In 2026 the EU's CBAM crossed from "report-only" into a phase where importers pay real money. This piece lays out the five newly-landed implementing regulations, the timetable and thresholds, and — using hot-rolled coil, cold-rolled coil, coated sheet and other flagship traded steels as its sample — draws a cost map from the official country default values. For the same coil of HRC, Indonesia's carbon cost is about 581 EUR/tonne while the USA's is about 15 EUR/tonne: a near-40× gap.

The European Commission is proposing a timeline extension for the phase-in of its Emissions Trading System (ETS) free allowance reductions, pushing the full carbon cost integration out to 2038. This regulatory revision would significantly moderate the near-term compliance costs imposed by the Carbon Border Adjustment Mechanism (CBAM). Turkish steel and aluminum exporters would benefit from a more gradual phase-in, protecting their price competitiveness within the European market over the next decade.

The EU Commission continues to present CBAM as a fairness mechanism, but critics argue the actual framework creates severe asymmetry between importers and domestic steel producers. Under CBAM's Article 31 formula, only a normative allocation entitlement is mirrored, not actual economic relief — domestic mills with benchmark allocations exceeding actual emissions retain tradable surplus allowances, while importers can at best achieve zero liability with no transferable entitlement. Since 2005, European steel producers have received over 3.4 billion free ETS allowances, of which approximately 884 million were surplus — representing a calculated gross value of nearly €71 billion at current carbon prices. The latest ETS reform proposal (COM(2026) 616) fails to address this imbalance, extending free allocation for CBAM sectors to 2038 while leaving historical surplus allowances fully intact. SMEs and downstream processors hold no legacy allowance reserves and must prefinance CBAM certificates upfront, while large steel corporations draw on decades of accumulated surpluses — entrenching rather than resolving the structural asymmetry.

Rising compliance costs, a verification bottleneck, and tightening EU import quotas combine to reshape the competitive landscape for Asian stainless steel suppliers in Europe from 2026 onward. The EU CBAM entered its definitive implementation phase on January 1, 2026 — transitioning from a reporting exercise into a mechanism with real trade cost implications.

The European Commission has proposed raising the EU's electrification rate to 46% by 2040 alongside reforms to the EU Emissions Trading System (EU ETS). The proposal includes an Industrial Decarbonization Bank backed by over EUR 100 billion and plans to slow the phase-out of free emissions allowances for CBAM-covered sectors until 2038. The Commission also plans to allocate an additional EUR 6 billion in free allowances between 2026 and 2030, aiming to strengthen industrial competitiveness while accelerating decarbonization.

The EU Commission's latest ETS reform proposal (COM(2026) 616), presented as a competitiveness measure, adds further layers of funds, investment conditions, and reporting obligations on top of already complex ETS and CBAM rules without meaningful simplification. Free allocation for CBAM sectors is extended to 2038, while historic certificate surpluses accumulated by the steel industry remain entirely untouched — allowing European producers to meet current obligations with previously free-allocated certificates while importers must provide upfront CBAM capital. SMEs appear in funding programs but receive no exemptions or reserved quotas. The case of Saarstahl illustrates the asymmetry: the company benefits simultaneously from historic ETS surpluses, extended free allocation, decarbonisation subsidies, CBAM border protection, and steel tariffs, with over half of its EUR 4.6 billion hydrogen investment publicly funded. Meanwhile, Germany's 2026 industrial electricity price of around 16.7 cents/kWh has returned to 2014 levels, undermining the steel industry's persistent claims that energy costs are the sector's primary burden.

A written parliamentary question posed to the European Commission asked: "What monetisable compensation does the Commission envisage for downstream producers whose embedded costs originate upstream, and who do not qualify for the decarbonisation fund?" Commissioner Hoekstra's July 14 response offered no direct answer, pointing instead to the Temporary Decarbonisation Fund — designed primarily for large EU ETS installations — with a vague note that it "may also decrease associated downstream costs," with no obligation, guarantee, or figure attached. Critics note that large integrated steelmakers benefit from multiple layers of protection including tariffs, quotas, free ETS allowances, and decarbonisation funding, while import-dependent SMEs and downstream processors face rising procurement costs, CBAM obligations, quota cuts exceeding 45%, and heavy administrative burdens — with no cumulative impact assessment ever published by the Commission. Meanwhile, steel import quota data remains poorly updated, with the Commission confirming it will update TRQs only once daily with no real-time data, and declining to recognize the "Total awaiting allocation" figure as legally binding.

Around 40 major German corporations including ArcelorMittal, ThyssenKrupp, and BASF have written to EU leadership calling for a fundamental rethink of climate policy, arguing that EU ETS carbon costs of around EUR 80/tonne are undermining European competitiveness while non-European rivals face little or no equivalent burden. Bavaria's Economy Minister Aiwanger called on the Commission to immediately suspend — and ideally abolish — the EU ETS. Critics note, however, that the same corporations have cumulatively received nearly EUR 464 billion in free ETS certificates since 2005, representing hidden subsidies never available to SMEs, who nonetheless help fund them. The EU Commission plans to present proposals for reorganizing emissions trading next month.

Brussels is considering extending free ETS certificate allocations beyond the originally planned 2036 phase-out, which would continue to benefit blast furnace producers while leaving early adopters of cleaner electric arc furnace technology largely uncompensated, creating perverse incentives. The proposal has exposed a deep dilemma within Germany's IG Metall union, which represents workers at both blast furnace and EAF facilities with diametrically opposed interests; Saarland's union chapter vocally opposes ETS dilution while the national Berlin organization has remained silent on the issue. Meanwhile, WV Stahl is demanding permanent electricity price relief to EUR 50/MWh, with critics noting this would ultimately be funded by German taxpayers. In base metals, Asian and European markets posted broad gains on Friday, with zinc leading at over 2%.

[SMM Steel] European carbon prices for December 2026 EUA contracts rose to around €79/t in late May, supported by volatility in energy markets, optimism over a potential EU-UK carbon market linkage, and ongoing discussions on EU ETS reform. Market participants noted that UK carbon prices surged 6% on May 26 to £56.67/t, while EUAs climbed above €79/t on May 27. Meanwhile, six EU countries including Poland, Czech Republic, and Greece called for greater protection for heavy industry through increased free carbon allowances amid high energy costs and geopolitical pressures. The EU is expected to conduct a mid-term ETS review by July 2026.