The European Union’s Carbon Border Adjustment Mechanism (CBAM) is entering a critical implementation phase, bringing significant changes to global steel trade and raising growing concerns among Chinese steel producers and exporters.
In May 2026, the European Commission released a draft regulation outlining how carbon prices paid in third countries can be deducted from CBAM obligations. While the proposal appears to acknowledge carbon pricing systems outside the EU, industry experts believe the practical benefits for Chinese steel producers will remain limited. At the same time, concerns continue to mount over the EU’s treatment of Chinese steel products under CBAM, particularly regarding default emission values, carbon accounting methodologies, and the planned expansion of the mechanism to downstream products.
As Europe accelerates its climate agenda, many in the steel industry argue that CBAM is evolving beyond an environmental policy tool and increasingly functioning as a new form of trade barrier that could reshape international competitiveness.
Under the latest draft regulation, importers will be allowed to reduce their CBAM liabilities if they can demonstrate that carbon costs have already been paid in the country of origin. In principle, this means that carbon pricing systems such as China’s national emissions trading market may be recognized when calculating CBAM obligations.However, the actual impact is expected to be modest.China’s national carbon market currently relies heavily on free emission allowances, resulting in relatively low compliance costs for most industrial producers. In addition, carbon prices in China’s market remain significantly lower than those in the European Union Emissions Trading System (EU ETS).
As a result, even if Chinese carbon costs are recognized under CBAM rules, exporters are likely to receive only limited deductions when compared with the carbon certificate costs required under the EU mechanism.For many companies, the recognition of China’s carbon market may represent a symbolic step forward, but it is unlikely to substantially reduce future compliance costs.
One of the most controversial aspects of CBAM remains the default carbon emission values assigned to imported products.Industry associations and experts have repeatedly questioned the methodology used by the European Commission to calculate emission benchmarks for Chinese steel products.According to industry data collected from major Chinese steel producers, the actual average carbon emissions associated with steel billet production are substantially lower than the default values published by the EU.
The gap between reported industry averages and EU-assigned default values has raised concerns that Chinese exporters could face carbon charges based on emission levels far above their actual performance.This issue is particularly significant because companies unable to provide verified emissions data acceptable to EU authorities may be required to use the default values regardless of their true carbon footprint.
Industry representatives argue that such an approach undermines the principle of fair competition and risks penalizing producers that have already invested heavily in energy efficiency and emissions reduction programs.Many stakeholders have called for greater transparency in the calculation process and for closer cooperation between European and Chinese authorities to ensure that default values accurately reflect industry realities.
Another major concern involves the treatment of different steelmaking technologies.Steel can be produced through a variety of routes, including traditional blast furnace-basic oxygen furnace (BF-BOF) operations, electric arc furnaces (EAF), and direct reduced iron (DRI) technologies. These production pathways have significantly different carbon footprints.However, under current CBAM rules, default emission values do not adequately distinguish between these production methods.Industry experts argue that applying a single benchmark to products manufactured through fundamentally different technologies reduces incentives for companies to invest in lower-carbon production routes.
For example, steel produced through electric arc furnace operations often generates substantially lower emissions than steel produced through conventional blast furnace processes. Yet exporters may still face similar carbon charges if they are unable to provide emissions data accepted by EU regulators.This situation has led to concerns that CBAM may unintentionally weaken market incentives for industrial decarbonization outside Europe.Many analysts believe that a more technology-specific approach would improve both fairness and environmental effectiveness.
Perhaps the most significant development for the global manufacturing sector is the EU’s plan to expand CBAM coverage beyond basic steel products.The European Commission has announced its intention to include a broad range of downstream steel and aluminum products beginning in 2028. The proposed expansion covers approximately 180 customs tariff categories, including machinery, metal products, automotive components, construction materials, and various industrial goods.For China, the implications extend far beyond direct steel exports.China exports large volumes of steel indirectly through manufactured products, machinery, transportation equipment, and engineering components. These downstream industries play a vital role in international supply chains and contribute significantly to China’s export performance.Industry estimates suggest that millions of tons of steel are exported annually to Europe through value-added products rather than raw or semi-finished materials.
If CBAM charges are applied throughout these supply chains, manufacturers could face a substantial increase in compliance costs.Some assessments indicate that carbon-related expenses for affected downstream products could exceed 7 percent of export value under current carbon price assumptions.Such additional costs could influence sourcing decisions, supply chain structures, and long-term investment strategies across multiple industries.
As carbon accounting becomes increasingly important in international trade, the ability to measure, verify, and report emissions is emerging as a critical competitive advantage.Under CBAM requirements, emissions data must be verified by approved certification bodies. However, many industry participants have raised concerns regarding the availability of internationally recognized verification services.Obtaining approval from EU-recognized verification organizations can be costly and time-consuming, particularly for exporters operating in complex supply chains.
In addition to compliance costs, companies are increasingly concerned about data confidentiality, reporting burdens, and the need to share detailed operational information with external auditors.As global carbon regulations continue to evolve, emissions transparency is becoming as important as product quality, delivery reliability, and price competitiveness.Companies that establish robust carbon management systems are likely to be better positioned to navigate future regulatory requirements.
Against this backdrop, industry organizations have emphasized the importance of coordinated action at both governmental and industry levels.Experts suggest that policymakers should continue engaging with European counterparts through bilateral and multilateral channels to promote greater transparency and fairness in CBAM implementation.
At the same time, efforts are underway to strengthen carbon accounting infrastructure, improve emissions databases, and enhance the credibility of domestic verification systems.Many stakeholders also advocate for the development of unified product carbon footprint methodologies that can be recognized internationally, reducing compliance complexity for exporters.Building trusted and transparent carbon reporting systems is increasingly viewed as essential for maintaining global market access.
The global steel industry is entering a new era in which carbon emissions are becoming an increasingly important factor in international trade.While the EU’s CBAM is designed to support climate objectives and prevent carbon leakage, its implementation continues to generate debate regarding fairness, competitiveness, and market access.
For Chinese steel producers and exporters, adapting to this evolving landscape will require investments in low-carbon technologies, stronger emissions management systems, and greater participation in international carbon governance discussions.As environmental regulations become more deeply integrated into global trade rules, the ability to demonstrate verifiable carbon performance may become a key determinant of future competitiveness.The coming years will likely shape not only the future of steel exports but also the broader evolution of sustainable industrial trade worldwide.
