Supported by CBAM.Clarion.Engineer
Steel exporters can improve their electricity mix and still face significant CBAM exposure if direct process emissions and carbon-intensive precursors remain unchanged. Lenders should therefore avoid treating a green power purchase agreement (PPA) as a proxy for the company’s entire decarbonisation strategy.
Credit assessments need to distinguish electricity procurement from the production-related factors that determine emissions exposure, while recognising how these risks interact commercially.
Assess process and electricity risks separately
Lenders need separate assessments of furnace technology, fuels, scrap or ore inputs, precursor emissions, electricity prices and renewable sourcing. These factors influence operating costs and competitiveness, but they do not enter every CBAM calculation in the same way.
For iron-and-steel and aluminium goods currently listed in Annex II, the existing CBAM calculation takes account of direct emissions. Renewable electricity procurement can therefore support operating performance, customer relationships, financing and decarbonisation without automatically reducing current certificate liability through purchased-electricity emissions.
The strongest transition strategy combines credible renewable power procurement with measures addressing process emissions and precursor data. Relying on only one element can leave either carbon-related exposure or operating costs insufficiently managed.
Renewable PPAs can strengthen credit quality
A renewable PPA can support creditworthiness by stabilising electricity costs, helping retain customers and improving access to green-finance products. It may also prepare producers for a future policy environment with broader downstream coverage and more extensive carbon-data requirements.
However, the existence of a PPA or a Guarantee of Origin (GoO) does not establish that a steel producer has addressed its material process-carbon risks. Lenders should assess the actual benefits of the contract alongside the company’s wider transition plan.
Loan covenants should focus on material exposures, including product classification, emissions-data quality, customer concentration, electricity-price risk and capital expenditure required for process decarbonisation. A simple requirement to hold a PPA or GoO is not an adequate substitute for this analysis.
Downstream expansion adds a further layer of uncertainty
The same legislative file proposes extending CBAM coverage from 2028 to selected steel- and aluminium-intensive downstream goods. Both the Council and the European Parliament support expansion, but their proposed product lists differ and remain subject to negotiation. Until final legislation is adopted, the current scope remains the operating baseline.
Downstream manufacturers should map the future CN codes potentially relevant to their sales and identify products with the greatest exposure to EU customers. This can help target renewable procurement, emissions-data improvements and other investments where commercial benefits are most likely to arise, without assuming that proposed coverage is already law.
Regulatory guidance informs implementation, not the legal baseline
The European Commission published definitive-period sector guidance on 14 August 2026, including dedicated guidance for electricity, iron and steel, and aluminium. It refreshed its general CBAM questions and answers on 15 October 2026. These materials help explain implementation but do not replace the binding regulation and implementing acts.
Steel buyers should evaluate renewable electricity against defined energy, customer or decarbonisation benefits rather than a generic CBAM saving that the current product methodology does not support.
For lenders, the central transition question is not simply whether a steel company buys green electricity. It is whether electricity, production-process and market-access risks are assessed as distinct but connected exposures within the financing structure.
