Steel’s Strategic Role in European Defence Plans

As the European Union braces for escalating geopolitical tensions and focuses on strategic autonomy, the role of foundational industries like steel has re-emerged as a critical concern. Steel forms the backbone of military hardware, from armored vehicles and naval ships to advanced missile systems. In this context, Polish MEP Jadwiga Wiśniewska of the European Conservatives and Reformists called for a carve-out from the EU’s stringent environmental rules, specifically for steel producers involved in defense supply chains. She claimed that an unfettered steel sector is imperative for ensuring a dependable material base for upcoming European armament programs.

Commissioner Hoekstra’s Unyielding Climate Stance

However, the European Commission, represented by Climate Commissioner Wopke Hoekstra, firmly rebuffed these appeals. “The Commission has no plans to suspend the ETS,” Hoekstra declared in an unequivocal statement. He emphasized that the integrity of the European Green Deal and climate legislation cannot be compromised, even under the compelling pressure of defense exigencies. Hoekstra, a former Dutch finance minister, has gained a reputation for advocating market-based climate solutions and resisted the notion of diluting core sustainability commitments for short-term industrial or political goals.

Understanding the Emissions Trading System

The EU Emissions Trading System, launched in 2005, is the world’s largest carbon market and a key pillar of the bloc’s climate strategy. It caps the total level of greenhouse gas emissions and allows market participants to buy and sell emission allowances. Companies that pollute less can sell their extra allowances to those who exceed their limits. This market-driven approach incentivizes innovation and decarbonization. Currently, about 40% of EU emissions are covered under the ETS, including major industrial sectors such as power generation, aviation, and steel.

Existing Safeguards for Carbon-Intensive Industries

Although the Commission rejected a complete exemption for the steel sector, Hoekstra highlighted the “in-built features” of the ETS that already mitigate economic disadvantages for industries vulnerable to carbon leakage. For example, certain steel producers receive free allocations of CO₂ permits, reducing their direct compliance costs. In addition, state aid is permissible under EU law to offset indirect carbon costs, especially for electric arc furnace operations, which consume vast amounts of electricity. These tools are designed to maintain competitiveness while still pushing for greener industrial practices.

Climate Policy Meets Military Modernization

Wiśniewska’s demands are part of a broader effort within the European Parliament to align industrial policy with the EU’s new defense posture. Following the outbreak of war in Ukraine and increasing tensions in the Indo-Pacific, EU nations are committing more funds to military readiness. The Polish MEP warned that rigid environmental regulations may hinder the ramping up of domestic production capabilities, including defense-related steel components. She called for temporary flexibility, citing national security as a superior interest.

No Immediate Regulatory Relief, But Review Coming

Despite mounting pressure from some quarters of the Parliament and defense industry representatives, the Commission remains unmoved, for now. Commissioner Hoekstra confirmed that no interim changes will be made to the ETS. However, he disclosed that the Commission is preparing a comprehensive review of the ETS Directive, set to conclude by July 31, 2026, as stipulated in current legislation. While the review could introduce targeted reforms or updates for specific sectors, it will be conducted through standard legislative procedures and not as a reactive exemption.

Economic Pressures on Europe’s Steelmakers

Europe’s steel industry is already grappling with challenges from international competitors, especially from China and India, where environmental regulations are less strict. High energy costs, increasing raw material prices, and the need to modernize outdated plants further compound the economic burden. The additional costs imposed by carbon pricing make EU steel less competitive globally. Industry leaders argue that without relief or subsidies, EU producers risk being squeezed out of both civilian and military markets.

Brussels’ Vision: Green Defense, Not Dirty Steel

Yet for Hoekstra and his colleagues in the Commission, the future of Europe’s defense sector must also be green. Brussels is advocating for dual-use innovation, military infrastructure that adheres to environmental sustainability. Hoekstra insists that climate resilience and strategic defense are not mutually exclusive, and any attempt to weaken environmental rules for convenience would set a dangerous precedent. As such, the steel industry is being encouraged to invest in low-carbon steel production technologies such as hydrogen-based direct reduced iron and carbon capture systems.

Key Takeaways

• Wopke Hoekstra confirmed the EU will not exempt the steel sector from the Emissions Trading System, despite defense-related demands.

• The ETS already includes free emission allowances and permits state aid to support high-energy industries like steel.

• A formal review of the ETS Directive is expected by July 31, 2026, possibly paving the way for future adjustments, but no exemptions will be granted in the interim.