CBAM and the Carbon Benchmark Dilemma: A Critical Moment for Global Stainless Steel Trade

By DONG-YU STAINLESS STEEL ENTERPRISE CO., LTD.

Introduction: When Climate Policy Meets Strategic Trade

The European Union's Carbon Border Adjustment Mechanism (CBAM), set to become fully operational in January 2026, is poised to reshape global stainless steel trade in ways that extend far beyond environmental regulation. At the heart of this transformation lies a single, yet unresolved, variable: the carbon benchmark. Its eventual determination could mean the difference between a manageable cost adjustment and a disruptive price shock, especially for importers serving the EU market.

As a global stainless steel company operating across multiple regions, DONG-YU STAINLESS STEEL ENTERPRISE CO., LTD. is deeply concerned by the current regulatory uncertainty and the potentially destabilizing effects on trade equilibrium, supply chain strategy, and the long-term competitiveness of non-integrated producers.

The Benchmark Conundrum: A Regulatory Blind Spot with Massive Implications

CBAM's stated goal is to equalize the carbon cost burden between EU-based producers (already governed by the EU Emissions Trading System) and foreign exporters. However, the critical question remains: what will be the benchmark level of carbon intensity for imported steel?

1.      If the EU sets the benchmark at 0.3 tonnes of CO₂ per tonne of stainless steel, reflecting advanced Electric Arc Furnace (EAF) technology used domestically, importers relying on traditional Blast Furnace (BOF) production routes could face carbon costs as high as €298.14 per tonne.

2.      On the other hand, if the EU adopts a more globally representative figure of 1.5 tonnes CO₂ per tonne, the cost drops to €198.69 per tonne, offering a more balanced view of current production realities across Asia, the Middle East, and parts of Latin America.

The sheer range of these projections, up to €100 per tonne in difference, creates a crippling cost unpredictability for importers. Long-term contracts, hedging strategies, and even customer pricing models cannot function without regulatory clarity.

The Cost of Uncertainty: Supply Chains in Limbo

This uncertainty is not just a theoretical inconvenience, it is a strategic and operational risk:

1.      Contracts signed in 2025 will likely outlive the announcement of the official benchmark, leaving companies unable to accurately model profitability.

2.      Lack of clarity on offsetting mechanisms or pre-payment rules under CBAM creates financial strain and administrative ambiguity.

3.      Importers may be forced to shift sourcing toward third-country processors or engage in indirect trade routes, increasing complexity, cost, and emissions paradoxically.

These cascading effects not only erode operational efficiency but may unintentionally incentivize carbon circumvention tactics, an outcome clearly at odds with CBAM's climate intent.

Global Equity and Structural Mismatch

More than 40% of stainless steel produced outside the EU still relies on carbon-intensive methods. If the EU carbon benchmark disregards this reality in favor of an idealized domestic standard, it risks:

1.      Penalizing emerging economies that are still transitioning to greener technologies,

2.      Triggering retaliatory trade measures and protectionist responses,

3.      Undermining the cooperative spirit necessary for a global green transition.

CBAM, in its current form, could become a de facto non-tariff barrier, particularly if it fails to provide differentiation for producers actively investing in emissions reductions but not yet on par with EU benchmarks.

Conclusion: Clarity Before Compliance

As one of Asia's leading stainless steel companies, DONG-YU STAINLESS STEEL ENTERPRISE CO., LTD. respectfully urges the European Commission to define the CBAM carbon benchmark immediately and transparently.

The benchmark must strike a careful balance: it must reflect the EU's climate ambitions while accommodating the existing technological and economic asymmetries across global markets. Only then can CBAM succeed as a climate tool, rather than devolve into a geopolitical instrument that fractures international trade.

For now, importers are being asked to plan supply chains and pricing strategies blindfolded. In a volatile geopolitical and financial climate, this is not sustainable.

We remain committed to supporting the low-carbon transition of the stainless steel industry and call on policymakers to work closely with industry stakeholders to ensure a fair, effective, and globally coordinated CBAM framework.