EU CBAM: Impacts on China’s Steel And Aluminium Exports

Introduction

The EU Carbon Border Adjustment Mechanism (CBAM) is a landmark climate trade policy designed to prevent carbon leakage and ensure imported carbon-intensive goods bear equivalent carbon costs as EU domestic producers under the EU Emissions Trading System (EU ETS). Starting from 2023, CBAM ran a transitional reporting-only phase; from 1 January 2026, it entered its definitive regime with financial obligations phased in until full implementation in 2034. Among the six covered product categories, steel and aluminium are the two most affected segments for Chinese exporters.

China is the world’s largest producer and exporter of steel and aluminium. A portion of these metal products flows to EU markets. CBAM fundamentally changes competition rules: trade competitiveness no longer depends only on traditional production costs, but also on verified product-level embedded carbon emissions. This article analyses CBAM’s practical impacts on China’s steel and aluminium export sectors, compares sector-specific pressures, and outlines feasible strategies for Chinese metal exporters.

Overview of CBAM Rules and Implementation Timeline

Core Mechanism of CBAM

CBAM requires EU importers to surrender CBAM certificates matching the embedded carbon emissions contained in imported steel and aluminium. The certificate price is linked to EU ETS carbon prices. If non-EU producers can provide verified actual emissions data, this real figure is used for calculation. Without valid third-party verified carbon data, EU authorities apply conservative default emission values, which usually result in higher carbon cost liabilities.

Phase-In Schedule

• 2023–2025 (Transitional Phase): Mandatory quarterly reporting of embedded emissions, no payment required. Enterprises collected carbon footprint data and built internal accounting systems.

• 2026–2033 (Definitive Phase): Financial obligations rise year by year, while EU domestic free ETS allowances are gradually withdrawn.

• 2034 onwards: 100% embedded emissions subject to CBAM charges; free allocation for EU steel and aluminium producers fully eliminated.

Differentiated Impacts on China’s Steel and Aluminium Exports

Steel Sector: Higher Carbon Intensity and Margin Pressure

Most Chinese steel relies on the blast furnace-basic oxygen furnace (BF-BOF) route with high embedded emissions. Without verified site-level data, EU default emission factors apply, pushing up CBAM certificate costs sharply.

The main impacts include:

1. Higher landed cost for EU buyers: Extra carbon fees squeeze profit margins. Part of the cost may be passed to EU customers, weakening price competitiveness against low-carbon steel suppliers.

2. Compliance burden: Steel exporters must establish factory-level carbon monitoring, data collection and third-party verification systems. Small and medium steel mills face heavier fixed compliance costs.

3. Product structure adjustment: Low-carbon steel made via DRI or scrap-based routes gains advantages under CBAM, while conventional hot metal-based steel faces growing barriers.

China’s steel exports to the EU are not massive in total export volume, but CBAM reshapes long-term market access. Buyers increasingly request carbon footprint declarations before placing orders.

Aluminium Sector: Power-Driven Emission Risks

Aluminium smelting is extremely electricity-intensive. Its carbon footprint largely depends on the power mix used for electrolysis. Aluminium’s embedded emissions vary widely between hydropower-based low-carbon capacity and coal-power-based smelters.

Key impacts:

1. Large emission gap: Coal-powered aluminium carries very high embedded CO₂, leading to heavy CBAM charges. Aluminium produced with renewable power enjoys much lower CBAM liability.

2. Supply chain traceability pressure: Carbon accounting must track emissions from alumina, anode materials and electricity upstream. Full carbon traceability across the whole aluminium value chain is complex.

3. Contract restructuring: EU importers now add CBAM cost clauses in sales contracts, sharing or shifting carbon expenses back to Chinese aluminium suppliers.

Compared with steel, aluminium has a wider carbon intensity range. Green aluminium producers can turn CBAM into a competitive selling point in the EU market.

Common Challenges Faced by Chinese Steel & Aluminium Exporters

Compliance and Verification Costs

The biggest non-production cost comes from carbon inventory, data validation and accredited EU third-party audits. Many traditional metal factories lack standardized carbon accounting systems. Collecting reliable emissions data across tier 1, tier 2 raw material suppliers creates extra management workload. Smaller exporters may exit the EU market if compliance costs cannot be recovered.

Default Emission Value Penalty

Using EU default values instead of verified actual emissions usually results in overstated embedded emissions. This creates an artificial carbon cost premium for exporters that fail to complete carbon verification. This is one of the most immediate risks for Chinese metal companies new to CBAM reporting.

Market Diversification Pressure

To avoid EU carbon tariffs, many Chinese steel and aluminium firms are accelerating market diversification toward Southeast Asia, the Middle East and Latin America. The EU share of China’s metal exports may gradually decline, while low-carbon product lines target premium European green supply chains.

Opportunities Created by CBAM

CBAM is not only a trade barrier but also a catalyst for industrial decarbonisation.

1. Low-carbon product premium: Green steel and low-carbon aluminium can differentiate themselves in EU procurement, especially for construction, automotive and renewable energy hardware buyers.

2. Improved carbon management: CBAM pushes Chinese metal enterprises to build carbon accounting capability, which also supports China’s domestic carbon market and ESG requirements.

3. Supply chain upgrade: Demand for scrap steel and recycled aluminium will rise, promoting circular economy transformation in China’s metal industry.

Recommended Strategies for Chinese Steel and Aluminium Exporters

Establish Factory Carbon Accounting and Verification

Measure actual emissions at installation level, organize third-party verification by EU-recognized verifiers, and avoid punitive default values. Build carbon data tracking covering raw materials, energy consumption and production processes.

Optimize Product Portfolio

Prioritize developing scrap-based steel and renewable-powered aluminium for EU customers. Separate high-carbon product sales to non-CBAM markets. Clearly mark low-carbon metal grades for EU green procurement.

Negotiate CBAM Terms in Commercial Contracts

Add CBAM cost allocation clauses in sales contracts, define who bears certificate fees, verification expenses and adjustment risks caused by fluctuating EU ETS carbon prices.

Balance Market Layout

Maintain EU market access for premium low-carbon metal products while expanding non-EU markets to reduce concentration risk.

Conclusion

EU CBAM brings structural changes to China’s steel and aluminium trade with Europe. Short-term impacts are mainly extra compliance costs and compressed profit margins, especially for high-carbon BF-BOF steel and coal-based aluminium. In the long run, CBAM accelerates global trade competition shifting from pure price competition to carbon-footprint competition.

Chinese metal exporters can mitigate risks through carbon verification, low-carbon technology upgrading and market diversification. Companies that build robust carbon data systems and launch green metal products will retain stable EU market access and capture new green trade opportunities.