CBAM Phase 1 Commences In Europe
Steel trading nations around the world will be closely watching the progress of the European Union´s new carbon border adjustment mechanism (CBAM), which began its initial stage last Sunday. CBAM is the world´s first system to impose CO2 emissions tariffs on imported steel, cement and other goods as the EU tries to stop the undermining of its green transition by the arrival of foreign products with less stringent decarbonising controls. From October 1, importers will be required to report on a quarterly basis the emissions embedded in steel, aluminium, cement, fertilizers, hydrogen and electricity imported to the EU. Payments of the levy on emissions will only commence in 2026.
The European Economy Commissioner, Paolo Gentiloni, has said the aim is to encourage a worldwide shift to greener production and to prevent European manufacturers relocating to countries with lower environmental standards. It is also meant to prevent them from losing out to foreign competitors while they invest
to contribute to meeting EU targets to cut the bloc’s net emissions by 55% by 2030 from 1990 levels. “CBAM is not about trade protection. It is about protecting the EU’s climate ambition – and seeking to raise the level of climate ambition worldwide,” Gentiloni said.
The European Steel Association (Eurofer) has said this initial phase will be crucial in assessing CBAM´s effectiveness in preventing carbon leakage in European industrial sectors, such as steel, to other countries that continue to invest in highly CO2-intensive technologies. “We need to be extremely vigilant to ensure the investment in the unprecedented number of EU steel decarbonisation projects is successful,” said Axel Eggert, Director General of Eurofer. Eggert also pointed to OECD figures which indicate there is more than 600 million m/t of global steel excess capacity – more than four times the EU’s annual steel production – with projects in the pipeline for several hundred million tonnes of additional steel capacity, based on highly CO2-intensive technologies. “In this context, it is of the utmost importance that the meeting between Commission President Ursula von der Leyen and US President Joe Biden on October 20 leads to an effective Global Arrangement on Sustainable Steel, establishing the right trade solutions to reduce excess capacity and decarbonise the global steel industry by 2050,” said Eggert.
The planned tariff has caused angst among some steel trading nations, notably China. However, companies in the European Union, Britain and Ukraine have said they expect little impact during the trial phase. The European Commission says the levy is in line with World Trade Organization rules in that it treats foreign and domestic firms alike and allows deductions from the border fees for any carbon prices already paid abroad.
As regards global steel pricing, MEPS reports that the post-holiday revival in european steel demand has not materialised and prices remain under downward pressure. A slowdown in demand from the automotive industry is said to be causing some order cancellations. Meanwhile, the China Iron & Steel Association (CISA) predicts China’s steel prices will continue fluctuating in the near term. A report from CISA blamed external forces such as slowing economic growth in Europe and the United States, high global inflation and geopolitical conflicts. However, it also noted that weakness in its own property sector had slowed the recovery in domestic steel demand. Insofar as it may affect Australia and New Zealand, that weak domestic demand for steel in China has prolonged the country´s surge in exports. According to China Customs data, total steel exports increased by 12.9% on the month and were 37.9% higher on the year at 8.541 million m/t in August.