 |
| European Commission CBAM |
The European Commission is set to implement the Carbon Border Adjustment Mechanism (CBAM) with default values for the embedded emissions in products from 10 countries, sources revealed. This move is part of the EU's broader strategy to reduce carbon emissions by imposing a carbon levy on goods imported into the bloc, aimed at encouraging cleaner production practices globally.
Default Values to Apply to Largest Exporters
Market sources suggest that the 10 countries initially affected by the CBAM will likely be the largest exporters of steel and other carbon-intensive products to the EU. Although the precise list of countries has yet to be confirmed, this approach will establish a benchmark for the emissions intensity of imported products, allowing the EU to impose tariffs based on these values. Countries that fall outside this group will be assessed based on the average emissions intensity of the top 10 exporters.
The CBAM is designed to level the playing field between domestic European producers, who must comply with stringent carbon regulations, and foreign exporters, who may not face the same emissions standards. This carbon levy will increase the cost of importing carbon-heavy products into the EU, thus incentivizing producers globally to adopt cleaner manufacturing processes.
Distinction Between Blast Furnace and Electric Arc Furnace
One of the key features of the CBAM will be its differentiation between the carbon intensity of products produced through blast furnaces and electric arc furnaces (EAF). Steel mills using blast furnaces generally have a higher carbon footprint, while those using EAF technology tend to produce steel with lower emissions. According to industry sources, the benchmark for a blast furnace will be set at 1.3 tons of CO2 per ton of steel produced, while the benchmark for an EAF will be 0.2 tons per ton of steel.
This differentiation aligns with the EU's Emissions Trading System (ETS), which aims to encourage the adoption of low-emission technologies in the manufacturing of steel. The EU's move to impose carbon border adjustments on imported products could have significant implications for global steel markets, especially for nations with carbon-intensive production methods.
The Audit and Verification Process
Another critical aspect of the CBAM will be the "non-discriminatory adjustment factor," which will apply to all exporters. The Commission aims to ensure that products with lower emissions will be subject to a reduced levy. However, it is unclear how producers will be able to prove that their products meet lower emissions standards. While the EU has suggested that a verification process might be available by 2026, the details remain vague, particularly regarding the authority overseeing the verification.
This uncertainty surrounding the audit and verification process raises questions about the feasibility of the CBAM's implementation. Steel producers and other industries affected by the regulation will need to adapt quickly, either by investing in cleaner technologies or preparing for higher tariffs on carbon-intensive products.
ScrapInsight Commentary
The introduction of default values for embedded emissions in the CBAM signals a major shift in the EU's approach to global trade and environmental policy. While the implementation of the mechanism may initially cause disruption in global markets, it will likely drive the adoption of cleaner technologies and foster a more sustainable steel industry in the long run. However, the uncertainty regarding the verification process could create challenges for producers seeking to meet the emissions thresholds and avoid costly tariffs.
