EU's Carbon Border Adjustment Mechanism to Affect Steel Purchase Costs

EU's CBAM Regulation to Impact Steel Procurement Costs

The European Union's Carbon Border Adjustment Mechanism (CBAM) is set to significantly alter steel procurement costs for European buyers. The mechanism's objective is to equalize competition and prevent carbon leakage by ensuring that imported goods bear the same carbon cost as domestically produced ones.

The CBAM system is closely linked to the EU Emissions Trading System (ETS). Historically, European steel producers received a portion of their emissions allowances for free to prevent production relocation to regions without carbon pricing. CBAM will facilitate a phased reduction of these free allowances.

Reporting obligations begin in 2026, with financial liabilities commencing in 2027. The regulation primarily covers steel products under customs nomenclature code 72, along with select products from code 73. Importers exceeding 50 tonnes annually will be subject to the declaration requirements.

Costs will be calculated based on the product's embedded carbon emissions. A benchmark derived from free allowances granted to EU producers will be subtracted before the CBAM charge is applied. Where verified supplier-specific emissions data is unavailable, default values will be used, potentially leading to substantial cost increases. Producers capable of verifying low emissions may face minimal or zero CBAM costs.

Ovako, already covered by the EU ETS, supports the CBAM framework and its current timeline. The company emphasizes that transparency regarding carbon intensity in supply chains will become a critical factor in procurement decisions.