Europe leading the way on funding for low-carbon steel whilst rest of the world lags, report finds
Germany has committed the highest level of state aid to the development of low-carbon steel, followed by France, Belgium and the Netherlands, according to new study published today (11 December 2025) by the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science.
Germany has committed €7 billion to the development of low-carbon steel, with other countries falling behind. While Japan has announced significant support through its Green Innovation Fund, the committed project-level support remains lower than European counterparts, despite Japan’s steel industry accounting for approximately 14% of national emissions of carbon dioxide.
This concentration of support in Europe reflects the continent’s ambitious climate targets and the recognition that steel decarbonisation requires substantial public intervention to overcome market failures and first-mover disadvantages. The report’s author, Sangeeth Selvaraju, concludes that “support is likely to continue as states strive to stem the exodus of many steel firms from the European market and the widespread withdrawal from low-carbon steel projects.”
Decarbonising the steel sector is one of the key challenges facing the world in the coming decades, accounting for 7-9% greenhouse gas emissions globally. In India and South-East Asia, the steel sector accounts for 12% and 15%, respectively, of annual emissions of greenhouse gases annually, while in Germany steel accounts for 7% of national emissions.
The author states that the “data reveals a significant gap between policy announcements and actual financial commitments in most countries. While countries such as India have announced ambitious support schemes totalling 15,000 crores INR for steel decarbonisation, the translation into committed project-level support remains limited as of 2025.”
Annual global demand for steel is projected to be flat overall except for rapid growth in steel capacity in a few places. The world is currently struggling with steel overcapacity caused primarily by China which has made profitability of the steel sector a concern for steelmakers from Europe to India.
A few developing countries, including India, will account for most of the capacity expansion in the steel sector globally over the coming years, driven mostly by domestic demand and high projected GDP growth. The author warns that “if the expansion of steel capacity in these countries is left to conventional steelmaking, the vast subsidies in other markets for the noble mission of mitigating steel sector emissions will have little effect on global steel emissions.”
The report also mentions that “Chinese state subsidies to steel firms remain very opaque”. China has announced a series of low-carbon steel projects, but the level of state support made to these firms either through national government or provincial governments remains unclear.
The author recommends establishing an international fund to support breakthrough low-carbon steel projects anchored and supported by Japan and the European Union. They also state that “leveraging partnerships with EMDEs [emerging market and developing economies] to enable low-carbon ironmaking and integrate emerging Asian economies into global supply chains” would be hugely beneficial.
Sangeeth Selvaraju, Policy Fellow at the Grantham Research institute on Climate Change and the Environment at the London School of Economics and Political Science, said:
“There is an opportunity to decarbonise the steel sector in Europe and developing countries, but it requires global action and ambition.
“As old steel plants come to the end of their life or conventional carbon-intensive steel-making technologies need to be retrofitted, we have a real opportunity to not bake in the dirty and destructive industry of the past.
“Our research shows that certain countries in Europe have started the process of trying to green the steel industry, but they must go further. It’s also paramount India and the rest of the developing world don’t put off action on low-carbon steel.”
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