BERLIN – Carmakers and steelmakers are sealing deals for green steel, and using them to tout their environmental credentials. The trouble is, the steel is still being forged using fossil fuels, and it’s not clear how soon that can change.

German steelmakers Thyssenkrupp and Salzgitter are finding buyers prepared to pay a premium for green steel, including Mercedes-Benz Group, Volkswagen, BMW and Ford Motor. But without large-scale supplies of green hydrogen, much of that steel will initially be made with natural gas.

European steelmakers are looking to a combination of electric-arc furnaces and hydrogen to transform an industry that still burns billions of tonnes of coal, generating about 7 per cent of the world’s carbon dioxide emissions. With output of the green fuel falling far short of demand for years to come, automakers acknowledge that it will only be a gradual transition.

There needs to be a labelling system to show the emissions performance of different products, as using natural gas is just a first step in transforming the steel sector, according to Mr Oliver Sartor, a senior adviser at think tank Agora Industry.

“Steel made with natural gas is not climate-neutral steel and that is what ultimately matters,” he said.

To prevent greenwashing, the German Steel Federation is proposing just such a labelling system, under which only primary steel produced with 100 per cent green hydrogen can be designated as “near zero.” There will be a number of different levels of steel, depending on how much CO2 is released in the manufacturing process, according to Thyssenkrupp.

After making its first sales to Mercedes-Benz two years ago, Salzgitter aims to produce 1.9 million tonnes of low-carbon steel from 2026. Customers are prepared to pay a three-digit euro premium per tonne, compared with steel from a conventional blast furnace, according to Salzgitter Chairman Gunnar Groebler.

“People are willing to pay a premium for it because they have understood that they can also be pioneers with green steel,” Mr Groebler said.

The company’s direct reduction plant will ini...