CBAM and steel: what manufacturers exporting to the EU need to prepare for
Steel is the largest sector in scope under the Carbon Border Adjustment Mechanism by volume of affected trade. This guide explains what the CBAM definitive phase requires from steel manufacturers exporting to the EU, how embedded carbon is calculated for steel, and what the default values mean for your commercial relationship with EU buyers.
This article is for informational purposes only and does not constitute legal advice. Consult a qualified legal professional for advice specific to your situation.
Why steel is the central CBAM sector
The Carbon Border Adjustment Mechanism (Regulation (EU) 2023/956) applies to six sectors: cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen. Iron and steel is the largest of these by volume of trade affected. It is also the sector where the carbon intensity of production varies most significantly between producers, which makes the gap between default values and actual values (and therefore the financial incentive to demonstrate actual performance) larger than in most other covered sectors.
For a steel manufacturer exporting to the EU, CBAM is not a future planning item. The definitive phase began on 1 January 2026. EU importers of steel are now required to hold CBAM certificates and surrender them against the embedded carbon in their imports. If your EU customers cannot get verified emissions data from you, they are falling back on default values and paying more than they would need to. That cost sits in your commercial relationship.
This article covers what the CBAM steel scope actually includes, how embedded carbon is calculated for steel products, what the default values look like and why they matter, and what a steel manufacturer needs to do now.
For a general introduction to how CBAM works, including the transitional period, the certificate mechanism, and the broader regulatory context, see CBAM explained: what the carbon border adjustment mechanism means for exporters.
What steel products are in scope
Scope under CBAM is determined by CN (Combined Nomenclature) codes listed in Annex I of Regulation (EU) 2023/956. The iron and steel chapter covers a wide range of products, and the breadth of the coverage is one of the first things steel exporters need to verify carefully.
In scope products include iron and non-alloy steel in primary forms (ingots, billets, blooms, slabs), flat-rolled products (hot-rolled and cold-rolled coil, plate, sheet, strip), bars and rods (including reinforcing bar and wire rod), sections (angles, shapes, and profiles), wire, tubes, pipes and hollow profiles, and a range of downstream products including certain fasteners, chains, and structural components.
Stainless steel, tool steel, and alloy steel fall within scope under specific CN codes. Not all steel products are covered. The key step is checking the CN code of each product line you export against the Annex I list.
Several products that contain steel as an input but are not themselves primary or semi-finished steel may fall outside scope. A manufactured component that is classified under a different chapter of the Combined Nomenclature may not be covered, even if steel is its primary material content. The determination turns on the CN code, not on the material composition of the product in isolation.
If you export multiple product lines to the EU, each line needs to be checked separately. Some of your products may be in scope while others are not.
How embedded carbon is calculated for steel
The methodology for calculating embedded carbon in steel is more complex than in most other CBAM sectors, because steel production involves multiple process routes with significantly different carbon profiles.
The two primary routes are the integrated blast furnace and basic oxygen furnace route (BF-BOF) and the electric arc furnace route (EAF). These have fundamentally different inputs and therefore fundamentally different carbon footprints.
The integrated route
The BF-BOF route starts with iron ore and coking coal. Iron ore is reduced in the blast furnace using coke as both a fuel and a reducing agent. The process produces pig iron, which is then converted to steel in the basic oxygen furnace. The blast furnace is the most carbon-intensive part of the process: it generates large volumes of CO2 from the combustion of coke and from the chemical reduction of iron oxide. A typical BF-BOF installation producing a tonne of crude steel generates somewhere between 1.8 and 2.2 tonnes of CO2 equivalent, depending on the efficiency of the installation, the quality of the iron ore, and the carbon intensity of any electricity consumed.
The electric arc furnace route
The EAF route melts scrap steel using electricity. Its carbon profile depends almost entirely on the carbon intensity of the electricity supply. An EAF powered by low-carbon electricity, or by a grid with a high renewable share, can produce steel with a dramatically lower embedded carbon than the integrated route. An EAF powered by a coal-heavy grid may have a higher embedded carbon than a modern integrated mill. The EAF route typically produces between 0.4 and 0.8 tonnes of CO2 equivalent per tonne of crude steel on a grid with a reasonable renewable share, but this figure can be higher where the grid carbon intensity is high.
