The recent draft regulations and default value rules released by the European Commission under the Carbon Border Adjustment Mechanism (CBAM) have posed significant challenges to China’s steel industry. By substantially increasing default carbon emission values, refusing to differentiate between production processes, and planning to expand CBAM coverage to downstream products, the new regulations are expected to significantly raise export costs for Chinese steel producers and downstream manufacturers. According to industry estimates, the export costs of products affected by the expansion could increase by no less than 7%, directly weakening the price competitiveness of Chinese steel products and forcing foreign trade enterprises to undertake strategic adjustments.
Under the updated CBAM rules scheduled for implementation by the end of 2025, the EU has unilaterally established default carbon emission values that are significantly higher than China’s actual industry levels. These figures lack sufficient objective justification and effectively function as trade barriers.Excessively High Default Values：According to measured data collected by the China Iron and Steel Association (CISA) from 22 major steel enterprises, the average carbon emission level for steel billets classified under HS Code 7207 is approximately 1.57 tonnes of CO₂ per tonne of steel. However, the EU has set a default value of 3.169 tonnes of CO₂ per tonne of steel, representing a deviation of more than 102%.
Notably, this default value is even higher than the emission levels of many older blast furnaces operating within the EU itself, which generally range between 1.8 and 2.0 tonnes of CO₂ per tonne of steel. The rationality and fairness of such a benchmark have therefore been widely questioned.Failure to Recognize Low-Carbon Production Processes：One of the most controversial aspects of the new rules is the uniform treatment of different production technologies. Whether steel is produced through the traditional blast furnace-basic oxygen furnace (BF-BOF) route or through lower-carbon technologies such as electric arc furnaces (EAF) and direct reduced iron (DRI), the same default emission value is applied.
As a result, companies that have invested heavily in green manufacturing technologies may still face inflated carbon costs if they are unable to provide EU-approved verified emissions data. This approach undermines incentives for low-carbon transformation across the industry.Default Values Will Continue to Rise：The regulations further stipulate that default values will increase by 10% annually from 2026 to 2028 based on the 2025 baseline. For companies unable to report verified actual emissions, carbon-related costs will rise rapidly year after year, placing long-term pressure on their global competitiveness.
The influence of CBAM is no longer limited to primary steel products. Its impact is rapidly extending across the entire manufacturing supply chain, magnifying cost pressures throughout downstream industries.
Direct Steel Exports Face Significant Carbon Charges Based on the first CBAM certificate price of €75.36 per tonne, Chinese steel exports could be required to pay carbon costs substantially higher than their actual emissions would justify due to the inflated default values.
Although deductions through China’s Carbon Emissions Trading System (CETS) are theoretically available, their practical effect remains limited. Domestic carbon prices, currently around USD 10 per tonne, are significantly lower than EU carbon prices, while many allowances continue to be allocated free of charge.
Beginning in 2028, CBAM is expected to expand to approximately 180 customs tariff categories covering downstream steel and aluminum products, including machinery, automobiles, steel structures, and other manufactured goods.
According to calculations by CISA, China’s indirect steel exports to the EU reached approximately 20.05 million tonnes in 2025, representing a year-on-year increase of 10.6%. Machinery and fabricated metal products account for the largest export volumes, while steel structures and automotive products have recorded the fastest growth rates.
Using the EU’s proposed default value of 4 tonnes of CO₂ per tonne of steel and current carbon prices, CBAM-related carbon charges could account for approximately 7.2% of export value. Given the expected upward trend in carbon prices, future cost increases are likely to exceed 7%.
Beyond direct economic costs, CBAM also creates significant operational challenges.The EU maintains stringent accreditation requirements for non-EU verification bodies, making it difficult for Chinese verification agencies to obtain recognition. As a consequence, companies may be required to submit sensitive production and emissions data to overseas verification institutions, raising concerns regarding data security and increasing compliance expenses.
At the same time, enterprises must establish sophisticated carbon data management systems to meet the EU’s Monitoring, Reporting, and Verification (MRV) requirements. For many small and medium-sized exporters, these compliance obligations represent a substantial additional burden.
In the face of CBAM’s systemic impact, traditional price negotiations alone will no longer be sufficient. Coordinated efforts are required at the governmental, industry, and corporate levels.
Through high-level China-EU dialogue mechanisms, industry organizations and government authorities should use verified emissions data to advocate for the revision of discriminatory default values and promote the establishment of a more objective and transparent adjustment framework.
China should accelerate the development of a unified and authoritative database of carbon emission factors for steel products while promoting mutual recognition of carbon footprint data throughout the industrial chain. This would provide downstream sectors such as machinery manufacturing and automotive production with reliable and traceable emissions information.
Developing high-standard domestic carbon verification institutions and advancing mutual recognition negotiations with the EU are essential steps toward securing greater influence in CBAM-related verification processes.
Corporate-Level Actions.Export-oriented enterprises should conduct comprehensive carbon footprint assessments as soon as possible, prioritize low-carbon products such as EAF steel in export strategies, and leverage national platforms such as Environmental Product Declaration (EPD) systems to improve data management and reduce compliance costs.
CBAM is not merely an environmental policy; it is increasingly becoming a strategic tool for reshaping global trade competitiveness.For China’s steel exporters, passive adaptation may result in the gradual erosion of market share. Building a new competitive model centered on data transparency, low-carbon production technologies, and supply-chain collaboration will be essential for overcoming emerging green trade barriers and maintaining a strong position in international markets.
Source:The data cited in this article is based on China Steel Network.
