CBAM Has Arrived for Steel-Making Raw Materials

A critical element in the EU’s strategy is the Carbon Border Adjustment Mechanism (CBAM). Its objective is to create a level playing field. Companies which produce outside of the EU with a high carbon footprint do not fall under the European Emissions Trading (ETS) Scheme and, therefore, have a cost advantage compared to EU producers. To maintain fair competition, importers of these non-EU-produced materials must report their emissions and purchase CBAM certificates when bringing them into the EU market. CBAM not only covers steel but also some of the raw materials, i.e., alloys, which are required to produce steel.

In August 2023, the European Commission published the CBAM Implementation Regulation for importers and companies outside the EU.

Alloying elements can be a significant contributor to the carbon footprint of steel, and therefore, foursome of them have currently been included under the CBMA regulation:

• Ferronickel (FeNi)
• Nickel Pig Iron (NPI)
• Ferromanganese (FeMn)
• Ferrochrome (FeCr)

From 1st October 2023, EU importers of the four products mentioned above produced outside the EU will be required to report emissions. From 2026, importers must buy CBAM certificates to offset these emissions. The certificates will be calculated as the average weekly price for EU ETS allowances and published by the European Commission.

Non-EU producers selling to the EU need to calculate and provide emissions data to any buyer who imports the products into the EU. The first deadline for this was January 2024. Important to know is that emissions need to be calculated according to a CBAM-approved methodology, which differs from the standard product carbon footprint (PCF) methodology.

Non-EU producers must calculate the embedded emissions in relevant products to comply with the reporting obligation. The details are described in a 252-page document called “Guidance Document on CBAM Implementation for installation operators outside the EU”. It is all rather complex.

The concept of embedded emissions for CBAM is based on, but not fully aligned with, the principles of a PCF. A PCF (Carbon Footprint in Products) is usually understood as an amount of GHG emissions expressed in ton CO2e per ton of material based on a life-cycle perspective covering all significant emissions from upstream and downstream processes. It covers mining, production, transport, use and end-of-life. Embedded emissions under CBAM differ from PCF because CBAM is intended to cover the same emissions as would be covered by the EU ETS if the production were situated in the EU. The system boundaries of emissions covered by the EU ETS, and therefore the CBAM, are narrower than those in a CFP. The products ‘ downstream emissions (emissions from the use and end-of-life) are outside the scope of the EU ETS and the CBAM. Emissions from transporting materials between sites and processes further upstream (Scope 3) are not included either.

Importers are responsible for reporting emissions to the European Commission quarterly. If they don’t, they face fines for non-compliance and penalties of between EUR 10 and EUR 50 per non-reported tonne of embedded emissions.

Since the reporting is a complex process, we expect that many importers will seek support from specialised service providers, such as fiscal representatives, warehousing companies and law firms, to support them with the emissions reporting.

The European Commission has developed the CBAM transitional registry to help importers perform and report as part of their CBAM obligations. Moreover, the Commission provides a spreadsheet to facilitate the completion of the quarterly CBAM reports. The Excel file indicates the optional/mandatory fields and provides the pre-defined values allowed for specific fields. It can be downloaded from here.

CBAM reporting, sanctions, European supply chain act…the requirements for companies buying or selling raw materials in the EU are constantly increasing. That’s why more and more companies are introducing software solutions to support their employees in managing this complexity. As part of its Procurement Solution, Metalshub has developed a Supplier Relationship Management (SRM) tool, which supports raw material buyers in steel mills, foundries and non-ferrous metals producers to efficiently manage all these extra task. Reach out to us if you would like to find out more.