Free carbon allowances failed to drive EU steel decarbonisation

Why are free carbon allowances failing to drive steel decarbonisation?

A new analysis has found that steelmakers in the EU received free emissions allowances worth €25.73bn between 2021 and 2025 while committing just €3.2bn of their own funds to decarbonisation projects. This gap reveals a fundamental problem with how the EU's flagship carbon pricing scheme distributes support to high-emission industries. If companies receive allowances for free, the logic goes, they should spend the windfall on cutting emissions. The data suggests this is not happening.

The mismatch points to several structural issues. First, free allowances reduce the cost of emissions; a steelmaker can pollute without paying the full carbon price, which weakens the economic incentive to invest in cleaner furnaces, hydrogen technology, or process innovation. Second, companies may allocate free allowance revenue to shareholders or capital reserves rather than environmental capex. Third, the EU's current system does not explicitly require recipient firms to reinvest allowance value into decarbonisation. The allowances are simply handed over; what happens next is left to market forces.

For UK readers and businesses, this matters because the UK operates its own carbon market (the UK ETS) with similar structures. If the EU model is not driving real steel decarbonisation despite €25.73bn in handouts, it raises questions about whether the UK's allocation of free allowances to energy-intensive industry is working either. UK steelmakers at Redcar, Port Talbot, and Scunthorpe have long relied on free allowance support. Offset Britain helps both manufacturing businesses and individual consumers understand their carbon liability and take action. Business carbon offsetting from £566 a year can complement internal decarbonisation efforts, while individual offsetting from £5.99 a month allows people to take responsibility for their own emissions footprint.

The broader lesson is that handing out free allowances does not guarantee decarbonisation. Policy makers may need to pair free allocation with binding investment targets, mandatory reporting on emissions reductions, or a gradual phase-out of free allowances to shift the incentive from handouts to real technological change. The steel sector accounts for roughly 9% of global CO₂ emissions; inaction in the world's largest carbon market sets a poor precedent.

Sport and carbon: today's matchday footprint

Three international football fixtures take place today across North America. Combined stadium capacity reaches approximately 204,000 spectators, with estimated matchday emissions of around 15,009 tonnes CO₂e based on per-spectator travel, venue operations, and catering.

Methodology: blended 80 kg CO₂e per attending spectator for international fixtures, covering travel (dominant), stadium operations, catering, broadcast. Source: FIFA per-spectator tournament footprint and BASIS domestic matchday data. Venue assignments are illustrative; refer to the official FIFA schedule for confirmed fixtures.

Written and reviewed by the Offset Britain editorial team. Last reviewed 3 July 2026.

Sources & Methodology

1. Edie: ETS free allowances worth billions have failed to drive steel decarbonisation
2. Offset Britain: Business carbon offsetting
3. Offset Britain: Personal carbon offsetting

Photo by Andy Chi.