Aluminum industry mulls unveiled CBAM benchmarks, default values

Aluminum producers are digesting the preliminary benchmarks of the European Commission's Carbon Border Adjustment Mechanism, which will determine how their exports to the EU will be charged.

According to a leaked draft text seen by Platts, part of S&P Global Energy, CO2 emissions benchmarks are arranged in two columns -- A and B for all CBAM-applicable customs codes. Column A contains emission values typical of only the production process aligned with the customs code, and Column B has benchmarks that incorporate all the emissions embedded in that product.

"Values in Column A are used for cases when the importer/exporter provides up-to-date, verified emissions data, but when this is not the case, default values must be used, and these are found in Column B," Kyiv-based metals industry expert Stanislav Zinchenko told Platts, part of S&P Global Energy.

"This is because there are two approaches to determining the volume of emissions for calculating CBAM: one uses actual emissions, if they are measured and verified, and the other uses default indicators. Each has its own specifics for calculations," he said.

For unwrought aluminum, alloyed and not alloyed (under HS codes 76011010, 76011090, 76012030, 76012040, 76012080), default values and emissions typical for the smelting process, so values in Column B and Column A, fully coincide being 1,464 metric tons of CO2 per ton of metal for primary aluminum and 139 mtCO2/mt if more than 50% of the aluminum is produced from scrap.

The Column A benchmarks for processed aluminum ascend from 69 mtCO2/mt for powders, to 86 mtCO2/mt for the majority of products, including bars, rods, wire and profiles, to 91 mtCO2/mt for profiles, tubes, pipes and sections, to 252 mtCO2/mt for more complex products, including foil, panels, containers, casks and reservoirs. And these values -- as they only reflect emissions of the rolling, drawing and finishing stages of production -- must be added to the above stated ones for unwrought aluminum to arrive at the overall carbon emissions embedded in the finished product.

Therefore, total emissions from the finished mainstream aluminum products will be within the 1,533-1,555 mtCO2/mt and 210-230 mtCO2/mt ranges, depending on whether the metal is made from scrap or primary raw materials. The above levels correspond to free allocations that are not subject to taxation with any excess in real emission volumes incurring a CBAM cost.

To work out the CBAM tax using default benchmarks from Column B, another document is needed -- leaked alongside the table with benchmarks -- which contains the estimated carbon intensity averages of production specific to each exporting country.

"To determine the CBAM charge if actual verified emissions data are not available, one needs to take their country's carbon intensity for the commodity they export and subtract the corresponding benchmark from Column B, adjusted for the CBAM factor, and the ETS [emissions trading system] carbon cost will be applied to the difference," said Zinchenko.

However, whereas Column B has different benchmarks for different production routes, the default country-specific carbon intensity list is misaligned with this principle, as it has values for only one dominant production route for the vast majority of countries, according to another Kyiv-based industry analyst, Andrey Tarasenko.

"If you, as producer, make your metal from recycled materials, and rely on default emissions data, you will still have to use the carbon intensity benchmark assigned to producers using primary raw materials," he said.

"It seems that this is very much a work still in progress with more to be ironed out in a very short space of time," said Karen Norton, aluminum analyst at S&P Global Energy CERA. "We were concerned that secondary aluminum might be a bit of a loophole, but now, in fact, the opposite seems to be the case, and EU CBAM could be punitive to recyclers exporting to the EU. In an era where recycling is likely to become increasingly critical, this may support the domestic EU scrap sector, stemming scrap leakage by reducing imports and increasing domestic efforts."

Daniel Biedrawa, deputy commercial director at the Czech Republic's Moravia Steel, said in a Nov. 18 post on LinkedIn: "The benchmark table (Column B) distinguishes production routes. Logically, [country-specific] default values should mirror this structure. Instead of a single default value per product and origin, one would expect a set of default values aligned with each production route."

Tarasenko added: "It seems the intention of a whole set of carbon intensities being missed there is to encourage sellers/producers to disclose their emissions, so that more and more of them start measuring, verifying and reporting them."

Additionally, Biedrawa also said in his post that the provisional CBAM benchmarks were based on outdated values using the ETS reference period of 2021-2025, and so "all CBAM cost calculations circulating today underestimate the final values."

"Once the benchmarks are updated to incorporate ETS benchmarks for 2026-2030, CBAM obligations will increase significantly," he added.