EU's carbon mechanism reshapes steel industry

Brussels. The European Union's Carbon Border Adjustment Mechanism (CBAM), implemented in October 2023, is beginning to reshape industrial goods manufacturing and will significantly impact the global steel industry. The mechanism aims to support the EU's climate neutrality goals by 2050.

CBAM requires importers to pay for the carbon emissions linked to their goods, mirroring the obligations of EU companies under the Emissions Trading System (ETS). This measure is designed to prevent "carbon leakage," where production shifts to countries with less stringent climate regulations. It also encourages more sustainable practices in the steel sector, one of the world's most carbon-intensive industries.

The mechanism introduces a price on imported steel's carbon emissions, aiming to level the playing field between EU manufacturers and their global competitors. Since 2023, CBAM has tracked emissions from both the production process and the electricity used. From 2026, importers will need to purchase certificates to cover a portion of these emissions, aligning with EU carbon pricing rules.

CBAM is driving a transition toward cleaner technologies, with European steel producers facing rising carbon costs. While the mechanism shields EU steelmakers from cheaper, high-emission imports, its scope has sparked debate. Ovako emphasizes the need to extend CBAM to cover more downstream steel products, such as gears and axles, to prevent carbon leakage and protect EU competitiveness.

Reducing steel industry emissions necessitates investment in new technologies like green hydrogen for direct reduced iron (DRI) and electric arc furnaces (EAFs). These methods can significantly cut pollution but are expensive and time-consuming to implement. Ovako has already adopted 100% fossil-free electricity and is developing the use of fossil-free hydrogen for steel heating, contributing to the sector's green transition.