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Key takeaways:
CBAM will enter its definitive phase on January 1, 2026, and is intended to level the playing field between domestic producers that are subject to the EU’s Emissions Trading System (ETS) and international producers that are not under the same requirement.
Despite CBAM approaching fast, the EU Commission is still finalizing details and clarifying elements of the policy. Some concerns were alleviated on October 30 during ERCST’s webinar, with Martin Becker, deputy head of unit at the EU, providing additional information on what changes are coming up.
Most notably, Becker said that additional anti-circumvention measures would be instated, indirect emissions would remain out of scope for the foreseeable future and pre-consumer scrap would become its own CBAM product.
“As part of the [legislative] proposal in December we’re not only introducing additional anti-circumvention measures but are also extending the product scope to some downstream steel and aluminium CBAM goods,” Becker said on the webinar.
“This channel of avoidance [to a certain extent] will be closed by this extension of the scope,” he added.
Market participants have expressed concern for some time about the ability for CBAM liabilities to be circumvented through misleading declarations of emissions intensity. This “is possible because we are building on a customs infrastructure which was built to collect customs duties, not to enforce environmental legislation,” Becker said.
“More granularity in the customs declaration would allow [the EU] Commission to monitor better and for customs to have something to hold onto when they execute the checks. This is something that is in the pipeline,” he said. “There is not at this stage full supply chain visibility, and that limits our ability to trace back the good to the installation where it was produced. That is a weakness that can be exploited by operators.”
“Clearly there is a need for us to close this monitoring gap,” he added.
Becker suggested implementing practices analogous to those used under the steel safeguard measures to help resolve the issue.
EU steel import quotas and out-of-quota levies have been in place since 2018 and are intended to protect EU steelmakers from a potential surge in imports. They have recently been earmarked for review by the EU Commission, however.
One such change is the introduction of a “melt and pour” origin verification for imported steel, making it harder for goods to be relabeled or transshipped via third countries.
“Steel safeguard measures introduce a notion of melt and pour principles and related certificates that need to be provided… similar evidence could help us trace back the product to the installation so as to ensure the emissions report is accurately provided,” Becker said.
“These are the areas where we think legal intervention is necessary,” he added.
“The fact that scrap is current attributed zero emissions is a problem and a major source for lowering CBAM liabilities and resource shuffling in aluminium,” Becker said.
Market participants have long been concerned about the so-called “scrap loophole”, which can be exploited through ex-EU producers through shifting scrap-based aluminium exports into the European market as a substitute for primary aluminium.
Non-EU producers would be able to avoid CBAM costs via this loophole, while EU producers would still be subject to the ETS, according to sources.
“Work is in progress to include scrap, specifically pre-consumer scrap, as a CBAM good into the scope of CBAM and then also assign emissions to pre-consumer scrap as an input,” Becker said.
“That is the architecture that we have, for a precursor to be relevant for the CBAM calculation it also needs to be a CBAM good in its own right,” he said.
But Becker noted there are implementation issues that need to be addressed as it concerns pre- versus post-consumer scrap. This is something the Commission has “on our radar” for aluminium and, to a lesser extent, steel, he said.
If pre- and post-consumer scrap could not be distinguished, Becker said the Commission would not go ahead with an inclusion of pre-consumer scrap as a CBAM good.
As an aside, Becker noted it was “absolutely key to push the decarbonization agenda globally forward. If other countries follow us with similar measures on the domestic side with carbon pricing and in introducing CBAM’s of some sort […] the scope to shuffle dirty products […] will be smaller.”
“If we manage to create a dynamic [like this], resource shuffling, mechanically, becomes a smaller issue,” Becker added.
During the webinar, Becker confirmed that indirect emissions (Scope 2 and 3) will remain outside of CBAM, which will apply only to direct emissions (Scope 1)
“Our main concern at the moment is metals, both steel and aluminium, that are both CBAM products where indirect emissions are not in scope. That is going to be the case for the immediate future,” Becker said.
“There is no intention in December to make a proposal to extend the scope to indirect emissions for these two sectors,” he said.
This will come as a relief for some, with aluminium producer Norsk Hydro arguing that if indirect emissions were included into CBAM’s scope, ETS cost compensation for indirect carbon emissions in power prices would probably be phased out.
For instance, Hydro estimates that a Norwegian smelter could face an additional implied tax of around $270 per tonne in 2035 even if using a renewable Power Purchase Agreement (PPA) because of Europe’s unique marginal pricing system which sees gas- and coal-based producers set the price.
It also means there is still arguably room for a “green premium” in the aluminium market.
Fastmarkets currently defines low-carbon aluminium as metal produced with a maximum of 4 tonnes of CO2 equivalent per tonne of aluminium produced under Scope 1 and 2 emissions.
Fastmarkets assessed the aluminium low-carbon differential P1020A, Europe at $0-20 per tonne on October 3, largely stable throughout the year with consumer demand remaining muted.
During the definitive period, embedded emissions in CBAM goods can be based on default reference values — which comes with a surcharge — or verified actual values
Default values have “major problems from a [World Trade Organization] angle but also from a conceptional side, where we want to give incentives for producers abroad to decarbonize and to reward decarbonization,” Becker said.
“Such a move to default values would render that incentive obsolete,” he said.
“But at the same time, we cannot deny that certain forms at a material level of resource shuffling can have grave effects on the effectiveness of CBAM to protect against the risk of carbon leakage,” he added.
While Becker was largely opposed to default values, he did offer a possible solution whereby the EU Commission would identify specific CN codes or CN country combinations that are at risk of harmful resource shuffling.
“For these specific cases that we have identified based on a transparent methodology, we would [apply] country averages as a default and then would subsequently see whether an operator can rebut the presumption that they have not engaged in harmful resource shuffling,” Becker said.
Becker noted this is “needed to make CBAM effective” but remains open to change.
The anti-circumvention changes to CBAM are set to be proposed in early December, while CBAM will officially enter its definitive phase in 2026.
To quantify your exposure beyond headline numbers, read Margins on the line: CBAM insights for metals suppliers and buyers. It breaks down liabilities by product and route and shows how CBAM could reshape competitiveness from 2026 onward.
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