This article was written and published by Reinhardt Arp: Senior Associate, Corporate Sustainability, the Carbon Trust and Theron Moonsamy: Manager, Corporate Sustainability, the Carbon Trust.
The EU has implemented a carbon tax mechanism as part of its efforts to reduce its greenhouse gas emissions by 55% by 2030 from 1990 levels and target emissions from imported goods.
With this tax, the EU is imposing a carbon cost on emissions-intensive goods imported from outside of the EU based on their carbon content. Steel, iron and aluminium imports are among the first commodities subject to the EU’s Carbon Border Adjustment Mechanism (CBAM). These metals are fundamental for the EU’s industries and play a vital role in the energy transition, with most being sourced from mineral-rich countries. In 2023 alone, the EU imported over 37 million metric tonnes of steel from 137 countries.
For now, importers must report the amount of iron, steel, or aluminium they bring into the EU, along with the associated embedded emissions, on a quarterly basis. Starting in 2026, however, a carbon levy will be imposed. With this levy, EU companies will have to purchase ‘CBAM certificates’ in response to the carbon content of these imported metals.
According to the African Climate Foundation, for example, CBAM could reduce exports by 5.7%, resulting in a 0.91% loss in the continent’s GDP. This will be particularly felt by sectors that export the metals that fall under CBAM: aluminium exports across Africa could decrease by 14% while iron and steel could decrease by 8.2%.
Looking beyond exports volume data, some countries’ rely more on the exports of these metals to the EU than others, including:
South Africa: A tenth of South Africa’s exports to the EU will be impacted by CBAM, equivalent to roughly 0.8% of the country’s GDP. Iron, steel and aluminium sectors are particularly vulnerable with ~16% of South Africa’s iron and steel exports and ~25% of aluminium exports at risk. The country’s reliance on coal power also means that the carbon intensity of these metals (0.91 kgCO2e/$ for iron and steel and 0.32 kgCO2e/$ for aluminium) far exceeds the carbon intensity of the EU (0.16 kgCO2e/$ and 0.07 kgCO2e/$ respectively) and other metal-exporting countries.
Mozambique: With nearly 97% of all aluminium exports destined for the EU market and a much larger carbon emissions intensity (0.68 kgCO2e/$ versus the EU average of 0.07 kgCO2e/$), aluminium exports are particularly vulnerable.
Brazil: One of the biggest iron ore producing countries in the world, Brazil’s exports were valued at $30.6 billion in 2023. Of all iron and steel exports, ~12% are set for the EU market with a carbon emissions intensity of 0.37 kgCO2e/$, making Brazil more exposed than other Latin American countries.
Venezuela: In 2023, Venezuela exported €82 million worth of iron and steel to the EU, accounting for roughly 50% of total iron and steel exports. With a carbon emissions intensity of 0.49 kgCO2e/$ of iron and steel export, Venezuela is also highly vulnerable to CBAM.
India: Due to its reliance on coal power, India’s carbon emission intensity of its iron and steel (2 kgCO2e/$) is significantly higher than the EU average, which is one of the lowest in the world (0.16 kgCO2e/$), making the imports from India much more costly under CBAM. As 23% of total iron and steel exports goes to the EU, India faces significant risks from the EU‘s carbon levy.
Although there are risks associated with CBAM, exporters of iron, steel, and aluminium can also find opportunities within it. CBAM is effectively creating the first global marketplace for low carbon metals, giving exporters a chance to differentiate themselves in the market.
Picture: The Carbon Trust