From October 2023 the European Union's implementation of a Carbon Border Adjustment Mechanism (CBAM) will be phased in gradually, starting with certain goods at high risk of carbon leakage. This is likely to affect metal trade flows, and force producers globally to accelerate efforts to cut their carbon footprint.

CBAM covers direct emissions of greenhouse gases (GHGs) emitted during the product´s production process. By the end of the transition period 2025, the Commission will assess the effectiveness of the CBAM and consider whether to extend its scope to more products and services, and whether to cover indirect emissions. According to the new regulation importers will start paying a financial adjustment from2026, with the revenues contributing to the EU's budget.

CBAM is set to complement the EU’s Emission Trading System (ETS). ETS has been in place since 2005 and has been effective in addressing the risk of carbon leakage, but it also dampens the incentive to invest in greener production. CBAM is assumed to progressively become an alternative to this.

Metallic products covered under CBAM

The CBAM will initially apply to six carbon-intensive industries: Cement, Iron and Steel, Aluminium , Fertilizers, Electricity and Hydrogen – industries with a generally high carbon emission. In the long run EU´s ambition is that all imports should be covered by the carbon tariff CBAM.

In the sectors covered CBAM will, according to the European Commission, contribute to a CO2 emission reduction of 1% in the EU and 0.4% in the rest of the world by 2030. They have also predicted a 29% carbon leakage decrease in the five sectors by 2030.

Carbon leakage is still a risk with CBAM, depending on how far downstream CBAM will apply, something that the regulation has tried to address. For example, CBAM will go relatively far down in the steel value chain, covering even screws, bolts, and nuts.

The “CBAM Guidance for EU Importers” explains the boundaries for precursors and iron or steel finished products, and they are distinct. Under certain conditions, they may also be added together to include all processes directly or indirectly linked to the production processes for these goods, including input activities to the process, and output activities from the process. The following diagram illustrates the variety of different routes by which iron or steel products maybe produced.


Source: “CBAM Guidance for EU Importers”

There is an obvious risk that some countries or suppliers simply do not have the level of data or standard required and may be unable to provide the necessary emissions data to EU importers. In that case, default emission data will be used.

Critics from EU trading partners

CBAM will not be fully implemented with financial adjustment fees yet for several years. Still there are already several EU’s trading partners that are critical, meaning the new rules complicate trade even further and raise export costs for non-EU manufacturers. Among them United States, China, India, Brazil, South Africa. This might lead to EU’s trading partners responding with trade barriers on EU imports. Furthermore, the EU’s policy could also challenge at the World Trade Organization (WTO). Already China has asked the EU to justify its incoming carbon border tax at the WTO, a move that suggests it may challenge the law at the trade courts.

These reactions come despite that several of the countries have some kind of carbon tax of their own. According to the World Bank about 40countries and more than 20 cities, states and provinces around the world already use carbon pricing mechanisms, with more planning to implement them in the future. In aggregate, these carbon pricing schemes now in place cover about half their emissions, which translates to about 13% of annual global GHG.

Carbon pricing schemes differ very much from country to country in severity and scope, and a standard carbon price across the world would be the best. However, a global harmonization in carbon taxes is hard to agree.

What market impact will CBAM have?

In an article from, the global bank ING explore how the CBAM tax will affect the global metals trade.

They state that most obvious impact of the implementation of CBAM is that European consumers will face higher prices. Not only because imports will be more expensive, but also because of higher costs for EU producers as the allocation of free allowances (from 2026 to 2034) will be gradually reduced as the CBAM is phased in. Reporting obligations related to CBAM will also push up costs, which will likely also be passed on to consumers.

Also, the imports will obviously shift. On what degree will typically depend on how carbon-intensive the third-country producers are, and if they have an essential carbon price and plan in place to drive their domestic decarbonization. Suppliers with a carbon intensity similar to the EU suppliers´ will probably not be significantly impacted in terms of competitiveness. Low-emission producers are likely to increase their share of exports to the EU, given the lower CBAM burden they would face. Higher carbon emitters will on the other hand focus on markets where they do not get penalized for their high emission intensity.

