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Climate change
OpinionComment
Wenjie Liu
Wenjie Liu

Opinion | Carmakers must steel themselves to address carbon emissions in supply chains

  • Carmakers are focusing on electrification, but new climate legislation will make procurement of low-carbon steel a point of competition
  • Traditional carmakers should lay out ambitious steel decarbonisation targets now, along with their electrification road maps, or risk losing out once again

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An employee works at Shougang Jingtang United Iron & Steel’s warehouse in Tangshan, Hebei province, on July 22. For carmakers, the first step to reducing their steel-related emissions is to disclose them. Photo: Xinhua
Wenjie Liu
In the automotive sector, the race to electrification is shifting into high gear. All-electric carmakers like Tesla and BYD are smashing sales records, leaving traditional carmakers struggling to keep up.
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But electrification is just one aspect of auto sector emissions reduction. Of critical importance, but often overlooked, is the urgent need for carmakers to address carbon emissions in their supply chains, particularly from the use of steel.

The auto industry’s carbon emissions from steel are extremely high – we estimate that they rival those of the entire country of Australia. On average, steel contributes 30 to 40 per cent of a vehicle’s material emissions. With the transition to battery electric vehicles, the portion of steel in auto emissions is growing. By 2040, materials are on track to account for 60 per cent of automotive life-cycle emissions, according to a McKinsey analysis.

As new climate legislation goes into force, procurement of low-carbon steel is on track to become a point of competition between carmakers. The European Union’s Carbon Border Adjustment Mechanism (CBAM), which takes full effect in January 2026, will impose taxes on imports of steel and other high-carbon materials based on the volume of emissions from production. If steelmakers fail to decarbonise, they will face a steep disadvantage in the EU market.

In East Asia, which is home to 60 per cent of global crude steel production, the impact of CBAM will be especially pronounced. Analysts have forecast that CBAM-related tariffs on steel exports from China could reach over US$350 million, and tariffs on steel exports from South Korea could be nearly US$200 million.

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In the future, carmakers and other downstream producers are likely to seek out steel suppliers with lower carbon intensity to avoid sky-high tariffs.

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