Decarbonization is moving up the European steelmakers’ agenda, as the industry shifts towards greener means of production. Today, the steel industry is responsible for around 5% of CO2 emissions in the EU and 7% globally, according to the European Commission (the Commission) data. European Union needs to transform to become a net zero-emitter by 2050.

The European Carbon Border Adjustment Mechanism (CBAM) is a tool aimed at putting a fair price on the carbon emitted during the production of carbon-intensive goods that enter the EU. CBAM is a carbon tariff on carbon intensive products, such as steel, cement and some electricity, imported to the European Union. The transitional phase of CBAM, wherein EU authorities will test the mechanism without imposing any duties, will run from October 1, 2023, until the end of 2025.

The CBAM will be gradually phased in from 2026 to 2034, alongside the phasing-out of the free carbon allowances applicable under the European Emissions Trading Scheme (ETS). According to industry sources’ estimates, a total of 94% of ETS carbon allowances are distributed and only 6% are paid for. But starting in 2026, the mills will start paying for carbon credits. The price of a carbon emissions permit in the EU was around €63-80 ($69-86) per tonne in January 2024, down from its all-time high of €105.73 per tonne in February 2023. it is estimated CO2 allowance prices would jump to €200-250 per tonne when the free allocations are phased out in 2034.