Direct reduced iron
Some producers use direct reduced iron (DRI) as a feedstock in the EAF, bypassing the blast furnace entirely. DRI can be produced using natural gas or, increasingly, using hydrogen. Natural gas-based DRI has a lower carbon intensity than the BF-BOF route but higher than scrap-based EAF. Hydrogen-based DRI, where green hydrogen is used as the reducing agent, has a near-zero direct emissions profile and represents the low-carbon frontier of primary steel production.
What goes into the calculation
Under the CBAM implementing regulation, embedded carbon for steel products must account for direct emissions from the production process and indirect emissions from the electricity consumed in production. For integrated steelmakers, the blast furnace emissions, the coke oven emissions, and the oxygen furnace emissions all count as direct emissions. For EAF producers, the electricity consumption and the grid carbon intensity are the dominant variables.
Where steel passes through multiple processing stages (rolling mills, heat treatment, coating lines), the energy consumed at each stage contributes to the total embedded carbon. A hot-rolled coil has a different embedded carbon figure to the cold-rolled sheet or the galvanised product made from it, because each subsequent processing step adds energy consumption and associated emissions.
The calculation also needs to account for any scrap used in the production process. Scrap is a recycled input. The CBAM methodology treats the embedded carbon of scrap as zero at the point it enters the steelmaking process, which significantly reduces the calculated embedded carbon of high-scrap-rate production. This is one reason why EAF producers using high-quality scrap tend to have a material advantage under CBAM compared with integrated producers.
Default values and what they mean for steel exporters
When an EU importer cannot obtain verified actual embedded carbon data from their steel supplier, they must use default values published by the Commission. Default values are set by product category and country of origin. They are based on average production data and are deliberately set conservatively to avoid incentivising importers to use default values instead of actual data.
For steel, the practical consequence of defaulting is significant. A typical default value for hot-rolled coil from a major steel-exporting country reflects an assumption about average carbon intensity in that country’s steel sector. Where average carbon intensity is high, as is the case in countries with a high proportion of BF-BOF production powered by coal-heavy grids, the default value may not be dramatically different from a producer’s actual figure. But where a producer has invested in efficiency improvements, uses DRI, operates a high-scrap EAF, or benefits from lower-carbon electricity, their actual embedded carbon will be considerably lower than the default. The importer using default values pays for that difference in CBAM certificates.
The gap between actual and default values for steel can be substantial. For an EAF producer on a relatively low-carbon grid, the actual embedded carbon figure may be 40 to 60 percent lower than the country-level default, depending on the production route and the specific default value applied. At current EU ETS prices, that gap translates directly into certificate cost savings per tonne of steel imported, savings that sit with the EU importer but that create direct pressure on the exporter to supply the data or accept that the EU importer’s costs are higher than they need to be.
What verification requires
The only way for an EU importer to use actual embedded carbon values instead of default values is if those values have been verified by an accredited verifier. Verification is not a legal obligation on the steel exporter. It is a commercial prerequisite for the data you provide to be usable by your EU customer.
An accredited verifier reviews the methodology used to calculate embedded carbon, the data collection and measurement systems that underpin it, and the accuracy of the calculations. Verifiers are accredited under standards recognised in the CBAM implementing regulations. The output of a verification exercise is a verification statement that the EU importer can attach to their CBAM declaration to justify using actual rather than default values.
For a steel manufacturer, the verification process requires having systematic measurement of energy inputs at each stage of production, records of the carbon intensity of electricity consumed (either from the grid operator or from own generation), documentation of process emissions methodology, and records of the scrap ratio and other input variables that affect the calculation. Installing the systems and processes to generate and retain this data reliably is the substantive preparatory task for most producers who have not previously engaged with carbon accounting at this level of granularity.
The commercial relationship with your EU buyer
CBAM creates a direct financial link between the carbon intensity of your steel production and the cost of importing your product into the EU. That link runs through your EU customer: they hold the CBAM obligation, but the size of that obligation is determined by what you produce and what you can document.
An EU steel importer whose supplier cannot provide verified actual emissions data faces a higher certificate cost than one whose supplier can. Over time, that cost differential compounds: as EU ETS prices rise, as the CBAM certificate price tracks them, and as importers become better at managing their CBAM exposure, suppliers who cannot provide adequate data become more expensive to work with relative to suppliers who can.
