CBAM: Europe’s low-carbon aluminium is threatened by a big loophole
Urgent action is needed to close the CBAM scrap loophole, which undermines Europe’s industrial competitiveness, security and climate objectives.
The EU’s Carbon Border Adjustment Mechanism (CBAM) is a landmark tool designed to extend carbon pricing in Europe to imported products. It is intended to ensure fair competition between EU industries and those in countries with less ambitious climate policies. CBAM is meant to serve as both a climate tool and a mechanism to protect the competitiveness of European industries committed to a sustainable future.
However, the current CBAM rules contain a critical flaw, they fail to account for all carbon emissions of imported aluminium products, thereby undermining the very principles CBAM was designed to uphold. This jeopardizes both Europe’s global climate ambitions and the competitiveness of industries transitioning toward a low-carbon economy.
The issue
Under CBAM’s current methodology, remelted aluminium scrap is allocated zero emissions and therefore zero carbon costs. This gives non-EU producers a significant cost advantage, as they can evade carbon costs under CBAM, while European producers must pay because of the EU Emissions Trading System (EU ETS). In the EU, these costs are embedded in the price of aluminium throughout the value chain, including for scrap, which closely tracks the price of primary aluminium. As a result, European recyclers and manufacturers face a full carbon cost burden, while their international competitors do not.
Aluminium scrap represents a significant share of the global aluminium market. The current exclusion of scrap allows almost 50 percent of all aluminium globally to evade CBAM costs. By 2035, this loophole could result in European recyclers facing more than 10 percent higher input costs compared to their non-EU counterparts, amounting to over EUR 200 per tonne of aluminium. This cost disadvantage mirrors the crisis that hit the aluminium industry during the energy price spike following Russia’s invasion of Ukraine, except that this time, it risks becoming a permanent burden on European industry.
Meanwhile, foreign competitors are able to sell aluminium into Europe at the same price as European producers while paying far lower carbon costs. This enables them to reap large windfall profits at the expense of our own industry.
The loophole could also encourage foreign producers to artificially inflate scrap volumes, overproducing, remelting and exporting aluminium scrap to Europe under misleading "carbon-free" claims.
This undermines CBAM’s purpose and weakens global decarbonization incentives while misleading EU consumers. Leaving such large loopholes open for exploitation also deprives the EU and its Member States of CBAM revenue.
An increasing number of reports, including the European Commission’s own consultancy studies for CBAM secondary legislation and Mario Draghi’s Report on EU Competitiveness, highlight the risks of this loophole. One analysis from Arkwright consultancy warns that up to 35 percent of EU aluminium recycling capacity could be lost if the loophole is not addressed.
Our call to action
We strongly urge the EU institutions to urgently address these shortcomings in CBAM’s methodology to ensure that all scrap based products are included in CBAM and treated as having the same emissions as primary aluminium, by default values. There is still time to make this adjustment before the methodology for calculating embedded emissions is finalized for CBAM’s permanent phase, later this year. The EU institutions have already recognized the need to minimize circumvention and unintended value chain disruptions.
Fixing this loophole will be a step towards ensuring CBAM’s effectiveness in protecting European low-carbon industries, preventing carbon leakage and encourage global decarbonization, by ensuring all producers, inside and outside the EU, face the same carbon pricing incentives.
Questions and Answers: CBAM and aluminium scrap loophole
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