Carbon costs can affect steel prices in Europe, but they are not itemized separately in MEPS assessments or automatically added to the market price. MEPS assesses transaction prices; it does not calculate what steel should cost based on a producer’s expenses.
MEPS assessments for EU countries cover steel produced within the European Union and transactions between steel mills and buyers, including traders, distributors and service centers. They relate to new products in standard commercial grades. MEPS gathers information on the outcomes of negotiations between sellers and buyers.
Prices are influenced not only by raw materials, energy, labor and emissions obligations, but also by supply and demand, import competition, mills’ order books and available capacity, as well as the negotiating positions of both parties. As a result, a change in emissions costs may affect the price under discussion, but it will not necessarily lead to an equivalent change in the transaction price.
The EU Emissions Trading System (EU ETS) sets a price on greenhouse gas emissions, including those from steel production in the European Union. Covered producers must monitor their emissions and surrender the corresponding allowances. Some allowances are allocated free of charge, but the volume of free allowances for steelmaking and other industries is being gradually reduced; additional allowances must be purchased when necessary.
The EU Carbon Border Adjustment Mechanism (CBAM) applies to certain imported goods, including iron and steel. The importer or another party responsible under CBAM rules must account for the goods’ associated emissions and surrender certificates. Carbon charges already paid outside the EU may be taken into account in the calculation. The mechanism is intended to establish a comparable carbon price for covered imports and EU products.
According to MEPS, the ETS creates emissions-related costs for steel producers in the EU, while CBAM creates them for some supplies from third countries. Neither mechanism directly sets the final price agreed between a seller and a buyer. Imported steel competes with European steel, so changes in its cost and competitiveness can affect market negotiations and prices for EU products.
MEPS does not add a calculated carbon cost to its assessments or subtract a notional amount for such costs. They may affect the price offered by a producer and, in turn, the outcome of negotiations and the market price observed by MEPS. But there is no separately calculated component in a MEPS assessment. Since the assessments cover EU-produced steel, CBAM is also not a charge that MEPS adds to its published prices.
Separate carbon surcharges are not the same as a company’s costs of meeting emissions obligations: a surcharge is a commercial means by which a seller may try to recover those expenses. In the market segment assessed by MEPS, separately stated carbon charges have not yet become widespread. They occur in some other commercial arrangements, including annual and longer-term contracts; there is no single industry-wide approach.
There is no universal rule on how a separate surcharge should relate to a price linked to MEPS. A MEPS assessment should not be treated as a price to which a carbon charge must automatically be added. If a supplier applies such a surcharge, the buyer should ask:
- which carbon costs or obligations it covers;
- how the amount is calculated and whether it can change over time;
- how the surcharge relates to the portion of the price linked to MEPS.
The supplier should explain the basis for the surcharge and how it fits into the overall pricing structure. Whether a separate charge applies depends on the specific terms of the deal between the seller and the buyer. MEPS explains what its published assessment means, but the assessment alone cannot determine whether a surcharge should apply in an individual transaction.
Users of MEPS prices should bear in mind that these are assessments of market value, not calculations of steel production costs. Carbon costs may affect the observed price, but MEPS does not identify them as a separate component. When using an assessment as a market benchmark or contractual index, the parties should understand what it reflects and how separately stated charges are treated under the agreement.
