On January 1st, without any major announcements, the European Union’s Carbon Border Adjustment Mechanism came into effect.
An instrument that, for better or worse, could have an even more disruptive impact on steel, aluminium and cement trade than Donald Trump’s tariffs .

What it is

As the name implies, it is an adjustment of the price of certain goods produced in non-EU countries when they cross the border into EU countries: their price will be artificially raised to make them cost what they would have cost had they been produced within the EU borders, where environmental obligations are much more stringent.

When Indian steel or Chinese cement is sold in Italy or Germany, in short, the CBAM is expected to cancel out much of the advantage of having them produced in India or China.
For about a decade, in fact, European industrialists have been forced to buy ‘carbon credits’ to ‘compensate the collectivity’ for the so-called ‘negative externalities’ of their use of polluting fuels, starting with the greenhouse effect.

Their goods, as a result, cost considerably more to the customer who buys them (e.g. Ansaldo buying a tonne of steel) and slightly more to the end consumer (e.g. who buys a train made from that tonne of steel).

None of this happens when the same product is manufactured in China and India, nor in historically industrialised countries such as Turkey, Japan and South Korea.
Well, starting this year, European companies that try to import steel, cement or other products from these countries will have to buy ‘CBAM certificates’ of roughly the same value as ‘carbon credits’.

At first glance, therefore, it is a measure thatrebalances in favour of Europe a competition against the rest of the world that for more than a decade has been rigged, keeping (or even bringing back) within European borders the most polluting productions and gaining three advantages: jobs, industrial self-sufficiency and benefits for the planet.

Too good to be true?

Environmental impact

Indeed, there is no shortage of controversial aspects.

Let us start with the climate impact. Measuring it is not difficult: just estimate how much steel, aluminium and cement will be produced again in Europe instead of outside (the range is 20% to 30%) and calculate the delta between the emissions caused by producing it there and those caused by producing it here.

The result? A scant 0.1% of the world’s current greenhouse gas emissions.

This figure, at first glance, might turn the noses of many. Much ado about nothing?
In reality, the matter is more complicated. Climate advocates trust that the CBAM will accelerate the evolution of non-European countries towards less impactful production systems that Europe is already successfully using, and not only for the small share of materials they sell to us, but in general.

In fact, beyond the freakish fantasies about ‘green steel’ and ‘houses made of biomaterials’, our companies already use efficient technologies such as electric arc furnaces (44% of steel production, with up to 7 times lower emissions) or cement factories using CSS made from waste (52% of cement production, with about 1/3 lower emissions).
By contrast, China, India and other industrial powers are still dependent on backward technologies such as the classic coal furnace, and their plants are deteriorating rapidly.

The twelve-star environmentalists are betting, therefore, that these alternative suppliers will seize the opportunity to completely renovate their plants and adapt them to the European model, thus causing a drop in emissions of much more than 0.1%.

Is it neo-colonialism? Yes and no

Those who detect a neo-colonial flavour in this reasoning are not wrong.
At a time when European (and in general Western) states have gone from being predators to being prey in global economic competition, raising the bar on environmental standards has been a deliberate strategy to tick off some of their adversaries’ weapons and put the fight back on advantageous ground.
The ‘COP’ and ‘Paris Agreement’ charades have always failed for this very reason.

Beware, however: today’s world is no longer the world of thirty years ago, and there is no longer a sharp divide between the advanced West and the ’emerging’ or ‘developing’ countries.

That of the ‘Global South’ is a fairy tale for the gullible: players such as Brazil, Mexico or Turkey already have demographic and economic characteristics such that they are slipping over to our side of the fence, pressed by new, younger and more aggressive producers.

China too, in theory, would be in the same situation, if its regime did not force it to maintain a disproportionate industrial sector chained to exports just to project international power.

And so the reaction to the CBAM has been mixed.
Countries more akin to ours, such as the UK, Brazil, Turkey, Canada and Japan, have started thinking about a system similar to our ‘carbon credits’ which (among other effects) would allow them to avoid CBAM controls when trading with us.
Eventhe US is doing something along these lines.

India and China, on the other hand, have chosen frontal condemnation. In no uncertain terms they have declared that the CBAM is a tariff and that it breaks the rules of the World Trade Organisation (to which Putin’s Russia, paradox of paradoxes, had appealed last May).
After all, today a tonne of steel produced in Europe costs between $700 and $750, at least $150 more than in China and India. Up to $100 of this surcharge is due to spending on ‘carbon credits’ and would be offset by the CBAM.

For Beijing and New Delhi, the damage would be real.
But are we sure that, by choosing the hard line, the two capitals are not merely postponing an appointment with the reconversion of their immense heavy industry that is in any case inevitable?

The industrial impact

More worrying are the protests coming in these days from some industry associations.
The two-year ‘transition period’ (2023-2025), in which European importing companies simply had to calculate the environmental impact of the goods they import, has shown that it is a difficult and costly task: in fact, it is yet another bureaucratic obligation made in Brussels that sucks up time and money.

There is also a risk that should not be underestimated: that the factories where the finished product is assembled (e.g. a train), rather than importing steel at higher costs and with longer lead times, will migrate directly to India and China, moving the entire value chain there.

In short, it is feared that the CBAM, instead of curbing the industrial desertification of Europe as proposed, will accelerate it further. For acronyms such as Federacciai and Federchimica, the CBAM is not a counterweight to other European ecological regulations, but just the final nail in the coffin.

Beyond this extreme criticism, another consideration must be made about the industrial impact of the CBAM.
The European industrial system is currently in ‘overcapacity’ on products such as steel: it would have enough factories to produce at least 30% more than it does.
The low demand, somewhat counterintuitively, discourages economies of scale and contributes to price increases.
Similar is the situation for aluminium, whose production in Europe has plummeted by 1/3 since 2005 (when it was already three times less than imports anyway), and for cement, of which even imports are falling.
‘Bringing production back to Europe’, if the products then have no outlet, remains a wishful thinking or a pure propaganda tool.

Conclusion: let’s not miss the next steps

The CBAM is not a panacea that can only guarantee benefits at no cost.
No political act is.

But neither can the CBAM be dismissed as one of the many ecological absurdities of the first Von der Leyen Commission (such as the regulation requiring, for example, that 20 per cent of each country’s territory be set aside for ‘nature restoration’ zones without distinction, or the one banning all non-electric engines by 2035). Its effectiveness, as always, will depend on the context and other decisions that European states will take in the coming years. Rearmament, for example, could absorb a substantial part of the materials affected by the CBAM.
In this respect, the regulation is worryingly ambiguous: some goods for the military industry are exempted, but the definition of which ones is not clear enough.

A substantial drop in the price of energy, to take another example, could eliminate another of the decades-long reasons why European industry is suffering compared to its rivals, and make the CBAM more acceptable to entrepreneurs.

The one mistake not to make is to fall in love with an ideological dream that leads one to see only the consequences of the CBAM that one wants to see, ignoring the more uncomfortable ones.
And this applies to both green and black ideological dreams.