EU draft sets CBAM preliminary criteria for steel production; shows wide variation of carbon costs between steel mills
The European Commission is preparing to set preliminary carbon intensity benchmarks for iron and steel products as part of the Carbon Boundary Adjustment Mechanism (CBAM), according to a draft that Fastmarkets reviewed on Monday, November 17.
The draft application, informally distributed to industry stakeholders, describes how "special Embedded Free Contributions" (SEFA) and "free Contribution adjustments" (FAA) will be calculated once CBAM enters its full phase on January 1, 2026.
For the first time, it examines in detail the basic emission factors that will determine the number of CBAM certificates that importers must provide and how these criteria align with the parameters of the existing EU Emissions Trading System (ETS).
For steel production, the document sets three preliminary control values depending on the production method, taking into account the differences between blast furnace/oxygen converter furnace (BF/BOF), direct cast iron reduction technology/electric arc furnace (DRI/EAF) and scrap—based EAF technologies.
These preliminary benchmarks will underpin the FAA's framework, effectively linking CBAM commitments to the phase-out of free benefits under the ETS. As free distribution volumes decrease, carbon-intensive steel importers will need to purchase more CBAM certificates to cover emissions calculated using the applicable criterion.
Despite the fact that the leaked document is still marked as "preliminary," it gives the clearest signal yet about how Brussels intends to implement the FAA CBAM. The benchmarks are expected to be finalized in 2026 with a phased update for some products.
The impact of CBAM on flat rolled products
According to the draft CBAM free distribution application reviewed by Fastmarkets, the base values for hot-rolled steel coils are 1,530 tCO2 per ton for rolled pipe production, 1,033 tCO2 per ton for rolled pipe production, and 0.288 tCO2 per ton for scrap rolled pipe production.
Based on these figures and the carbon dioxide permit price of about 80-90 euros ($92-104) per ton of CO2, Fastmarkets estimates that the import costs of HRC associated with CBAM will be approximately 40 to 120 euros per ton of steel, depending on the production route and country of origin, and any costs carbon taxes that have already been paid for under internal abatement schemes. However, according to industry sources, for the production of steel based on EDP scrap, CBAM costs may be lower than 40 euros per ton of steel.