Steel processors face CBAM emissions exposure that can extend well beyond their own production facilities, particularly when finished goods are manufactured from purchased billets, slabs, rods and other covered steel inputs.
The issue is most pronounced for companies buying semi-finished steel and carrying out comparatively limited processing. A processing line with low direct emissions does not remove the emissions generated when the upstream material was produced. Semtrio highlighted this distinction in a sector analysis published on 17 September.
Precursor emissions enter the calculation
The European Commission’s guidance for iron and steel requires relevant precursor emissions to be incorporated into the calculation. Where actual emissions data for externally produced precursors are used, the figures must come from an appropriately accredited verifier’s report covering the relevant production period. Where that evidence is unavailable, the applicable default values are used.
The quantity of precursor material required to manufacture the final product also affects the emissions allocation. The Commission gives an example in which 100 tonnes of steel rods result quantity must first be adjusted for the material consumed in producing the saleable output, after which the processor’s own covered emissions are incorporated in 80 tonnes of finished screws and nuts following production losses.
Under that example, producing one tonne of finished output requires 1.25 tonnes of input, rather than an equal one-tonne allocation. The processor therefore cannot necessarily transfer the supplier’s emissions figure directly to its finished-product declaration.
Production yield changes the emissions allocation
The input quantity must first be adjusted for the material consumed in producing the saleable output, after which the processor’s own covered emissions are incorporated into the calculation.
The Commission’s guidance also does not support an unconditional assumption that indirect emissions are irrelevant for steel. Their treatment depends on the specific covered good and its precursors, with sintered ore identified as a relevant exception to the direct-emissions-only treatment for listed iron-and-steel goods.
This places part of a processor’s CBAM compliance position in the upstream supply chain. A company may maintain complete records for its own fuel consumption and production while still lacking the evidence required to use a preferred emissions calculation because its precursor supplier has not provided the necessary information.
Procurement becomes part of carbon-cost management
The availability and quality of upstream emissions data therefore become relevant alongside the physical and financial characteristics of purchased steel inputs.
For processors, comparing billets or other precursor materials solely on their purchase price can leave out the emissions information, verification status and material yield that affect the cost of the finished product under CBAM.
