EU tightens requirements for the import of (steel) products
Amid its ecological transition process, the EU is increasing pressure on the countries it imports from to safeguard its market from the so-called ‘carbon leakage’ phenomenon.
This occurs when companies based in regions or countries with stringent climate policies, such as the European Union move their carbon-intensive production activities to areas with less severe or no climate regulations. Carbon leakage can have a significant impact on global greenhouse gas emissions, as emissions that would have been reduced under stricter regulations in the home country (or continent) are instead released into the environment elsewhere.
The EU's response is the Carbon Border Adjustment Mechanism (CBAM), which serves as a tool to establish an equitable cost for the carbon emissions generated in producing carbon-intensive goods that enter the EU.
Legislators signed the CBAM Regulation on May 10, 2023; it officially came into force on May 16, 2023, following its publication in the Official Journal of the European Union.
From October 1, 2023, the CBAM will enter its transitional phase and initially cover imports of specific goods that have carbon-intensive production processes: these include cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen.
During Phase 1, importers of these products will be required to report emissions associated with their goods without incurring any financial adjustment. This period aims to facilitate a smooth transition and allow for the final system to be put in place. In the following phases, beginning in 2026, importers will need to purchase carbon certificates equivalent to the carbon price that would have been applied if the goods had been produced following the EU's carbon pricing regulations.
This phased approach - say EU sources - has been designed in compliance with WTO rules, ensuring a level playing field between EU and non-EU businesses while supporting the EU's climate objectives.
Industry associations from many sectors - including those representing the aluminum and steel supply chain - have spoken out against the rule. Eurofer argues that the new regulatory framework will increase operating costs for European steel mills and, contrary to expectations, will hinder their ability to invest in initiatives to reduce CO2 emissions.
