Scrap accounting is becoming an important issue in the debate over the EU’s Carbon Border Adjustment Mechanism (CBAM) for steel. Electric-arc-furnace (EAF) producers use recycled steel to reduce production emissions, while EU policymakers are considering how the border mechanism should account for different scrap streams and prevent changes in material allocation that do not deliver genuine global emissions reductions.
The European Parliament’s 2026 negotiating position on the CBAM strengthening file places greater emphasis on pre-consumer and post-consumer scrap, as well as the emissions treatment of downstream goods. The Council has also addressed pre-consumer scrap. These positions concern proposed changes rather than settled rules governing 2026 imports, with the final approach dependent on trilogue negotiations and subsequent implementing provisions.
Pre-consumer and post-consumer scrap raise different accounting questions
Scrap is not a uniform input for carbon-accounting purposes. Post-consumer scrap originates from products recovered after use, whereas pre-consumer scrap can arise during manufacturing processes and may be subject to different policy treatment.
For EAF producers, the distinction affects how recycled inputs may be treated under future CBAM rules, including their interaction with free-allocation adjustments and precursor accounting. The final methodology will determine which emissions are attributed to different scrap categories and how the benefits of recycling are recognised.
The policy challenge is to account consistently for recycled materials without creating incentives to redirect lower-carbon inputs towards EU-bound production in ways that merely redistribute emissions rather than reduce them globally.
Scrap provenance becomes a supply-chain control
Regardless of the final legislative outcome, steelmakers and scrap processors can strengthen their preparedness by maintaining more detailed records of scrap origin and classification. Relevant information includes supplier identity, scrap category, quantity, origin, processing route and the production process in which the material is used.
A procurement system that treats every scrap stream as an undifferentiated commodity could struggle if the final legislation requires more granular distinctions. Traceability can also support broader circularity and responsible-sourcing claims beyond statutory CBAM reporting.
Verification must be supported by records of actual material flows and production processes. Mills should reconcile source streams, precursor receipts, production quantities, material yields and covered output over the reporting period. Exceptions require documented explanations and approvals, particularly where several suppliers, outsourced operations or mixed production routes complicate the assignment of emissions values to specific materials.
Scrap treatment could affect EAF competitiveness
The treatment of recycled inputs can influence the relative economics of EAF and integrated steelmaking routes as CBAM develops. If the final rules recognise recycled content appropriately while preventing circumvention, EAF producers with lower-emissions production routes could strengthen their competitive position.
However, demanding documentation requirements could also create barriers for smaller recyclers. If these businesses cannot provide the required information, their material may become more difficult to incorporate into supply chains serving customers that require verified emissions data.
These considerations are relevant to procurement decisions as well as regulatory compliance. The delivered cost of a tonne of steel continues to depend on purchase price, freight and processing costs, while CBAM introduces certificate costs linked to embedded emissions and the applicable adjustments. Precursor selection, material yield and verified process intensity can therefore influence the overall commercial assessment.
The phase-down of free allocation under the EU Emissions Trading System (EU ETS) adds a longer-term consideration. Emissions differences with a limited financial effect in 2026 may become more significant for steelmakers’ margins later in the decade.
South-East European scrap chains face growing data requirements
South-East Europe has active scrap-trading markets and several EAF-based steel operations. The region could benefit from stronger recycled-steel economics, provided scrap flows can be documented to the standards required by EU-linked customers.
Informal or poorly documented supply chains may face greater difficulties supplying products marketed on the basis of verified low emissions. Stronger provenance records can help mills and recyclers demonstrate the characteristics of their inputs and support more reliable procurement decisions.
Steelmakers and recyclers should begin classifying scrap streams more carefully and preserving supplier documentation before the proposed CBAM amendments are finalised. Scenario analysis can test how alternative treatments of pre-consumer and post-consumer scrap might affect product emissions intensity, procurement costs and the value of different supply sources.
Current requirements must remain separate from proposed reforms
The Commission proposal and the negotiating positions of the Council and Parliament can inform future contract provisions and compliance planning, but they should not be incorporated into declarations for 2026 imports as though the proposed changes were already law.
A two-scenario model—one based on current legislation and another on potential reforms—allows companies to prepare data systems and contractual options without creating compliance positions dependent on legislation that remains under negotiation.
The supporting records should connect scrap classification and origin to purchasing documentation, production records, the relevant CN code, the applicable process boundary and the emissions values used in the calculation. Responsibilities for approving assumptions should be clear, with documented fallback treatments where the preferred data cannot be substantiated.
These controls also help companies explain the same emissions assessment to verifiers and commercial managers. Integrating the evidence with purchasing, production, customs and finance records can make future changes in suppliers, material routes or regulatory requirements easier to manage.
As CBAM’s financial implications develop, unresolved documentation gaps could become recurring carbon costs. Establishing scrap provenance and classification procedures in advance can also support subsequent verification reviews, price adjustments and management reporting.
