Preliminary EU emissions trading scheme (ETS) benchmarks used internally by the European Commission's directorate-general for climate action (DG Clima) suggest CBAM benchmarks for steel imports could be strict.
The next ETS benchmark for hot metal will be 6pc lower than the 1.328t benchmark in phase 3 of the ETS, in 2013-18, meaning domestic producers will have a benchmark of 1.24t, according to an internal DGClima document seen by Argus. This represents a 3pc drop against the 2021-25 benchmark, in addition to a 2.5pc phase-out of allowances set to occur in 2026.
Should this benchmark be used for CBAM — as most expect — it would mean blast furnace-based material with an emissions intensity of 2.1t would incur an additional cost of more than €70/t ($80/t), assuming a carbon price of €80/t. The benchmark is preliminary and may not be accurate once the revision actually takes place, but there is a "high" probability of these benchmarks, according to the document seen by Argus.
The ETS benchmark for electric arc furnace carbon steel could drop by 50pc from phase 3, to 0.142t, the document said. This would mean an additional cost of around €50/t for electric arc furnace imports, assuming a carbon content of around 750-800kg and an ETS cost of €80/t.
Market participants have increased their expectations for future carbon costs in the steel market this week. Previously, most factored in a carbon cost of around €50/t, with some predicting as low as €30/t, but the range has increased to €50-70/t across north Europe and Italy.
Domestic producers suggest more buyers are transferring purchases to local material and away from imports, although the EU's proposed post-safeguard mechanism will also be driving this.
The commission is due to announce provisional CBAM benchmarks this quarter, although the actual figures will not be released until the first quarter.
