A Heavyweight in Emissions
Most of today’s steel is produced using the blast furnace–basic oxygen furnace (BF-BOF) method, a process that relies heavily on coking coal. This route emits roughly 2 tonnes of CO₂ per tonne of steel, making it one of the most carbon-intensive industrial processes in the world. Despite incremental improvements, the steel industry remains the largest industrial consumer of coal, contributing significantly to climate change and environmental degradation.
Yet the steel sector is also poised for transformation. It has committed to reaching net-zero emissions by 2050, and technologies capable of decarbonizing steel production already exist. What’s holding them back? In a word: cost.
The Technology Exists—But It’s Expensive
Today, greener alternatives such as Electric Arc Furnaces (EAF) and Hydrogen-based Direct Reduced Iron (H₂-DRI) offer substantial emission reductions. EAFs, which use recycled steel scrap and electricity, emit up to 80% less CO₂ than traditional methods. H₂-DRI, when powered by renewable hydrogen, can cut emissions by up to 90%.
But these technologies are still costly. Producing steel via H₂-DRI is currently 30–40% more expensive than conventional methods, primarily due to high energy input costs and infrastructure needs. Moreover, scrap availability limits EAF adoption in some regions. Despite these barriers, studies suggest these green technologies could become economically viable by the early 2030s — if the right market signals and policy incentives are in place.
CBAM: A Game-Changer for Decarbonization
This is where the EU’s Carbon Border Adjustment Mechanism (CBAM) enters the picture. Designed to level the playing field between domestic producers subject to the EU Emissions Trading System (ETS) and foreign companies in jurisdictions with weaker climate regulations, CBAM places a carbon price on imported goods like steel, aluminum, and cement based on their embedded emissions.
By raising the cost of carbon-intensive steel imports, CBAM shifts the financial calculus. Suddenly, low-emission production methods no longer look like costly burdens, but strategic investments. For example, projections show that with CBAM in effect and carbon prices steadily increasing, the break-even point for green steel in India could be reached as early as 2029, accelerating the adoption of cleaner technologies by years.
Moreover, CBAM mitigates the risk of carbon leakage—the relocation of emissions-intensive production to countries with laxer climate laws. Instead of avoiding climate regulations, manufacturers will be incentivized to modernize their processes, invest in green hydrogen, and reduce dependency on coal-based blast furnaces.
Why CBAM’s Emissions Calculation Approach Matters
A very important — and sometimes overlooked — aspect of CBAM’s impact on global decarbonization lies in how emissions are calculated and reported. Under CBAM, emissions are typically averaged across an entire production installation rather than tied to individual product routes. This distinction matters greatly.
Why? Because many steel producers operate mixed installations — some furnaces produce green, low-carbon steel (e.g., via Electric Arc Furnaces), while others at the same site still use highly carbon-intensive blast furnaces. Without averaging, companies could engage in “resource shuffling”: sending only their green steel to Europe while continuing to supply the rest of the world with high-emission steel. Such a strategy would undermine the global decarbonization effect CBAM intends to trigger.
Averaging emissions across all production routes within an installation discourages this practice. It ensures that producers reduce emissions across the board rather than selectively greening products destined for Europe. This approach is essential to prevent “cosmetic decarbonization” and to ensure that CBAM drives real, global emissions reductions — not just cleaner exports to the EU.
By requiring installation-level average emissions (unless precise, verifiable product-specific data is provided), CBAM keeps the focus on full-site decarbonization — pushing producers worldwide to modernize their entire production capacity, not just the part exposed to European markets.
Looking Ahead
The EU CBAM is more than a trade instrument — it’s a catalyst for global industrial decarbonization. As countries like India, China, and Brazil reassess their competitive position under this new regime, the pressure to adopt low-carbon steel production methods will intensify. This could drive significant investment into green infrastructure, accelerate cost reductions for key technologies, and push the steel industry closer to net-zero alignment.
Sources :
- World Steel Association (2024)
- Martin, L. (2024)
- Deloitte (2024)
- Agora Industry et al. (2024)
- IEA (2020, 2024)
- Rübbelke et al. (2022, 2024)
- Kashyap et al. (2024)
- GMK Center (2024)