The inclusion of steel in the Carbon Border Adjustment Mechanism (CBAM) is both urgent and fraught with complexity.
The steel sector emits approximately 1.9–2.3 tonnes of CO₂ per tonne of crude steel, depending on the production route, with a global average of 1.92 t CO₂ in 2022.
In total, the industry is responsible for around 2.8 Gt CO₂ annually — about 8 % of global energy-related emissions. Incorporating steel into CBAM can help discourage high-emission imports and drive decarbonisation globally.
However, doing so will raise costs for downstream sectors—construction, infrastructure and manufacturing— across the UK and EU.
In the UK, where 75 % of steel exports go to the EU, industries risk being squeezed by carbon-adjusted input prices.
Balancing climate ambition with industrial viability will be critical as regulatory change reverberates across supply chains.
From accessing CBAM certificates to hedging further costs with EU ETS allowances (EUAs), we can help you navigate and comply with the new legislation.
Contact our specialist CBAM team for immediate support, here.
The EU’s Carbon Border Adjustment Mechanism (CBAM), starting in 2026, will target carbon-intensive goods, with steel being one of the main sectors.
Covering a wide range of products, from raw materials (agglomerated ore) to intermediate products like spiegeleisen and pig iron, and finished forms such as I-beams and rods, steel is a core input in the world economy.
But the significant role that steel plays in the economy also makes it a key driver of climate change. Traditional steelmaking methods, such as blast furnace production, rely heavily on coal and release large amounts of CO₂.
At present, under the transitional phase of the Carbon Border Adjustment Mechanism (CBAM), companies importing steel into the EU must measure and report their carbon emissions.
But legal requirements are set to evolve. Starting in 2026, CBAM will introduce a carbon levy on steel imports. This means that, as well as reporting carbon emissions, EU-based importers will also have to buy and surrender certificates based on the emissions embedded in their imports.
The price of certificates is tied to the weekly average price of EU ETS allowances, ensuring cost integration within the existing ETS.
Despite a growing consensus within business that global warming must be tackled, when it comes to reducing embedded carbon emissions in steel, several hurdles need to be addressed.
Emissions Data Collection
One of the key problems of data collection is the difficulty of gathering accurate data on the 'embedded' carbon of steel production.
This is because accurate data is heavily dependent on your relationship on having a good relationship with your supplier. If a supplier is unable to provide the required information, such as energy sources used and production methods employed, it will prove a struggle to submit comprehensive emissions data.
Financial Impact
Another major hurdle steel imports will face is the future cost of purchasing CBAM certificates. Each certificate will cover 1 tonne of CO₂e. So, for example, based on the CBAM cost formula (CBAM cost = quantity × emissions per tonne × EU ETS price), importers that purchase 10,000 tonnes of steel will have to purchase 25,000 certificates to cover their emissions.
Another potential hurdle here is the inability to hedge, that is, to buy at a current cost to protect against rises in costs in the future. CBAM certificates will be available at a fixed price. However, while importers will be unable to hedge via CBAM certificates, it will be possible for importers to hedge via ETS allowances.
Regulatory Complexity
During the transitional period of CBAM (Oct 2023 to Dec 2025) financial payments are not yet required, but quarterly reporting is still mandatory.
Importers must submit a report one month after the end of each quarter, with each report detailing the quantity of goods imported, the direct emissions and indirect emissions of the imported goods, and the carbon price paid abroad.
Penalties for non-compliance include fines for missing reports or incomplete or inaccurate data. Fines typically range from €10 to €50 per tonne of CO₂e.
As already outlined, steel contributes approximately 7% to global CO₂. However, in practice, this percentage results from a variety of factors.
In production, when iron ore and coke are loaded into a blast furnace, the resulting melted iron also produces CO₂ due to the burning of fossil fuels. Because 1.4-2 tonnes of coke are required per tonne of steel produced, this makes blast furnace production particularly carbon-intensive.
As a major source of steel’s carbon footprint, limiting coke-based production, or finding green alternatives, such as hydrogen-based direct reduced iron (DRI), is essential to the sector’s decarbonisation.
However, even addressing pollution inherent in certain production methods, there are also process emissions to consider. Process emissions within steel refer to any CO₂ released from burning fuels specifically to generate power and non-process heat - essentially the energy needed to run the steel plant itself, as distinct from the process of steelmaking.
In addition to the EU CBAM, there is also the UK CBAM, which will be implemented on 1 January 2027.
The UK CBAM, much like its EU counterpart, is an import tax that introduces pricing for carbon dioxide emissions embedded in specified goods. Domestic sectors covered by the UK Emissions Trading Scheme (UK ETS), including steel, pay a carbon price for each tonne of CO₂ equivalent they emit in their industrial activities.
The UK CBAM will cover both direct (Scope 1) and indirect (Scope 2) emissions, and in some cases, emissions from precursor products. Importers will be liable to pay the CBAM tax unless the goods have already been subject to a recognised carbon price in the country of origin.
Despite the looming costs for businesses affected by CBAM, this new piece of legislation also brings with it many benefits. CBAM represents an ideal opportunity for businesses - not just as an incentive to reduce their carbon footprint, but to gain full transparency into their supply chain.
By mandating emissions reporting, CBAM encourages importers to identify high-emission suppliers and to build a more resilient supply chain.
In this context, high emissions relate to Scope 1 emissions (i.e., emissions that directly result from the production of steel) and Scope 2 emissions (i.e., emissions created indirectly from electricity used to power the steel plant).
CBAM compliance requires specialist knowledge. At CFP Energy, we have worked with construction companies to assess their supply chains and quantify embedded emissions.
Our team understands the specific challenges facing construction procurement.
We know which steel products carry the highest carbon penalties, and we can ensure you mitigate these financial hurdles with assess to CBAM certificates, as well as EU ETS allowances (EUAs) to hedge against further CBAM certificate increases.
Early preparation, in either case, allows for better management of the coming financial burdens. Companies addressing CBAM requirements now can secure preferential terms with low-carbon steel producers before market demand increases.
At CFP Energy, our carbon specialists are available to discuss your specific CBAM requirements and develop bespoke compliance strategies.
Contact our specialist CBAM team for immediate support, here.