The world steel industry prepared itself for a seismic shift as October 1st approached in 2023. It marked the beginning of the Carbon Border Adjust Mechanism of the European Union. The world is watching the first imposition of a carbon import tax. Speculations abounded: disruptions to trade flows, price fluctuations, and a mad rush for a greener supply chain. And yet, as the world awoke to a new era of carbon accounting, there were no storms.
In terms of the market for flat products within European industries and the broader exporting business from a global perspective, the beginning of the CBAM age has not been characterized by a bang but rather by the whimper that should never have been ignored. There was no sharp rise in the prices of flat products made from steel at the beginning of the CBAM age. There were no reports of disruptions to trade at the Rotterdam and Antwerp terminals at the advent of the CBAM. However, experts express the concern that the "inaction" of the CBAM age should be acknowledged for what it truly was the creation of a "compliance debt" that could "catch the industry unaware when the transition phase ends".
The Administrative Reality: A Paper Tiger, For Now
What actually happened in the first quarter of the rollout of CBAM?
In few words: the Commission just decoupled the requirement to report and the requirement to pay. It's this strategic step that justifies the lack of reaction until now.
Since October, there is a "transitional phase" for EU importers with which they will remain until December 31, 2025. During this time, it is solely about data collection. Importers are obliged to submit quarterly reports with information about the direct and indirect emissions which are embedded in their steel products. The first of these will be concerning the fourth quarter of 2023 and is then due by January 31, 2024.
Importantly, the European Commission established a safety net that functioned "temporarily" and was like a "shock absorber" in the market. This was possible through "Default Values." Realizing that "many steel plants in Vietnam, in Turkey, or in India would not be prepared with a carbon accounting system based on the standard ISO within a short time," the EU enabled importers "to draw upon standard values from Brussels itself" to account "for 100% of their reporting until July 2024".
This action has the effect of kicking the can down the road. In other words, the need for the investor to negotiate the price for the complicated data sheet did not need to be addressed at the time; rather, the paperwork has to be filed in submission to the ruling. Therefore, the "green premium," which many expected to raise the cost of steel products, did not come to fruition. Likewise, the cost of carbon, traded at high levels within the European Union Emissions Trading System (ETS), has yet to be factored into the offer for imported products because the certificates do not need to be purchased at this time.
The Preparedness Gap: Why the Silence is Uneven
The "why" behind this subdued start is not simply about the lack of any financial levies but is also indicative of a dismal discrepancy in the world supply chain. The early months of the CBAM era have revealed a notable discrepancy between Asian powerhouses and emerging suppliers.
Major steel producers in south Korea, Japan, and Taiwan, who have an evolving but more advanced industrial policy of their own, were arguably well-prepared. Many of them, being Tier 1 producers, already calculate Scope 1 and Scope 2 emissions and report them in their own sustainability exercises. For them, it simply adds another line to the bill.
Smaller exporters, however, from regions such as North Africa and parts of Southeast Asia have been slower to react. The atmosphere among such players is "subdued"-less a calm acceptance and more a bafflement. The administrative burden in calculating specific embedded emissions per tonne of steel is immense. Without an immediate threat of financial penalties-which only come into play if reporting is totally neglected-many smaller players have mainly adopted a "wait and see" approach.
This timidness is still greater because the EU's verification infrastructure is currently being built. With a total lack of accredited verifiers in third countries, even if a Vietnamese mill wanted to submit perfectly verified real-world data today, the ecosystem to validate it simply does not exist. The market does not seem panicky because the mechanism for enforcement is still under construction.
Future Outlook: The 2026 Cliff Edge
Though today’s weather is calm and pleasant, this is only because we have yet to receive the rude awakening that is sure to come to those who think that this change is permanent. The "Subdued" mode is most definitely short-lived.
The real implications will be seen at January 1st in 2026. On this date, the training wheels will be off. The importer will no longer be allowed to simply report but will be required to buy certificates of their CBAM in accordance with their difference in price between their producer and EU ETS pricing structures. Plans to increase EU carbon pricing to the 100 euros per ton mark in the next decade will be severely felt.
Moreover, the crutch of "default values" will be taken away. The imports of enterprises not obtaining actual verification of emission data from suppliers will be subject to severe sanctions. The fine for not turning over the correct number of certificates or failing to report will lie between €10 and €50 per ton of unreported emissions. This translates into millions of euros of fines for a steel trading company with high turnover: it will simply eliminate whatever high-low spreads are possible in this industry.
Meanwhile, the steel industry is in the eye of the storm. Wise importers are using the silence to revamp their purchase agreements to include carbon transparency clauses. Meanwhile, the bragging rights enjoyed by some importers for silence may be the same silence that excludes them from the European market in 2026. Indeed, the start may have been subdued, but the end will be costly.