The EU Carbon Border Adjustment Mechanism and what it means for UK Aluminium 

With 31^st January deadline fast approaching for EU aluminium importers to submit reports on carbon emissions data covering the final quarter of 2023, we sat down with Aluminium Federation (ALFED) CEO, Tom Jones, to discuss the impacts of the EU’s Carbon Border Adjustment Mechanism (CBAM) on aluminium supply chains and what UK business must do to manage cross-border trade.  

It’s no exaggeration to say that the EU’s CBAM is revolutionising the way that supply chains operate across all industries, particularly so for traditionally high-emitting sectors like aluminium, steel, cement, fertilisers and electricity¹. While producers within the EU have historically received free allowances on the European Emissions Trading Scheme (ETS), these are now being phased out with the view to limit “carbon leakage”, and replaced with a global system to level the playing field on carbon prices.  

Thousands of businesses must comply, with aluminium producers now liable to report on both direct and indirect embedded emissions, and from 2026 to begin paying a levy on direct emissions based on European carbon pricing. This tax will be progressively phased in from a 2.5% cost in 2026 to 100% in 2034, forcing EU producers to make tough decisions and renegotiate contracts based on the carbon emissions data from increasingly complex supply chains.  

So how does the EU carbon tax affect UK aluminium producers importing into the EU? 

UK Aluminium’s role in EU CBAM  

In 2022, US$1.26bn² worth of aluminium was imported into the EU from the UK, a figure much lower that previous years owing to the effects Russia’s invasion of Ukraine on the global markets. With the aluminium industry expecting to start making a meaningful recovery by the end of this year and into 2025, we should see EU imports reach closer to the 2021 levels of $1.67bn, much of which is now within CBAM’s scope and under scrutiny. 

For UK producers and manufacturers, sharing CBAM emissions reports with EU customers will require a number of steps involving data gathering and reporting. Firstly, UK businesses must assess which of their products and processes fall within CBAM’s scope – if your company is involved in the production, manufacture, trade and recycling of aluminium, you may also deal with other CBAM sectors like iron, steel, or cement. It’s important, then, that rather than compartmentalising processes only involving aluminium, you take a wider look at your business to understand which goods and services fall under CBAM and which do not. 

This step can in itself be rather tricky because there are various aluminium products that are not in fact covered by CBAM which you might expect to be. One example is that aluminium car doors are not covered, whereas the sheets they’re made from are. It’s important to check the CN codes³ of any goods which will cross the border to clarify whether or not they fall within CBAM’s scope.  

Once declarable goods have been identified, data must be collected on their origin, type, and quantity, their embedded carbon emissions and any information about carbon prices already paid abroad. Data must combine those direct and indirect emissions attributed to a business’ own production processes and goods, alongside precursor emissions from earlier in the supply chain. It is essential to begin gathering primary carbon data from suppliers as early as possible to allow for a correct and confident CBAM report, although it should be noted that businesses may revise their first two submissions (Q4 2023 and Q1 2024) by 31^st July 2024 if newer data becomes available.  

How will the new UK CBAM affect the aluminium industry? 

Late last year, the UK government announced its own version of CBAM which adds a carbon import tax to products and materials entering the UK market starting 2027⁴. While there are significant overlaps between the UK’s and EU’s mechanisms, notable exceptions include that glass and ceramics are covered by UK CBAM, whereas electricity is not.  

Aluminium producers and extruders which import goods into the UK will need to consider the commercial and operational impacts of this new UK legislation, and businesses withing scope of both UK and EU CBAM will need to both understand the differences between the requirements of each, and identify opportunities for any overlap and synergy between data gathering and reporting.  

There is currently limited information about UK CBAM, although logically it is expected to follow a similarly phased approach as its EU counterpart, and UK aluminium importers will need to closely monitor the scheme as it develops. However, the main priority should right now be on EU legislation, not least because it’s already live and right now presenting a complex, challenging policy environment in which companies must quickly adapt to.   

2024 will be the year to ensure that business operating in the UK’s aluminium sector have a solid, day-to-day understanding of, and compliance with, EU CBAM to manage trade across the EU border. Businesses will also need to start thinking about how EU legislation will affect cost structures, supply chains and procurement strategies as EU CBAM begins its taxation phase in 2026.  

For more information visit the ALFED website. Special thanks to Gabriel Rozenberg at Cbamboo and Nick Ogilve at Carbon Chain for helping to navigate the intricacies of EU CBAM.