How the US CBAM will affect the steel industries of different countries

The European Carbon Border Adjustment Mechanism (CBAM) is radically changing global trade. From 2026, importers will have to pay for the carbon footprint of products, which is already forcing countries to review their climate policies.

Many countries are responding by introducing similar mechanisms or their own emissions trading systems. The US also plans to launch its own carbon adjustment mechanism, the Foreign Pollution Fee Act. It could significantly affect steel trade flows for countries that are heavily dependent on exports to the United States.

Pilot project

CBAM has been in place since October 2023 in transitional mode and will be fully implemented from 2026. This instrument has already become a serious challenge for global trade. By introducing a carbon pricing system at its external borders, the EU is effectively forcing other countries to adjust their climate policies and reassess their positions in the global competitive environment.

According to GMK Center’s analysis, countries’ responses to the EU initiative vary and can be classified into several categories. Some countries are opting for legal and political opposition (e.g., South Africa, India, Russia, China), while others are developing internal carbon pricing mechanisms (Canada, the US, the UK, Turkey, and others) or even creating national equivalents of CBAM. At the same time, many countries are combining different approaches: for example, India and China, while criticizing the European mechanism, are simultaneously developing their own emissions trading systems.

These initiatives indicate the emergence of a global trend toward the introduction of carbon border adjustment mechanisms, which will have significant implications for international trade in carbon-intensive goods, including steel products.

Although a number of studies show that measures such as CBAM can help reduce carbon emissions and stimulate environmental regulation in other countries, they are essentially protectionist tools aimed at protecting the domestic market of the countries implementing them from cheap imports, supporting their own carbon-intensive industries, and facilitating their transition to green technologies.

American attempt

The US is preparing its own carbon adjustment mechanism – the Foreign Pollution Fee Act (FPFA). The proposal outlines a tiered system of ad valorem carbon tariffs, under which importers would pay a percentage-based fee on goods. The fee would rise depending on how much more carbon-intensive the foreign product is compared to its U.S.-made equivalent. The FPFA will not replace Section 232, but will impose a carbon-based tariff in addition to existing duties.

According to a study by Global Efficiency Intelligence, if the FPFA is introduced, projected revenues from steel imports will range from $3.0 billion to $7.8 billion by 2030. There may also be significant potential changes in the structure of steel imports into the US. With import demand elasticity of -1.0 (base scenario), steel imports will decline by 34% from current suppliers in 2026 compared to 2024 levels, representing a decrease of 12.7 million tons per year.

The FPFA is expected to cause a sharp decline in US steel imports from high-carbon-intensity suppliers, with the largest reductions for China (-95%) and Vietnam (-85%). Against this backdrop, the significant declines for India (-48%), Japan (-44%), the UK, Brazil, and South Korea (-40%) appear moderate. Canada is expected to experience relatively minor impacts (-10%). No reductions are forecast for Mexico and Turkey. The average global decline in imports is 29%.

At the same time, the FPFA remains a Senate bill, and it’s too early to say whether it will be passed. Even if it were adopted tomorrow, it wouldn’t take effect for another 36 months. The document has the support of American steelmakers , cement manufacturers, and solar power producers, but environmental protection is unpopular among some members of the Republican Party. President Trump has not publicly expressed his opinion on the bill.

The FPFA provides for an international partnership program: countries that join a carbon tariff union with the US by adopting comparable import measures may receive a reduction or exemption from duties on their exports.

In addition, the Global Efficiency Intelligence study recommends aligning the FPFA with the CBAM through mutual recognition of methodologies and verification systems to reduce compliance costs.

European Union

U.S. study projects that the Foreign Pollution Fee Act could sharply reduce steel imports from high-carbon-intensity suppliers in the EU

The estimated impact on specific EU countries will be as follows (with demand elasticity of -1.0):

• the largest decline – the Netherlands (-54%), Austria (-49%), the United Kingdom (-40%);
• average decline – Germany (-32%), France (-28%);
• minimal impact – Spain (-7%).

No reduction is forecast for Italian steel exports to the US.

At the same time, based on estimates of greenhouse gas emissions intensity in the steel industry in the EU and its main trading partners, European steel exports to the U.S. valued at over €6.2 billion could be at risk once the FPFA is implemented (the calculations were made only for large export items, each of which exceeds €100 million per year.)

With the structure and volume of European steel exports to the US remaining unchanged, the costs for European exporters after the launch of the FPFA could amount to (at the following emission prices):

• €50/t CO₂ – $199.4 million;
• €100/t CO₂ – $398.8 million;
• €200/t CO₂ – $797.6 million.

Turkey

A study by Global Efficiency Intelligence notes that the introduction of FPFA will not lead to a reduction in Turkish exports to the US. This reflects the lower average carbon intensity of steel production compared to American producers. Turkey has lower emissions in steel production thanks to the use of electric arc furnaces (EAF), which are significantly less carbon-intensive than traditional blast furnaces.

If the structure and volume of Turkish steel exports to the U.S. remain unchanged, the estimated costs for Turkish producers under the FPFA could reach:

• €50/t CO₂ – $295.5 million;
• €100/t CO₂ – $591 million;
• €200/t CO₂ – $1.2 billion.

Ukraine

The potential launch of FPFA threatens Ukrainian steel exports to the US, as Ukrainian steel products generate more emissions than their American counterparts in all major categories. In particular, this applies to shipments of pig iron, stainless steel shapes, and seamless pipes worth $492 million (as of 2024).

Assuming that the structure and volume of Ukrainian exports to the US remain unchanged, the costs for Ukrainian exporters after the introduction of the FPFA could amount to:

• €50/t CO₂ – $29.5 million;
• €100/t CO₂ – $59 million;
• €200/t CO₂ – $118.1 million.

The launch of FPFA could be an additional blow to Ukrainian exporters, who are already under pressure from numerous US trade restrictions – anti-dumping duties, Section 232 restrictions, and a 10% duty on all Ukrainian exports.

Conclusions

The introduction of carbon border adjustment mechanisms, such as CBAM in Europe and the potential FPFA in the US, represents a fundamental shift in global trade in steel products. Although the bill has not yet been passed and its fate depends on the political situation, the potential consequences for the global steel industry are already clear.

For countries adopting such mechanisms, they serve as tools to shield domestic markets from imports and provide support for local producers. For countries where steel industry and other energy-intensive industries are an important export item, these measures may mean increased costs, the need for significant investments in green technologies, changes in supply chains and reporting. But they also create incentives for modernization, stimulate domestic emissions accounting policies, encourage the establishment of ETS or similar mechanisms, and may improve the long-term competitiveness of those producers who manage to adapt.

Ukraine faces the most serious challenges, as its economy is heavily dependent on exports of carbon-intensive steel products, so obtaining a CBAM deferral is a matter of economic survival. At the same time, Ukrainian businesses recognize the need for green modernization and are calling on the government to attract international sources of funding for decarbonization projects, including EU funds.