Sustainability, trade, and industrial acceleration

Figure 1: Steel products are subject to EU sustainability, trade, and industrial acceleration regulations

Note: Author’s visualisation based on European Union (2025)ⁱ, European Commission (2025)ⁱⁱ, and European Commission (2026)ⁱⁱⁱ. * indicates product groups that are considered for the CBAM product scope expansion in 2028 (European Commission 2026^iv and European Council 2026^v).

The EU Carbon Border Adjustment Mechanism (CBAM) is designed to level the competitive playing field between imported and domestically produced carbon-intensive products such as cement, aluminium, fertilisers, iron and steel, hydrogen, and electricity. In a nutshell, CBAM applies the carbon price paid by domestic produces in the EU Emissions Trading System (ETS) to imported products^v.

After a transitional period (October 2023 – December 2025), CBAM entered fully into force on 1 January 2026. Since then, only businesses that successfully applied for authorised declarant status can import CBAM-products. In addition, businesses need to partially offset the emissions embedded in their imports by purchasing CBAM certificates which are priced based on the ETS. 

CBAM currently applies to a range of carbon-intensive products. With 84%, however, iron and steel account for the large majority of CBAM products. These iron and steel products are widely used in industries like construction, manufacturing, transportation and infrastructure development, and range from raw materials (e.g. ores, pig iron, and ferro-alloys), to semi-finished products (e.g. ingots, flat-rolled products, bars, rods, and wires), and finished goods (e.g. tubes, pipes, structures, containers, and fasteners). In 2028, the product scope of CBAM is expected to be expanded to additional downstream iron and steel as well as aluminium products including machinery and mechanical appliances, vehicles and vehicle parts, construction materials, and other metal products^vi (Figure 2).

Figure 2: The product scope of CBAM is likely to be extended significantly

Note: Author’s calculation and visualisation based on European Union (2023)^viii, European Commission (2025)^ix, Council of the European Union (2026)^x, and European Parliament ENVI Committee (2026)^xi. *This represents the proposal of the ENVI Committee.

For businesses, CBAM results in both direct and indirect additional costs for importing. The direct costs are primarily linked to the purchasing of CBAM certificates to partially offset embedded emissions. The indirect costs are related to the increased need to engage with suppliers, to collect and process data, and to establish responsibilities for reporting as well as the strategic planning of imports to reduce financial exposure.

As outlined in detail in a previous article^ix, the majority (63%) of iron and steel products that currently fall under CBAM, also fall under the recently introduced EU steel overcapacity regulation “aimed at addressing the negative trade-related effects of global overcapacity on the EU steel market.”^x This regulation entered into force on 1 July 2026 and replaced the current EU steel safeguard measures which have been in place for eight years but could not be extended. In a nutshell, this regulation reduces the overall volume of steel tariff-rate quotas (i.e. the quantity above which a tariff becomes applicable) by about 50% compared to 2024 and doubles the out-of-quota duty from 25% to 50%. In other words, tariffs will become applicable twice as quick and be twice as high.

Figure 3: Many steel products fall under both CBAM and the EU steel overcapacity regulation

Note: Author’s calculation and visualisation based on European Union (2025)^xi and European Commission (2025)^xii. The numbers indicate the products at the Combined Nomenclature (CN) 8-digit level.

While sustainability (i.e. CBAM) and trade (i.e. tariffs) regulations make it increasingly expensive for EU based businesses to import steel products, the European Commission (EC) is proposing an Industrial Accelerator Act (IAA) that aims to increase the share of manufacturing in EU gross domestic product (GDP) from 14% in 2024 to 20% by 2035^xiv. To do so, the EC plans to accelerate permit processes for industrial and decarbonisation projects, regulate foreign investment in emerging industries, establish industrial acceleration zones to boost manufacturing, and promote strategic sectors with EU origin and low-carbon public procurement rules. These measures are focused on net-zero technologies, the automotive industry, and energy-intensive industries such as the manufacture of basic metals. A preliminary analysis indicates that around 86% of the iron and steel products currently falling under CBAM would also fall under the IAA.  

In summary, while the cost of importing steel products into the EU increases due to CBAM and steel tariffs, domestic producers of these very products may be able to benefit from the IAA. While the proposed IAA explicitly establishes a “Made in EU” framework, it is important to point out that countries with relevant bilateral EU trade agreements and members of the World Trade Organisation’s Agreement on Government Procurement (WTO GPA) may also benefit from the IAA.  

For Swiss businesses, this regulatory environment is complex. Imports of Swiss origin to the EU are exempted from CBAM as the Swiss and EU ETS have been linked since 2020^xv. Imports of Swiss steel to the EU, however, are not exempted from the EU steel tariffs^xvi. With regards to the IAA, it is expected that Switzerland will be considered as a “trusted partner” that, as a close economic partner to the EU and participant in the WTO GPA, will be treated equally to EU businesses in certain public tenders under the IAA^xvii. 

For decision-makers it will therefore be important to monitor the regulatory developments closely. With regards to CBAM, this should include the proposed scope expansion to downstream products. In the context of the steel tariffs, the focus should lie on the country-specific tariff-free quotas. For the IAA, the proposal’s legislative progress and the potential changes requested by the European Parliament and the Council of the European Union should be considered. In addition to these regulations, decision-makers should also keep a close eye on regulations such as the EU’s Ecodesign for Sustainable Products Regulation (ESPR) and the associated Digital Product Passport (DPP) which both identify steel as a priority^xviii.

In this article, we highlighted the regulatory developments that may lead simultaneously to a constrained supply of non-EU pre-products and a boosted demand for EU-made products. For affected businesses that poses questions in the short, medium, and long run. 

In the short run, decision-makers need to understand if they are impacted by CBAM and steel tariffs and how much these regulations affect their costs. At the very least, they need full visibility on the types and quantities of products they import from different countries.

In the medium run, the question should be addressed as to how to reduce the financial exposure within the existing set-up. In the context of CBAM, decision-makers may look into reporting based on actual data rather than default values as well as into strategically timing their imports to benefit from fluctuating carbon prices.

In the long run, decision makers may consider changing the set-up altogether. Given the constraints on the supply side driven by CBAM and steel tariffs and the demand stimulated by the IAA, businesses may indeed evaluate a reorganisation of their supply and value chains. 

If you are interested in exploring these questions further, please do reach out to learn more about our expertise on:

• CBAM and tariff compliance and governance.

• Financial modelling and hedging strategies related to CBAM. 

• Restructuring supply chains and supporting incentives for emission reduction technologies.