Sectoral impact and strategy

Overview of CBAM impact

CBAM affects each sector differently depending on three key variables:

1. Carbon intensity of the product (tCO2/t) -- the higher it is, the greater the cost
2. Product price (EUR/t) -- a CBAM surcharge of EUR 100/t has a proportionally lower impact on a product worth EUR 3,000/t than one worth EUR 200/t
3. Sourcing mix (share of non-EU imports) -- a company sourcing exclusively within the EU is not affected by CBAM

Understanding these variables is essential for assessing exposure and prioritising strategic actions.

Impact as a proportion of product price

Assumption: CBAM certificate price EUR 80/tCO2, CBAM factor 2030 at ~50%. Calculations assume no third-country carbon price deductions.

The table reveals a critical insight: the sectors with the lowest unit value face the highest relative impact. Cement importers are disproportionately exposed despite cement having lower absolute emissions per tonne than aluminium or hydrogen.

Sector-by-sector analysis

Steel and steelmaking

Steel is the most important sector by import volume under CBAM in the EU. The EU imported approximately 30 million tonnes of steel products in 2024, making it the largest CBAM exposure sector by volume. The impact varies considerably by production route.

Blast furnace route (BF-BOF):

• Emissions: 1.4-2.2 tCO2/t
• The blast furnace route accounts for approximately 70% of global steel production
• Primary countries of origin: Turkey, China, India, Ukraine, South Korea
• Impact 2030: EUR 56-88/t surcharge
• Turkey is the EU's largest steel supplier (~15 Mt/year) and has no carbon price -- maximum CBAM exposure

Electric arc furnace route (EAF):

• Emissions: 0.3-0.5 tCO2/t (3-5 times less than blast furnace)
• Primarily based on recycled scrap
• Impact 2030: EUR 12-20/t surcharge -- significantly more favourable
• Opportunity: EAF suppliers are structurally competitive under CBAM
• EU domestic EAF share is approximately 43% -- already higher than the global average

Emerging route -- Hydrogen Direct Reduction (H-DRI):

• Emissions: 0.1-0.5 tCO2/t (using green hydrogen)
• Currently at pilot/commercial scale (HYBRIT/SSAB in Sweden, Salzgitter in Germany)
• Expected to reach meaningful production volumes by 2028-2030
• Represents the decarbonisation pathway for the blast furnace route

Steel strategies:

• Negotiate with suppliers for actual emissions data (often significantly lower than default values)
• Prioritise EAF suppliers (emissions 3-5 times lower than blast furnace)
• Diversify sourcing toward countries with carbon pricing (United Kingdom, South Korea)
• Anticipate the shift to green hydrogen in steelmaking (H-DRI), which dramatically reduces emissions
• Monitor product-level exposure: long products (beams, rebar) typically have different emissions profiles from flat products (coils, sheets)

Aluminium

Primary aluminium is the sector most impacted in absolute value per tonne due to the extreme energy intensity of the electrolysis process (Hall-Heroult process).

Key variables:

• The source of electricity used for electrolysis is decisive: a smelter powered by hydroelectricity (Norway, Iceland, Quebec) has emissions 10 times lower than a coal-powered smelter (China, India)
• Indirect emissions are not yet covered for aluminium under CBAM (direct emissions only), which moderates the short-term impact
• When indirect emissions are eventually included, the CBAM cost for aluminium from coal-powered smelters could increase dramatically -- potentially adding EUR 500-1,000/t at 2034 rates

Emissions comparison by electricity source:

Note: direct emissions from aluminium smelting (primarily anode effects and anode consumption) are relatively consistent regardless of electricity source. The enormous variation comes from indirect emissions.

Key import flows: China (~60% of global production, predominantly coal-powered), Russia (pre-sanctions, hydro-powered), India (coal-dominated grid), UAE and Bahrain (gas-powered), Norway and Iceland (hydro-powered, non-EU but linked ETS).

Aluminium strategies:

• Use actual emissions data if the supplier uses low-carbon electricity -- the gap with default values is enormous and represents the largest potential saving among all CBAM sectors
• Prioritise recycled aluminium (emissions approximately 95% lower than primary aluminium -- 0.3-0.5 tCO2/t vs 8-18 tCO2/t)
• Monitor the regulatory evolution: indirect emissions coverage for aluminium may be added following the Article 30 review
• For long-term contracts, model the full 2034 scenario including potential indirect emissions coverage

Cement

Cement is the sector where the relative impact is potentially the strongest, as the product has a low unit value and high emissions relative to its price.

Key characteristics:

• Process emissions (limestone calcination) represent approximately 60% of total emissions -- they are inherent to the chemistry and cannot be reduced without fundamentally changing the product
• Indirect emissions (electricity for grinding) are already covered for cement under CBAM
• Cement travels poorly (high transport cost relative to value) -- CBAM imports are concentrated in border regions (Turkey, Western Balkans, North Africa)
• EU cement production is approximately 170 Mt/year, with imports representing about 5-8% of consumption

Cement emission breakdown:

• Calcination (process): ~0.52 tCO2/t clinker (irreducible at current technology)
• Fuel combustion (kiln heating): ~0.25 tCO2/t clinker (can be reduced with fuel switching)
• Electricity (grinding, handling): ~0.05-0.10 tCO2/t cement (can be reduced with renewable sourcing)

Impact trajectory:

At 68% of product price by 2034, CBAM fundamentally changes the economics of cement imports. This is the highest proportional impact of any CBAM sector.