The practical starting point is a direct conversation with your EU customers about what they currently need from you for their CBAM declarations, and what data they are using in the absence of verified actual figures. If they are using default values, the gap between those defaults and your actual carbon intensity is a figure worth knowing. It represents the excess cost your importer is currently paying, and it is a concrete basis for the conversation about investing in measurement and verification.
Deductions for carbon prices already paid
If your production process is already subject to a domestic carbon price, whether through a national emissions trading system, a carbon tax, or a sectoral levy, the carbon price paid can be deducted from your EU importer’s CBAM certificate obligation. This is the CBAM deduction mechanism, which is designed to prevent double-counting of the same emissions in two separate carbon pricing regimes.
The deduction applies only to the carbon price actually paid, not to the theoretical exposure. It requires documentation of the mechanism, the price paid per tonne of CO2, and the calculation of how it applies to the specific goods imported. If your country has a carbon pricing mechanism that applies to your steel production, this is worth examining closely: it may reduce your EU customer’s net CBAM cost meaningfully, and it should be factored into the data you provide.
Practical steps for steel manufacturers
Confirm which of your product lines are in scope. Check each CN code you export to the EU against Annex I of Regulation (EU) 2023/956. Some of your products may be in scope while others are not.
Establish your production route profile. Document whether your production is BF-BOF, EAF, DRI-EAF, or a combination, and identify the scrap ratio and electricity source at each stage. These are the primary determinants of your embedded carbon.
Calculate your actual embedded carbon. Use the CBAM methodology for each product category you export. This is a one-time exercise to establish the methodology and a recurring exercise to update it as production conditions change.
Engage an accredited verifier. Before your EU customers can use your actual figures in their CBAM declarations, those figures need to be verified. Identify an accredited verifier and understand what they will require from you in terms of data, documentation, and site access.
Talk to your EU customers now. Find out what data they currently have, what they are using for their declarations, and what they need from you to use actual rather than default values. If they have already filed a declaration using default values, they have a concrete figure to compare against your actual performance.
Check whether a domestic carbon price deduction applies. If you are operating in a country with a carbon pricing mechanism, assess whether and how it applies to your production, and document the calculation for your EU importer.
Key dates
- 1 January 2026: Definitive phase in force. Certificate obligations apply. Only authorised CBAM declarants may import covered goods.
- 31 May 2026: First annual CBAM declaration due under the definitive phase rules, covering 2025 transitional-period data.
- 31 May 2027: First annual declaration covering a full definitive-phase year (2026 imports).
Frequently asked questions
Does CBAM apply to all steel products?
No. Scope is determined by CN codes listed in Annex I of Regulation (EU) 2023/956. A wide range of iron and steel products are covered, including primary forms, flat-rolled products, bars, rods, sections, wire, tubes, and pipes, plus certain downstream products. Not all steel-containing products are within scope. The CN code of each product line you export determines whether it is covered.
Does the production route affect how much CBAM costs my EU customer?
Yes, significantly. BF-BOF production is typically higher in embedded carbon than EAF production, particularly where the EAF is powered by low-carbon electricity or uses a high proportion of scrap. Higher embedded carbon means more CBAM certificates for the EU importer to purchase. If your production route is lower-carbon than the country average reflected in the default values, demonstrating that through verified actual figures reduces your EU customer’s costs.
Can my EU customer use my emissions data without verification?
No. For an EU importer to use actual embedded carbon values in their CBAM declaration rather than default values, those actual values must be verified by an accredited verifier. Unverified data provided by the exporter cannot be used for this purpose.
What if I have already been measured and verified under another scheme?
Emissions data generated under other schemes (such as ISO 14064, the GHG Protocol, or national ETS reporting requirements) may provide a useful starting point, but the CBAM methodology has specific requirements that may not be fully aligned with other frameworks. An accredited CBAM verifier will assess whether your existing data and methodology meets the CBAM implementing regulation requirements.
Does the de minimis exemption apply to steel?
The 50-tonne per importer per year exemption introduced by Regulation (EU) 2025/2083 applies to all CBAM-covered goods, including steel. EU importers whose imports from a given supplier fall below 50 tonnes per year may be exempt from certificate obligations for those imports. For most commercial steel supply relationships, the volumes involved will exceed this threshold.
Verdandi tracks CBAM alongside CSRD, CSDDD, EUDR and the rest of the EU sustainability framework, so you are working from current requirements as certificate prices move and sector scope expands. Start for free.
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