� ECONOMICS �
Tightening carbon prices in the EU
Carbon prices are not new in steel-making. Since 2005, EU mills fall under the ETS and need an emissions allowance for each tonne of CO2 they emit. Not to give them a disadvantage in global markets, most of these allowances are handed out for free. Only if emissions are above productionspecific benchmarks, additional allowances need to be purchased.
To strengthen the incentives for the ambitious emission cuts needed, the EU decided to phaseout free emission allowances – from 2026 to 2034 when all emissions are fully priced. At today’ s ETS-prices of EUR 74 per ton of CO2, carbon costs of EUR 67 in 2030 and EUR 131 per tonne of BF-BOF steel are added to the bill of an average EU steel mill.
As these increased costs bring the risk of carbon leakage from
production relocations to places without carbon pricing, the EU is introducing the Carbon Border Adjustment Mechanism( CBAM). The world’ s first carbon price on imports will level the playing field for overseas steel on EU markets. It will be charged the same carbon price as homemade steel.
Whereas the treatment of EU exports is still unresolved, CBAM certificates need to be purchased for the emissions embedded in imported steel – starting 2026. The share of emissions to be covered by CBAM certificates is rising each year – equivalent to the phase-out of free allowances in the ETS. In 2034, CBAM certificates are fully phased in.
Over the years, the costs of steel on EU markets will go up. By how much, depends on the difference between the good’ s carbon-intensity and productionspecific benchmarks set by the EU. Taking national-level averages, the CO2 IQ Carbon Cost Simulator reveals some stark differences. Low-carbon steel will gain a cost advantage – greener locations too( Fig 1a).
Ultimately, this cost advantage depends on the price for CBAM certificates. This price will be the same as for emission allowances in the ETS. And these prices face high fluctuations – with rises of 50 % seen within 3 months in 2024. These costs can be mediated through suitable strategies to purchase CBAM certificates and to hedge price fluctuations.
Over time, with supply of emission allowances being tightened, these prices are projected to rise. Pathways vary by projection model and the assumptions made – and will largely depend on the future
Fig 1: Added carbon costs from EU-ETS and CBAM per tonne of crude steel [ EUR / t ]
1a: Over time 2026-2034( x-axis) and by carbon intensity, 1b: Over carbon prices in EUR / tCO2( x-axis) and by BF-BOF carbon intensity in 2026, 2030, 2034
Source: CO2 IQ Carbon Cost Simulator based on ETS and CBAM regulation with national average intensities for direct emissions; for 1a based on yearly averages of projected EU-ETS prices from 6 models
Green Steel World | Issue 17 | April 2025 27