Cement strategies:

• The impact is the most severe in proportion to product price (up to 68% at 2034 rates)
• Low-carbon cement substitutes (LC3 -- limestone calcined clay cement, geopolymer cements, blended cements) become competitive under CBAM
• Importers should anticipate a restructuring of sourcing flows toward low-emission producers
• CCS (carbon capture and storage) at cement plants, while expensive, may become economically justified as CBAM costs rise

Fertilisers

Nitrogen fertilisers (ammonia, urea, ammonium nitrate) are heavily affected because ammonia production through steam methane reforming is inherently carbon-intensive.

Key import flows: Russia, Trinidad and Tobago, Algeria, Egypt, United States, Saudi Arabia.

Key characteristics:

• Indirect emissions are covered for fertilisers under CBAM
• "Green ammonia" (produced by water electrolysis with renewable electricity) has near-zero emissions -- a major competitive advantage under CBAM
• Fertiliser prices are volatile and strongly correlated with natural gas prices
• The EU imports approximately 20% of its nitrogen fertiliser consumption

Impact assessment:

Assumptions: EUR 80/tCO2 certificate price; CBAM factor 48.5% (2030), 100% (2034).

Fertiliser strategies:

• Monitor the emergence of green ammonia and low-carbon sourcing partnerships
• Producers with access to cheap natural gas AND no carbon price (e.g. Trinidad and Tobago, Algeria) see their competitive advantage eroded by CBAM
• Blue ammonia (with CCS) offers a transitional pathway with significantly reduced emissions
• Long-term contracts should incorporate CBAM escalation clauses tied to the free allowance phase-out schedule

Hydrogen

Hydrogen is a strategic sector in rapid growth. CBAM anticipates the future carbon leakage risk as hydrogen trade volumes increase.

Emissions by production method:

Assumptions: EUR 80/tCO2, 48.5% CBAM factor (2030).

The 10-20x emissions differential between grey and green/pink hydrogen makes the production method the dominant factor in CBAM cost. This provides a powerful economic incentive for the transition to low-carbon hydrogen.

Hydrogen strategies:

• Green and pink hydrogen have a major competitive advantage under CBAM
• Long-term supply contracts must incorporate the CBAM trajectory (2.5% in 2026, 100% in 2034)
• Cross-reference with EU hydrogen strategy targets (10 Mt domestic + 10 Mt imported renewable hydrogen by 2030)
• Verification of emissions data is particularly important for hydrogen due to the enormous cost spread between production methods

Strategic action plan

Short term (2026-2027)

1. CBAM exposure audit: map all imported products covered, volumes, origins, suppliers, and current emissions profiles
2. Registration: obtain authorised CBAM declarant status (chapter 3) -- immediate requirement
3. Data collection: launch actual emissions data collection from suppliers (chapter 4) -- even partial data is better than full reliance on default values
4. Budget: integrate CBAM cost into financial forecasts (limited impact in 2026-2027 thanks to the 2.5-5% factor, but establishes the baseline)
5. Internal governance: designate a CBAM compliance officer and establish reporting processes

Medium term (2028-2030)

1. Diversification: evaluate alternative suppliers in countries with high carbon prices or with low-carbon technologies
2. Contractualisation: include CBAM clauses in purchase agreements (obligation to provide actual emissions data, cost-sharing mechanisms, escalation clauses tied to the CBAM factor trajectory)
3. Investment analysis: evaluate partial relocation of sourcing or investment in low-carbon production technologies
4. Carbon price deductions: systematically document and claim all eligible third-country carbon price deductions
5. Scenario planning: model CBAM costs at 2030 and 2034 rates for each supply chain

Long term (2030-2034)

1. Supply chain transformation: the 100% CBAM factor by 2034 demands a deep transformation of carbon-intensive supply chains
2. Innovation partnerships: prioritise suppliers investing in decarbonisation (green steel, low-carbon aluminium, green ammonia, CCS-equipped cement plants)
3. Regulatory monitoring: track CBAM evolution (extension to new sectors, new deductions, reciprocity mechanisms, Article 30 review outcomes)
4. Competitive positioning: companies that proactively adapt will gain a structural advantage as late movers face full CBAM costs without preparation

CBAM extension review (Article 30)

Article 30 mandates a comprehensive review before 1 January 2028, covering:

• Sectoral extension: organic chemicals, polymers, refined petroleum products, glass, ceramics, and other carbon-intensive sectors
• Downstream products: goods manufactured from CBAM materials (e.g. automotive parts containing steel, building materials containing cement)
• Indirect emissions: potential extension of indirect emissions coverage to iron/steel and aluminium
• Export rebates: assessment of whether EU exporters should receive CBAM-related relief
• Environmental effectiveness: measurement of actual carbon leakage prevention

The extension to downstream products is particularly significant: it would close the "carbon leakage via processed goods" loophole, where third-country manufacturers could import raw CBAM materials, process them into finished goods, and export those to the EU without CBAM coverage.

Professionals in the covered sectors should monitor the Article 30 review closely, as it will shape the CBAM landscape for the next decade.