ESG Spotlight: EU Carbon Tax (CBAM), Winners and Losers

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Recently the EU signed the Carbon Border Adjustment Mechanism (CBAM) regulation. This legislation opens the door to competitors that may not have an economies of scale advantage, but may be able to utilize a low-carbon advantage to become more competitive. Our NLP highlights which major companies in the Materials and Industrials sector are set up to compete in the EU’s new low carbon environment.

On May 10, the EU signed the Carbon Border Adjustment Mechanism (CBAM) regulation, which is effectively a carbon tax on the import of select materials.

CBAM is designed to eliminate what is described as carbon leakage, which is when industries move or establish carbon-intensive operations in another country where climate change legislation is not as strict. In doing so, these companies can bypass emissions regulations in regions where carbon regulations are more defined.

The transitional period of CBAM will go into effect October 2023. This first phase will require importers to disclose the carbon emissions associated with their imports, but will not yet require additional taxes. The permanent system of full taxation on carbon intensive imports goes into effect in 2026. With this timeline, the most telling milestone for companies is not the 2050 net-zero target most companies have in place, but the intermediate targets for 2030 on emissions reductions.

For the first phase of CBAM, the European Commission has identified the following sectors as carbon intensive and most at risk for carbon leakage:

  • Cement
  • Iron and steel
  • Aluminum
  • Fertilizer
  • Hydrogen
  • Electricity

What's at Stake

Using Symphony’s NLP solutions, we can assess which major companies in the materials and industrials sector are set up to compete in this new low-carbon environment in the EU. Importers need to be conscious of carbon emissions for import costs in the EU, and companies that can sell goods like steel for cheap could lose their economies of scale advantage if they are not on top of their emissions targets. This potential scenario opens the door to competitors that may not have an economies of scale advantage, but may be able to utilize a low-carbon advantage to make their price of import more competitive. Even if a company is based in Europe, if it has operations abroad, it would still be subject to the same import tax for production that occurs outside the EU according to the CBAM model.

The category we are focusing on is the metals and mining sector that is primarily involved in two of the focus categories: iron/steel and aluminum.

Our Methodology

To begin the analysis, we have compiled data points on targets for emissions reduction, which have been extracted from the news and cross-checked with data points in company sustainability reports. This list includes a global selection of major iron ore miners, steel producers, and aluminum producers—all potentially subject to the CBAM regulation laid out by the EU.

Metals and Mining Emissions Goals—Beware the Baselines

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A few interesting things jump out from this chart. One is that almost every company has set a net-zero target for 2050. The outliers are Tata Steel, Fortescue Metals, and the Aluminum Corporation of China (known as Chalco).

Tata Steel has bumped up that net-zero target by five years to 2045. Chalco has no intermediate carbon goals upon further analysis, but the company states that it wants to be carbon neutral by 2060. Fortescue is maybe the most compelling of these outliers in that it wants to eliminate Scope 1 and 2 emissions altogether by 2030 and be net zero by 2040.

Another interesting point is that the Scope 1 and 2 reduction target values for 2030 make 2030 an important year that these companies should be planning for. Therefore, this should mean that the targets set out for 2030 are all comparable right? This is not actually the case because we also see that the baseline used by each company is different.

To correct for the baseline discrepancies, we have taken the total time horizons that each company has set for itself and calculated the average annual emissions target to adequately compare the rigor and intensity of that company’s goals.

Annual Targeted Scope 1 and 2 Emissions Reductions for 2030 (Adjusted to Correct the Baseline Discrepancies)
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Annualized Emissions Reductions a Good Indicator of Decarbonization Effort

Looking at the targeted reductions chart, we can see a much more substantial spread of carbon commitments. We’ve broken down the total timelines companies are giving themselves and amortized that reduction into an annualized rate based on the baseline they are using.

The one caveat is that the Aluminum Corporation of China (Chalco) does not have a 2030 target. But going by its net-zero goal for 2060 that was laid out in its 2020 Sustainability Report, we see that the rate equates to a roughly 2.5% annualized reduction target.


Companies at the top end of the spectrum in annualized emissions reductions are not only pursuing more rigorous targets, they are showing signs of progress that were shown in recent news headlines.

Fortescue Metals is by far the most eye-catching, based on the chart data. The Australian iron ore miner is using a strategy that revolves around CapEx initiatives to green its operations through renewables and becoming a global player in the green hydrogen space. Fortescue’s annualized emissions target is the most audacious in this group, and it signals the company’s ambition to pivot towards the green hydrogen space. The other companies on this list fall into a lower range with ArcelorMittal, POSCO, Nippon Steel, and JSW Steel landing at the tail end of the spectrum.

RioTinto has begun Blue Smelting, a pilot project for a low-carbon proprietary technology in Quebec. Schnitzer also has a zero-carbon steel product line called GRN Steel. Schnitzer is interesting in that it has always been a scrap-metal recycling company since its founding in 1906, and it doesn’t use mined source minerals. This makes it easier for Schnitzer to reduce emissions and focus on the recycling and upcycling systems that are becoming more valuable in the market today.


ArcelorMittal has recently come under scrutiny for having separate emissions targets for Europe and for the rest of the world. (The company has been developing coal blast furnaces in India while greening operations within Europe.) This is exactly the kind of carbon leakage that CBAM aims to eliminate through taxing based on the carbon intensity of material imports.

JSW Steel has the farthest time horizon as it is comparing its emissions reductions against a 2005 baseline, nearly a decade longer than every other company on this list.

The laggards on this list appear to be pursuing traditional steel-making methods with the continued use of new coal furnaces. Some of them are experimenting with piloting new technologies—like carbon capture and hydrogen injection in the case of Nippon Steel—but these companies are not ready for scaled production, such as the zero-carbon steel product lines of some of the leaders on this list. But the main reason these companies are behind is because the goals they have set are just not as ambitious as the goals set by the leaders. ESG goals and milestones are fluid, as we have seen with other companies time and time again. Although they may be behind now, it will be interesting to see if there is adaptation to CBAM regulations as they take shape.

The Carbon is in the Details

All the companies we’ve examined here could be subject to the EU Carbon Border Adjustment Mechanism when it goes into full effect in 2026, and the ones pursuing the most rigorous targets will be better positioned to pay lower taxes on imports of iron, steel, and aluminum. While a lot can change from a company perspective over the next two years, the annualized emissions reductions are a good indicator of the level of seriousness a company is pursuing decarbonization since each company sets the goal and the baseline year from which it is measuring.

Generally speaking, a more recent baseline year reflects a higher level of intensity in emissions reductions, and we can see that in the data we’ve presented.

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