EU’s Carbon Border Adjustment Mechanism (CBAM) and Its Impact on the Steel Industry

The European Union’s Carbon Border Adjustment Mechanism (CBAM) is set to impose levies on steel production from 2026, fully phasing in by 2034. This mechanism requires importers to buy credits to cover emissions, aiming to prevent European firms from bypassing carbon compliance by sourcing from regions with lax environmental regulations. New green steel firms, like Meranti Green Steel, are well-positioned to benefit from this shift, as their lower emissions steel will capitalize on market needs and higher carbon costs.

Understanding CBAM

The CBAM is designed to put a fair price on the carbon emitted during the production of carbon-intensive goods entering the EU, encouraging cleaner industrial production in non-EU countries.

Impact on the Steel Industry

The steel industry, responsible for approximately 7% of global carbon dioxide emissions, is a primary target of the CBAM. The mechanism will cover CO₂ emissions from a range of imported products, including pig iron, semi-finished and finished steel, and some fabricated steel.

Opportunities for Green Steel Producers

Companies like Meranti Green Steel, which are building low-carbon steel plants, are well-positioned to benefit from the CBAM. Meranti plans to use a combined process to produce steel that will significantly reduce CO₂ emissions, with the main source of energy at the initial stage being natural gas, supplemented by green hydrogen. This approach aims to achieve emissions of 600-700 kg of CO₂ per ton of steel, with plans to increase the share of hydrogen to more than 80%, reducing emissions to less than 200 kg CO₂ per ton.

Challenges for Traditional Steel Producers

Traditional steel producers may face challenges adapting to the CBAM. ArcelorMittal, for example, announced a delay in its plans to replace coal-fired blast furnaces with hydrogen-powered facilities, citing insufficient support and unclear policies from the EU. The company highlighted the slow progress in green hydrogen development, making green steel production non-competitive against coal-fired steel from regions like China.

Global Implications

The CBAM is expected to influence global trade dynamics, potentially leading to a “two-tier market” where steel producers in regions with stringent environmental regulations may have a competitive advantage over those in regions with less stringent standards. Countries like China and India are boosting their green steel capacities to align with the CBAM, ensuring long-term competitiveness despite opposing green trade barriers.

Conclusion

The EU’s CBAM represents a significant shift in global trade and environmental policy, aiming to reduce carbon emissions and promote sustainable industrial practices. While it presents challenges for traditional steel producers, it also offers opportunities for green steel companies to capitalize on the evolving market dynamics. The success of the CBAM will depend on its implementation, the development of green technologies, and the global response to this new regulatory landscape.

Source:

1. European Commission. “Carbon Border Adjustment Mechanism.”
2. Reuters. “New green steel firms could reap rewards as EU carbon tariffs loom.”
3. S&P Global. “INTERVIEW: Meranti Green Steel on track to build low-carbon steel plant in Thailand.”
4. MarketWatch. “ArcelorMittal delays green transition plans blaming lack of EU support.”
5. Reuters. “New green steel firms could reap rewards as EU carbon tariffs loom.”
6. CarbonChain. “How will EU CBAM affect metal trade.”
7. Eurofer. “Carbon Border Adjustment Mechanism – Eurofer.”
8. ING. “How the EU’s carbon border tax will affect the global metals trade.”
9. CSIS. “Analyzing the European Union’s Carbon Border Adjustment Mechanism.”
10. PwC. “The impact of the EU’s Carbon Border Adjustment Mechanism on industrial manufacturing.”