The EU’s Carbon Border Adjustment Mechanism (CBAM) is expected to dramatically raise the costs of steel imports from countries like India and the People’s Republic of China. Introduced next month, this first-of-its-kind carbon scheme is expected to pivot focus towards other metals like aluminium, alumina, and bauxite.
Starting in 2026, importers of steel goods made from iron ore will have to pay for the carbon emissions involved in their shipments. According to consultancy Wood Mackenzie, iron and steel make up nearly 6% of the EU’s total emissions, pegged at an annual 2.72 gigatonnes of carbon dioxide equivalent.
CBAM fees are estimated to hike the cost of steel reaching EU shores by around 56% for India and 49% for China by 2034. As China accounts for 54% of global steel production and India over 6%, experts expect that this move will have a wide-ranging impact.
The average import price of steel products affected by the CBAM was about US$1,450 a tonne in 2022, Wood Mackenzie noted. The CBAM could increase costs by more than US$275 a tonne of finished steel for some key exporters to the EU.
For exporters, the logical first step would likely involve redirecting lower-emission steel to the European market, while channeling higher-emission steel to markets devoid of carbon fees. The EU is aware of such probable shifts but currently lacks a concrete plan to deter this.
Since 2005, EU producers have operated under the EU Emissions Trading System (ETS), although they’ve been largely shielded from actual payments through free emissions allowances.
This groundbreaking mechanism not only sets the stage for reshaping global steel trade but also casts an eye towards the future of other metals. It signals an inevitable escalation in the exploration and trade of low-emission metals like aluminium, processed from alumina and sourced from bauxite, as a potentially more sustainable alternative.
While the CBAM’s primary focus remains on mitigating carbon emissions from steel, it indirectly underscores the increasing need to look at other sustainable options like aluminium, alumina, and bauxite. Importers, traders, and producers in these sectors should now, more than ever, prepare for a more carbon-sensitive global marketplace.