CBAM to hit China steel industry hard if it fails to go green: industry expert

China’s steel industry is set to be targeted by European Union’s carbon border tax given that the country is the world’s biggest steel producer and a major supplier of direct and indirect steel imports to the region, an industry expert said on July 9.

At an industry conference in eastern China’s Shandong province on July 9, Chen Yu, director of the Low Carbon Research Department of the China Steel Development Research Institute, urged Chinese steelmakers to step up their efforts to face the challenges from the evolution of international trade regulations.

Additionally, Chen noted increasing carbon emissions costs for goods entering the EU starting in 2026, with a nine-year phase-out period of the free allowances under the EU Emissions Trading System.

With EU carbon prices at €100 ($109) per tonne, a Carbon Border Adjustment Mechanism (CBAM) certificate is estimated to be €155 per one tonne of steel with 1.55 tonnes of carbon emissions in 2034, up from €23 per one tonne of steel in 2026, according to Chen.

Fastmarkets’ assessment of green steel domestic, flat-rolled, differential to HRC index, exw Northern Europe was €180-250 per tonne on July 11, unchanged since May 30.

Carbon-related regulations to reshape global trade landscape
The emergence of carbon emission-related trade regulations led by the EU’s CBAM will reshape the competitive trade landscape across the world, Chen said.

While in its current transitional phase from October 2023 to December 2025, CBAM will apply in its definitive system from 2026. Under this mechanism, the EU will put a price on carbon emitted during the production of carbon-intensive goods that enter the bloc, and will encourage cleaner industrial production in non-EU countries, according to the European Commission’s website.

In June 2022, the US introduced its version of the CBAM — the Clean Competition Act — which also imposes charges on energy-intensive imports and incentivizes decarbonization of domestic manufacturing.

In addition, there are global coalitions like the Clean Energy Ministerial Industrial Deep Decarbonization Initiative – which works to stimulate demand for low-carbon industrial materials.

Products that are green and produced with low emissions will become core characteristics to differentiate between competition, Chen said.

China a major supplier of steel imports to EU
At the conference, Chen presented data that indicated that China is a major supplier of direct and indirect steel imported to the EU.

Steel and steel-containing products accounted for $71.2 billion, or 58.4%, of the $122 billion in imports to the EU that were subject to CBAM in 2023, with imports from China accounting for $14.4 billion, or 11.8%.

While EU import volumes of steel-containing products from China are much lower than steel product imports, the trading value of steel-containing goods is double that of direct steel imports.

Additionally, in terms of import volumes, Chinese steel-containing goods accounted for 35.19% of those imports in 2023, which is much higher than the 9.12% rate for direct steel imports.

This means that steel-containing product sectors are set to have a greater impact from CBAM, forcing steel producers to be greener and adapt to CBAM, Chen said.

Chen’s recommendations
At the conference, Chen recommended that Chinese steelmakers should have a mastery of CBAM rules and should clarify their roles across the trade chain to offer accurate and effective data.

Chen also suggested that it’s important to build a green industrial chain.

In response to the expansion of a carbon trading market in China and carbon border taxes internationally, steelmakers as well as downstream steel-containing producers should upgrade their green technologies to develop low carbon-emission products, sell green products and buy green raw materials to collaborate with both upstream and downstream sectors, he said.

The sharing of carbon data should also be promoted, Chen added. With third-party supervision and cost-sharing, Chinese enterprises should standardize the use of data, build local carbon emission datasets and help local certification bodies to obtain the recognition from the EU to achieve mutual international recognition.

Chen also recommended that Chinese steelmakers should strengthen their disclosure of carbon data. Enterprises can disclose necessary information for CBAM products when launching environmental, social and governance and Environmental Product Declarations (EPD) reports. Bodies that can develop Life Cycle Assessment datasets and certify EPD reports should also develop CBAM-compatible datasets and promote the mutual recognition with CBAM certification bodies.

Chinese mills’ efforts
Major Chinese steel mill HBIS has actively promoted the integration with foreign green steel and low-carbon steel standards, as well as the increasing low-carbon emission production, according to the speech delivered at the conference by Haitao Miao, executive vice president of Beijing Ying Tan Technology Development, a subsidiary of the leading Chinese steel group.

HBIS’s hot-rolled, cold-rolled and galvanized flat steel has received the compliance assessment report for CBAM.

The mill plans to produce 5.5 million tonnes per year of low-carbon steel by 2024, accounting for 14% of total steel production, with a reduction in carbon emissions of 5.5 million tonnes.

By 2025, HBIS aims to produce 6.1 million tonnes of low-carbon steel and 7.41 million tonnes by 2026, with a reduction in emissions of 6.02 million tonnes in 2025 and 7.76 million tonnes in 2026.

Published by: Jessica ZongZihuan Pan

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