The carbon border adjustment mechanism: What does it mean for steel recycling?

Abstract

The European Union's carbon border adjustment mechanism (CBAM) is a landmark policy proposal. As this study finds, not only might it assist in providing signals to lower emissions in some of the most greenhouse gas-intensive sectors of the world economy; it also may also drive resource recovery.

This study focuses on CBAM's impact on scrap use for steel production. It investigates the nature and magnitude of the price signal by analysing costs of compliance for steelmakers using a variety of emissions intensities of different commercially operational steelmaking techniques, applied using the proposed CBAM liability model and emissions pricing data from the clearing prices observed in the EU's emissions trading system (EU ETS). In addition, it examines historical correlations in key commodities linked to steelmaking like EU carbon allowances, steel and ferrous scrap steel, validating the observation made by some analysts that free allocation in the EU ETS mutes the incentive to recycle steel. The study identifies factors that influence the magnitude and nature of the price signal, including uncertainty about the final CBAM design, the impact of market fundamentals and feedstock commodities, alternative green steel technologies and the relative importance of the longer-term outlook compared to nearer-term market signals.

The study finds that resource recovery and recycling will lead to reductions in greenhouse gas emissions and vice versa, meaning well designed measures can advance both aims. This has implications for policy makers and business managers, who will be able to focus scarce resources to capture these co-benefits. This can reduce regulatory burden in an environment where overregulation is identified by previous studies as a barrier to better waste management practice.