At the 20th SteelOrbis Conference, New Horizons in Steel Markets, held on Tuesday 9 December in Istanbul, Anil Akalin from UK consultancy Redshaw Advisors presented an in-depth overview of the EU Carbon Border Mechanism (CBAM) and its implications for industrial exporters, particularly in the steel sector.
Ms. Akalin began by positioning carbon markets within the broader framework of emissions reduction instruments. Today, she said, cutting carbon emissions is achieved through four main mechanisms: direct regulation, carbon taxation, cap-and-trade systems such as the EU Emissions Trading System (EU ETS), and voluntary carbon offsets. She said companies are entering these markets either to comply with mandatory regulations or to meet voluntary sustainability commitments.
CBAM intends to replace free allocation as a hedge against leakage
Much of the briefing was devoted to the EU ETS, which forms the pricing basis for CBAM. EU allowances (EUAs), used to cover one metric tonne of carbon dioxide emissions, are often auctioned, can be freely traded, and do not expire. EUA prices have risen markedly in recent years as a result of tightening emissions restrictions, energy market disruptions following the Russia-Ukraine conflict, and additional demand created by sectors newly included in the system. This tightening trajectory is expected to continue, supporting higher carbon prices over the medium term.
Ms. Akalin said the CBAM aims to protect the integrity of the EU ETS by preventing carbon leakage - situations where carbon-intensive production moves to jurisdictions with weaker rules and then re-enters the EU as imported goods. As free emissions allocations for EU producers are phased out, CBAM will ensure that imported goods have an equivalent carbon price. The framework requires importers of covered goods to be authorized, calculate the embedded emissions of their imports, submit verified data and purchase CBAM certificates that reflect the carbon cost that would apply if the goods were produced in the EU.
The implementation period extends from the end of 2025 until the CBAM is fully operational in 2034. The first certificates will become available shortly before the start
