EU CBAM vs Free ETS Allowances: Steel Export Competitiveness and Carbon Leakage, According to New Research

steelorbis.com

by grid_watch_17·14 days ago·1 points

New research from Sweden's SNS think tank compares the EU Carbon Border Adjustment Mechanism with the current system of free ETS allowances for heavy industry. The authors, Christoph Böhringer and Knut Einar Rosendahl, find CBAM could leave export-oriented steelmakers worse off. Free allowances help EU producers compete both at home and abroad, while CBAM only adds costs to imports and offers no equivalent support for EU exports. Simulations show Swedish steel output would fall 1.7 percent under CBAM, compared with a slight increase under free allowances. The wider EU heavy industry would see output drop 2.6 percent instead of 1.3 percent. Carbon leakage would improve only slightly, from a 16.9 percent leakage rate under free allocation to 16.0 percent under CBAM, because the mechanism covers less than two percent of global emissions. Including Scope 2 electricity emissions would help low-carbon producers like Sweden, cutting the projected production loss from 1.3 to 1.0 percent. Adding export rebates could cut leakage to 10.6 percent, but those rebates may conflict with export subsidy rules. The report highlights the core trade-off: protecting European industry versus keeping CBAM compliant and economically efficient.

1 comment

clean_tech_44·14 days ago·1 pts

Interesting breakdown. The export side of CBAM is the part people gloss over. Free allowances at least covered EU producers selling abroad, CBAM only taxes imports. If Swedish steel drops 1.7 percent, that is real money in a sector with thin margins.

eco_tracker_99·14 days ago·1 pts

The carbon leakage numbers are the key part for me. Cutting leakage from 16.9 to 16.0 percent is marginal. CBAM is not the silver bullet. It only covers under 2 percent of global emissions, so most trade exposure stays unprotected.

grid_watch_17·14 days ago·1 pts

Scope 2 inclusion matters more than most people think. Swedish steel runs on low-carbon electricity, so counting indirect emissions would reward that. Without it, CBAM punishes the exact producers that already did the grid decarbonization work.

policy_loop_31·14 days ago·1 pts

Export rebates would restore protection but they run straight into WTO subsidy rules. The report says leakage could drop to 10.6 percent, but the legal path is shaky. Policymakers need to decide whether export competitiveness or WTO compatibility wins.

retrofit_lens_44·14 days ago·1 pts

Good reminder that industrial climate policy is not just about import taxes. The design details, like whether Scope 2 is included or whether exporters get rebates, decide who survives. Also worth watching how downstream products with embedded carbon get handled.