-zero in the chemical industry is a shared challenge for Germany/EU and China: emissions must be reduced, the sector must remain investable and globally competitive, and the transition remains socially manageable. In the current context of increasing trade tensions and geopolitical strain, there is a compelling case for structured dialogue and targeted cooperation on transitioning towards net-zero. While such engagement will not eliminate underlying trade frictions, it can reduce misperceptions, support mutual learning and help identify practical pathways towards industrial decarbonisation.

China and Germany have developed voluntary low-carbon steel labels that are already operational and used for certification in China and across Europe. The two label systems are broadly comparable in technical terms. Both support a transition towards deeply decarbonised primary steel and renewable-powered scrap-based production, though important differences remain in system boundaries and emissions-accounting methodologies. This technical comparability reflects the fact that steel decarbonisation is advancing in both China and Europe, with broadly similar technological pathways emerging. Greater alignment between the standards could facilitate trade, improve communication between market actors and give investors clearer signals about which decarbonisation routes are likely to remain credible and commercially viable across markets. International efforts to improve transparency and interoperability should therefore be supported. However, whether low-carbon steel labels can support international trade and cooperation will depend on wider geoeconomic and political conditions. Rising trade tensions, persistent EU concerns about Chinese overcapacity, and the prospect of faster low-carbon capacity expansion in China all pose challenges for European producers. Efforts to improve standards interoperability can help build common ground, but they must be accompanied by broader European policy measures to strengthen the competitiveness of domestic green steel production. Definitions of low-emission steel, including the new EU-level definition currently being developed, need to be ambitious and consistent in order to enable the emergence of lead markets. Currently, a new definition is being developed under the EU Ecodesign Regulation for application in public procurement and funding programmes across Europe in the context of the proposed Industrial Accelerator Act. Given the historic approach of Ecodesign regulation, it remains unclear how EU-level standards will relate to the existing voluntary labels in terms of methodology and ambition.