The Impact of the EU CBAM on Global Steel Trade

Implications for U.S. Steel Tariffs

Authors: Ali Hasanbeigi, Cecilia Springer, Pinchookorn Chobthiangtham

One of the key findings of the study is the disruptive potential of the EU’s CBAM, which will change the steel trade flow by imposing a carbon fee on imported steel and other carbon-intensive goods starting in 2026. This mechanism is designed to level the playing field by ensuring that foreign producers are subject to the same carbon pricing as EU-based producers, which are subject to the EU Emissions Trading System (ETS), encouraging global decarbonization efforts. For producers in countries like China and India, where most steel production relies on carbon-intensive blast furnace-basic oxygen furnace (BF-BOF) processes, the EU CBAM will introduce significant cost pressures unless producers invest in low-carbon technologies such as hydrogen (or hydrogen-ready) direct reduced iron (H2-DRI) or electric arc furnaces (EAF) powered by renewable energy. For example, under the medium carbon price scenario in our analysis, the EU CBAM will result in import charges of $72 and $83 per ton of steel in 2030, and $210 and $243 per ton of steel in 2034 for the steel exported from South Korea and India to the EU, respectively. This study examines three carbon pricing scenarios, referred to herein as low, medium, and high carbon price scenarios.

Our analysis projects significant reductions in steel imports from current suppliers to the EU by 2034 under the EU CBAM framework. Under the medium CBAM certificate (carbon) price scenario in our analysis ($54 per ton CO2 in 2030 and $147 per ton CO2 in 2034) and elasticity of -1:0, the expected cumulative reduction in EU’s steel imports from 2023 import level from current steel suppliers is approximately 24% by 2034, translating to a reduction of around 9,500 kilotons (kt) steel. Under the high carbon price scenario and elasticity of -1:0, the reduction in 2034 compared to the 2023 level increases to 30% of total steel imports, or around 11,900 kt of steel. The low carbon price scenario, on the other hand, shows a more moderate reduction of 8,100 kt of steel, or about 20% of total steel imports (Figure 1). These reductions reflect the financial burden imposed by the EU CBAM on exporters with higher carbon intensity, particularly those using BF-BOF methods for steel production.

We also estimated the revenue generated as a result of the EU CBAM, which would be paid by the companies importing products into the EU. (See the methodology section for revenue calculation). Our analysis forecasts that, under the medium carbon price scenario and elasticity of -1:0, EU CBAM revenue will exceed 4,100 million $/year in 2034. The high carbon price scenario is expected to generate revenue of over 4,400 million $/year, while the low scenario projects EU CBAM revenue of around 3,800 million $/year in 2034 (Figure 2). The increasing carbon prices over time and the corresponding reduction in free allowances that are given to industries under the EU ETS will progressively increase the financial pressure on carbon-intensive steel exporters, reshaping global trade dynamics.

In the United States, the 25% Section 232 tariff on steel imports to the U.S. creates a significant trade barrier in the next 5-10 years that prevents the U.S. from becoming a dumping ground for high-carbon steel that cannot be exported to the EU due to CBAM. It is highly unlikely that Section 232 tariff on U.S. steel imports will be removed under the Trump administration. In 2030, under our medium carbon price scenario, the import charge for steel into the EU as a percentage of the steel price is projected to range between 8%-14%, making it lower than the flat 25% U.S. tariff. This creates a larger economic burden for exporters attempting to divert their high-carbon steel to the U.S. market by 2030. The 25% Section 232 tariff serves as a more immediate and consistent financial deterrent compared to the EU carbon-intensity-based CBAM, which adjusts over time depending on the carbon intensity of steel exports.

However, in 2034 when all EU ETS free allocation is phased out and the price of carbon and CBAM certificates is substantially higher, under our medium carbon price scenario, the import charge as a percentage of steel price for most countries exporting to the EU will range between 20%-30%. The 25% tariff imposed by Section 232 in the U.S. falls within this range.

The study also highlights the broader strategic implications for global steel markets. As the EU CBAM and other trade barriers come into effect, steel producers in regions that continue to rely on carbon-intensive production methods may find it increasingly difficult to access key markets like the EU. This could result in further trade frictions as countries seek to protect their domestic industries from the impacts of overcapacity and carbon leakage.

It should be noted that the European Commission is expected to revise CBAM legislation in spring 2025 to simplify compliance while preserving its effectiveness. Possible changes include a de minimis threshold for small importers, delayed requirement to purchase CBAM certificates from 2026 to 2027, streamlined authorization and emissions calculations for large importers, and stronger anti-circumvention measures. EU member states have called for swift action, but proposals also aim to address concerns about coverage of downstream products and resource shuffling to ensure CBAM continues to effectively reduce emissions.

To read the full report and see complete results and analysis of this new study, download the full report from the link above.

For insights into embodied carbon in trade globally, explore our Carbon Voyage Tool at www.carbonvoyagetool.com

The carbon Voyage tool covers 44 countries and five aggregate regions and 24 key carbon-intensive products. The Carbon Voyage tool offers a visualized answer to the following questions:

• How much do the emissions embodied in a country's exports and imports?

• Where does a country export embodied emissions to, or import emissions from?

• How much is the emissions embodied in a country's exports or imports of 24 emission-intensive products?

• Where does a country export embodied emissions of 24 products to, or import from?

• What is the share of embodied emissions in exports or imports of a country in total global embodied emissions in trade?