Another area which ING addresses is that trade flows will be affected. For exports, the eventual removal of free allowances will have an impact on the export competitiveness of European downstream sectors. Offering a rebate matching the carbon price on export volumes, which would remove the disadvantage for European exporters, could be a way to minimize this effect. However, this is unlikely, given it wouldn’t exactly fit in with the EU’s decarbonization goals.

What does CBAM mean to the aluminium, iron, and steel market?


In2022 Norway and Iceland were the largest and third-largest suppliers of aliminium to the EU. Goods from these countries will not be subject to CBAM and aluminium flows are likely to remain largely unaffected. However, other key suppliers include Russia, Turkey, China, the UAE and India, where India and China have the highest emission intensity by some distance.

Although China has its own domestic ETS market, it only covers power generators for around four billion tones of CO2 and trades at a significant discount to the EU ETS. As a result of CBAM the import cost of Chinese aluminium products into the EU could increase by around 17%, which most likely would lead to a fall in the Chinese aluminium flows to the EU. Beijing has set a goal of achieving carbon neutrality by 2060. By 2027, 29% of China’s aluminium output will be powered by green energy. If this trend continues, it will bring down the average carbon intensity for Chinese aluminium producers, increasing their competitiveness in the EU under CBAM.

In India the outlook looks different. They only have a coal tax and no carbon taxor ETS, which means it is unlikely to be used as a partial offset for the CBAM. Emission intensity from Indian aluminium producers is the highest in the world, driven by coal captive power plants. This significant rise in costs due to CBAM, calculated to more than 40%, will most likely impact the volume of Indian aluminium going into the EU.

Steel and iron

The iron and steel sector is an overall larger emitter of emissions than the aluminium sector, but the emission intensity is much lower than that of the aluminium industry. The most important factor impacting is the production process. Just under 60% of EU´s total steel is produced via the Blast Furnace-Basic Oxygen Furnace (BF-BOF) process, and around 40% via the Electric Arc Furnaces (EAF) production route. Direct emissions from a BF-BOF process are significantly higher than EAF emissions.

The variance between emission intensity in the steel sector is much narrower than seen in the aluminium industry. This implicates that trade flows would to be less affected. Depending on the trading of carbon prices, CBAM could increase import costs of estimated 8% for the largest supplier of steel products to the EU, such as Russia, Turkey, China, and India.

Russian steel emission intensity is below the global average, suggesting that CBAM should not impact flows significantly. Then EU’s eighth sanction package against Russia, which includes semi-finished steel products, has the bigger impact on Russian steel. Turkey has a large amount of EAF capacity and is therefore well below the global as well as the EU average. The third-largest steel product supplier China has the third-highest emission intensity among the largest suppliers to the EU. The launch of a domestic ETS, will eventually cover the steel sector, and with an effective ETS price drive decarbonization in the domestic industry. In Indian the pressure on steel flows could very well rise due to an intensity above both the global and the EU average. Indian steel has the second-highest emission intensity amongst the largest suppliers of steel products to the EU, with only Ukraine ahead of it.


CBAM will affect both downstream and upstream emissions across the metallic value chain. At ChainTraced we are supporting more coherent and transparent emission monitoring, by enabling steel product companies to improve CO2 traceability, and prepare themselves for the challenges like CBAM. Read more about digital tooling for decarbonization here


*The article is inspired by “CBAM Guidance for EU Importers” and “How the EU’s carbon border tax will affect the global metals trade”.

Read more about digital tooling for decarbonization

Thomas Persson

CCO and Co-founder
Thomas has held several senior positions as quality and sustainability director in the international manufacturing and trade industry. He has extensive experience in quality assurance, manufacturing engineering and sustainability management as well as supply chain management.