European steel purchasing decisions increasingly depend on the relationship between mill-level emissions data, carbon costs and delivered prices. Under the EU Carbon Border Adjustment Mechanism (CBAM), exporters in Türkiye, Serbia, India and other non-EU markets must compete on more than factory-gate prices, as the emissions associated with covered production affect the import cost calculation.
For European buyers, the financial comparison requires product-specific emissions information, the applicable adjustment for EU Emissions Trading System (EU ETS) free allocation and any eligible deduction for carbon prices paid in the country of origin. National emissions averages may not accurately represent an individual installation’s position, potentially distorting comparisons between competing steel suppliers.
Free-allocation adjustments determine the applicable carbon exposure
The CBAM free-allocation adjustment is calculated using the relevant benchmark and factor, rather than applying a uniform percentage charge to all embedded emissions.
In an explanatory example, the European Commission uses 1.2 tonnes of CO₂ equivalent per tonne of goods and a benchmark of 1 tonne. Applying the 97.5% factor for 2026 leaves 0.225 tonnes of CO₂ equivalent per tonne of goods before other adjustments. This represents approximately 19% of the original embedded emissions.
At the third-quarter 2026 certificate price of €82.32/tCO₂e, the remaining quantity corresponds to approximately €18.52 per tonne of goods, before any eligible deduction for carbon pricing paid in the country of origin.
The calculation illustrates the methodology rather than establishing a CBAM quotation for a particular steel grade or production installation. Actual exposure depends on the applicable product parameters, emissions data and adjustments.
Differences between production routes can outweigh factory-gate savings
The financial effect can be more pronounced when two suppliers have substantially different verified emissions. If their covered products face the same applicable adjustment and carbon-price deduction, but their covered emissions differ by 0.8 tCO₂e per tonne, the illustrative liability difference at €82.32/tCO₂e reaches €65.86 per tonne of steel.
Under those assumptions, a factory-gate price advantage of €40 per tonne would not compensate for the emissions-related cost difference if freight and all other commercial terms were identical.
Actual procurement decisions involve additional variables, including steel grade, delivery schedules, transport costs, credit periods and applicable trade measures. Production economics also remain relevant: an electric-furnace mill may have a lower covered carbon liability but face higher manufacturing costs because of expensive electricity or limited scrap availability.
Precursor emissions extend the calculation beyond the final mill
The emissions profile of finished steel can reflect production stages preceding rolling or finishing. A processing facility with relatively low emissions at its own site may use slabs, billets or other relevant precursors that carry emissions from upstream production.
Purchasing those inputs through a trader does not remove the requirement to account for the relevant production chain under the applicable CBAM methodology. The buyer therefore needs information that connects the material to its production sources and supports the emissions calculation.
Suppliers capable of providing consistent records covering installations, quantities and relevant precursor emissions can offer European customers greater certainty when comparing import costs. Incomplete information may undermine a purchasing calculation based on an emissions value that cannot subsequently be substantiated when the import declaration is prepared.
Contract terms determine who bears unexpected carbon costs
Supply agreements need to establish whether the quoted price incorporates an expected carbon cost, how emissions records must be provided and how the parties will respond if the importer has to use a different emissions value.
A fixed steel price does not necessarily settle the allocation of carbon-related expenditure when the supporting emissions clause remains unresolved. The resulting disagreement may emerge months after physical delivery, when the importer completes the relevant calculation and determines the applicable liability.
For manufacturers in Germany, Italy and other European markets, supplier diversification consequently involves both delivery security and comparability of carbon costs. Longer-term agreements may offer greater predictability where production routes and emissions documentation remain stable, while shorter purchasing arrangements can leave buyers more exposed to differences between quoted assumptions and the final calculation.
Mill-level data becomes part of European sourcing decisions
The commercial position of individual mills will increasingly depend on how verified emissions interact with product specifications, reliability and total delivered cost. Lower covered emissions can support a more competitive offer, but they do not automatically outweigh differences in electricity costs, scrap availability, transport, financing terms or product quality.
For exporters serving the EU, the relevant commercial test is whether their prices remain competitive after the importer applies the appropriate CBAM calculation using the available production and precursor evidence. For European buyers, consistent installation-level data provides a basis for comparing suppliers without relying solely on national averages or headline factory-gate prices.
