By Ana Mingo and Lambert Guilbault
The competitiveness of Europe’s low-carbon aluminium industry is under serious threat from CBAM. Here’s how European policymakers can fix it.
The Carbon Border Adjustment Mechanism (CBAM) was designed to support decarbonisation while maintaining a level playing field for European industry. As key aluminium producers in Europe, we support this ambition. However, CBAM must be urgently fixed if it’s to serve climate objectives and protect Europe’s low-carbon aluminium value chain. As the mechanism enters its next phase, European policy makers play a key role in this fixing process, whether through implementing rules or upcoming revision by the European Parliament,
For aluminium, apart from downstream product expansion and finding an export solutions, two fixes are crucial: closing the scrap loophole, which could let up to half of the imported aluminium volumes bypass CBAM; and rejecting the addition of indirect emissions, which would undermine the competitiveness of Europe’s low-carbon producers. These issues are fundamental; CBAM must support real decarbonisation, not penalise it.
- Aluminium – A critical and strategic material that Europe can’t afford to lose
Aluminium is not just another industrial input; it’s listed as strategic by NATO and as critical by the EU. It supports power grids, infrastructure, transport, construction, defence, and renewable energy systems. As a globally traded, electro-intensive material, aluminium is highly exposed to carbon leakage. Europe has already lost two-thirds of its primary production to higher-emission regions.
These realities underscore the importance of getting CBAM right. Regulatory gaps should not weaken Europe’s low-carbon aluminium production or its role in global decarbonisation.
- CBAM’s “Scrap Loophole” will cost Europe dearly and risk losing its recycling base
A major flaw in CBAM is that imported aluminium from re-melted scrap is treated as having zero emissions, regardless of origin or process. Meanwhile, EU producers pay a carbon cost embedded in scrap prices, which track primary aluminium, putting European recyclers at a competitive disadvantage.
Scrap makes up nearly half of global aluminium volumes[1]. If this loophole remains, up to 50% of aluminium imports could bypass CBAM, while EU recyclers face mounting cost pressure, potentially over €200 per tonne by 2035.[2]
Greenwashing is another concern. Without strong verification, foreign producers can inflate scrap content and mislabel materials to gain an unfair carbon-free advantage.
An increasing number of reports, including the European Commission’s own consultancy studies for CBAM secondary legislation and Mario Draghi’s Report on EU Competitiveness, highlight the risks of this loophole. One analysis from Arkwright consultancy warns that up to 35 percent of EU aluminium recycling capacity could be lost if the loophole is not addressed
The fix is clear: assign scrap a default carbon value and enforce strict verification rules. With CBAM methodologies being finalised in 2025, the time to act is now.
- Indirect Emissions should not be included for Aluminium
Some stakeholders have proposed including indirect (scope 2) emissions in CBAM for aluminium. While this may appear climate-ambitious, it would be a policy misstep: adding complexity and undermining the competitiveness of low-carbon EU producers without clear climate benefits.
European aluminium producers already face high electricity and carbon costs, even when using 100% renewable power, due to fossil-based marginal electricity pricing and pass-through of ETS costs. To partly offset this, the EU provides Indirect Carbon Cost Compensation (ICC).
If CBAM includes indirect emissions while phasing out ICC, EU producers could face higher costs, even when using clean electricity, while foreign competitors could avoid CBAM costs through reporting low or zero emissions through certificates or power deals, without reflecting actual system emissions or reductions.
This is a real concern. A German government non-paper and the Draghi report have both warned against including indirect emissions for ICC-eligible sectors before 2030.
The solution is clear. Indirect emissions should not be included in CBAM for aluminium until Europe’s power system is largely decarbonised and carbon costs in electricity are significantly reduced. ICC must remain to safeguard low-carbon production and prevent carbon leakage beyond 2030. If scope 2 is eventually included, emissions should be declared based on the average CO₂ intensity of the producing country’s electricity mix. Until then, ICC remains essential for producers facing high, carbon-cost inflated power prices despite using clean energy.
- A Make-or-Break moment for CBAM and European Industry
European decision-makers face a crucial choice: will CBAM become just another tax and burden on the domestic industry, or a real tool for decarbonisation and fair competition?
Two fixes are essential: close the scrap loophole and delay the inclusion of indirect emissions. Anything less risks undermining both climate integrity and industrial competitiveness.
CBAM can still become a credible mechanism that supports EU climate leadership and key sectors like aluminium, if policymakers stay focused on rewarding real progress and keeping European industry strong and sustainable.
[1] Source: Calculations based on material flow model of International Aluminium Association (IAI), CBAM Regulation
[2] Carbon Premium: CRU analysis shows CBAM on imported primary sets a carbon premium in the EU, impacting all aluminium prices, incl. scrap and downstream. Source: Arkwright research, Hydro analysis.Assumed ETS 2035 price: €140/t. Recycler cost estimates based on EU/EEA pre-consumer scrap priced at EU primary incl. CBAM. Low-cost recyclers assume 75% post-consumer scrap (30% CBAM impact) + 25% standard ingot. Both scenarios include higher direct emissions costs.
Ana Mingo is Senior Manager, EU Affairs – Energy & Climate, Hydro, [email protected]
Norsk Hydro is Europe’s largest aluminium company, operating in 20 European countries and employing over 18,000 people across the continent. The company’s global presence spans more than 40 countries and covers the entire aluminium value chain—from bauxite mining, alumina refining, and aluminium smelting and recycling to the world’s largest network of aluminium extruders. Hydro also produces renewable energy to power the green industrial transition. Its roadmap to achieve net-zero emissions by 2050 or earlier is aligned with the objectives of the EU Green Deal.
Lambert Guilbault, Senior Manager, Corporate Affairs, Europe, Alcoa, [email protected]
Alcoa Corporation is active in all aspects of the upstream aluminum industry with bauxite mining, alumina refining, and aluminum smelting and casting. The Company has direct and indirect ownership of 26 locations across nine countries on six continents, including Iceland, Norway and Spain. Alcoa has an ambition to reach net-zero emissions (Scope 1 and Scope 2) by 2050, with interim targets to achieve a 30% reduction by 2025 and a 50% reduction by 2030.
Any opinions expressed in this commentary reflect the views of the authors and not of Carbon Pulse.
