Impact of CBAM on Asia’s iron and steel market BOX 11 Europe’s Carbon Border Adjustment Mechanism (CBAM) comes into full force on 1 January 2026. It will require all importers of specified commodities – including iron and steel – to surrender CBAM certificates priced off the weekly EU’s Emission Trading System (ETS) auction price. The calculation will based on the following: embedded emissions of imported commodity (tCO2) x CBAM price (€/tCO2) minus any domestic carbon price already paid in the country of origin that meets EU criteria. In July 2025, analysts forecast this price would average ~€73/tCO2 for Q3 2025, rising to €108 by 2027, as the free supply and auctions of CBAM certificates contracts. Both South Korea and Japan are exposed to CBAM through their exports of largely flat steel of automotive or industrial grade. The EU imported ~3.21 Mt of flat steel from South Korea in 2024 and ~1.75 Mt from Japan in 2023. Most of this steel is produced using carbon-intensive BF-BOF mills, with average emissions of ~2.3 tCO2/t steel. Calculating the actual levy on steel from CBAM is complicated and will depend on the emissions values the EU sets for imported steel under CBAM as well as the final benchmarks used for deducting free allowances, which will not be available until early 2026. Best estimates for the likely CBAM levy in 2026 currently range from €50-60 per tonne of steel. Europe has been paying an average of €500-550 per tonne of imported hot-rolled coil (a type of flat steel used as a proxy). Consequently a CBAM levy of €55 per tonne would be equivalent to ~10% of the steel’s value – similar to an import tariff, although the EU characterizes it as an environmental compliance mechanism. Korea has a mandatory ETS, but prices are far below the EU ETS rate; Japan has a voluntary ETS, with plans for it to become mandatory from 2026. So currently, deductions from the CBAM levy would be low to zero. CBAM will therefore have a significant effect on East Asia’s steel exporters. They may choose to export to other markets without a carbon price, or they may choose to ramp up exports of steel made using the scrap-EAF route, which averages emissions of ~0.7 tCO2/t. Equally, they may decide their trade with Europe is sufficiently valuable to invest in importing green iron ore from producers such as Australia. There is also another scenario. Given that the EU’s CBAM allows for deductions of domestic carbon prices already paid in the country of origin, subject to EU criteria, countries across Asia might opt to align their national ETSs with EU ETS – or create an Asian CBAM. At least then, exporting nations stand to benefit by collecting the carbon levy from their own exporters rather than seeing Brussels pocket the cash. Source: see endnote.128 Unlocking Asia-Pacific as a First Mover: Australia’s Green Iron Opportunity 44

Unlocking Asia-Pacific as a First Mover 2025