The EU's carbon border adjustment mechanism (CBAM) entered its transitional phase in October last year ahead of its full implementation in January 2026, and is swiftly revealing itself to be a hugely burdensome obligation for European aluminium importers that will further increase costs at a time when supply issues are rising.
The CBAM was established in May last year and marked the first time that a climate change measure had been inserted into international trade law. It requires companies that import certain materials into the EU to purchase certificates to cover the difference between any carbon prices paid in the country of origin and the carbon price in the EU as determined under the emissions trading scheme legislation that the CBAM will ultimately replace.
But a number of issues have arisen for aluminium importers that could render compliance with the CBAM's reporting requirements impossible for certain sources of aluminium metal. Many of those issues stem from the fact that while the information demanded by the CBAM regarding the carbon footprint of international suppliers is a legal requirement, there is no law in those international jurisdictions to provide that information.
While aluminium producers may be incentivised to provide said information in order to maintain sales into Europe, some producers will simply not be able to provide adequate information on their carbon footprint, as they use green power sources but the amount of green power in their energy mix is variable and cannot be accurately determined. It also becomes far more difficult for importers that are not buying directly from producers but instead through a merchant intermediary.
Import sources will need to register in their own countries with a national competent authority, but these will vary between regions and cause further problems for importers in multiple jurisdictions. Many sources will also simply be reluctant to share so much data publicly.
In cases where the carbon footprint cannot be accurately determined, a default fee will be applied to imports under the CBAM's regulations that will increases costs for importers unless the reporting requirements can be met.
Many importers will need to find alternative sources that can provide the necessary information over the next two years, ahead of the January 2026 CBAM implementation date, as they are forced to stop working with suppliers whose carbon footprint is too big or those that cannot or fail to report their emissions.
"A lot of importers are complaining that systems are not ready to provide the right information," one analyst said. "For importers having to report their carbon footprint there is a realisation of the costs involved and many will need to change sources. They will do so this year and next."
This will undoubtedly lead to a rush for greener aluminium sources that will increase premiums, which will be exacerbated by supply issues being felt already in 2024. A significant source of green aluminium in Europe would have been sourced from Russia if not for much of the region self-sanctioning against Russian metal because of the war in Ukraine, while greener gas-powered aluminium from the Middle East is also becoming more expensive owing to the Red Sea crisis.
But despite the issues arising for aluminium importers over the CBAM legislation, the EU is unlikely to relent with its implementation or its requirements, given the importance of such legislation to its decarbonisation targets.
"The EU should continue to lead by example and provide a wide-ranging contribution to achieving the Paris Agreement goals and broaden and deepen its international partnerships," it said in a communication to the European Parliament on 6 February. "It should deploy an active global carbon pricing diplomacy in synergy with other EU climate policy instruments such as CBAM," it said.
