EU’s carbon mechanism to fuel large rise in steel import costs: WoodMac – ET Infra

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The EU‘s carbon emissions scheme is likely to significantly raise the costs of steel imports from India and China once it is fully implemented in 2034, while higher-emissions steel will probably go elsewhere, consultancy Wood Mackenzie said.

The first mechanism of its kind anywhere in the world, the carbon border adjustment mechanism (CBAM) will be introduced next month when importers of goods into the EU will have to start reporting on the emissions embedded in their products.

From 2026 importers of steel goods made from iron ore will have to start paying for the emissions in their shipments.

Iron and steel account for nearly 6% of the EU’s total emissions estimated at an annual 2.72 gigatonnes of carbon dioxide equivalent, WoodMac said in a release.

CBAM fees could increase the cost of delivered steel to the EU by about 56% for India and about 49% for China in 2034, it said. China is the world’s largest steel producer accounting for 54% of the global total, followed by India at more than 6% according to data from the World Steel Association.

“The cost of the CBAM for some of the key exporters to the EU could exceed $275 a tonne of finished steel. For reference, in 2022, the average import price of steel products covered by the CBAM was around $1,450 a tonne,” the consultancy said.

“For exporters, one initial response is likely to be a reorganisation of sales to direct lower-emissions steel to the European market, while higher-emissions production is diverted to markets without carbon fees.”

WoodMac said the EU plans to monitor and address these strategies, but it does not have a concrete action plan to prevent them. The EU did not immediately respond to a request for comment.

Producers in the EU have been subject to a carbon price since 2005 under the EU Emissions Trading System (ETS).

However, to avoid disadvantaging trade-exposed commodities, producers have been largely exempted from actual payments by being given free emissions allowances.

  • Published On Sep 21, 2023 at 04:13 PM IST

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