Aluminium companies warn of EU carbon border tax loophole

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European aluminium producers are warning that a loophole in the EU’s carbon border tax will lead heavily polluting exporters such as China to circumvent the rules and flood the bloc with low cost, emissions heavy metal.

Under the EU’s proposed carbon border tax, a levy on the amount of CO₂ emissions produced during the manufacture of goods imported into the bloc, offcuts of aluminium which are remelted can be sold as a zero carbon product even if the virgin material was produced with coal or other fossil fuel power.

Aluminium companies including Norsk Hydro and Speira told the Financial Times that the so called carbon border adjustment mechanism (CBAM) incentivised producers outside the EU to generate as much scrap as possible which would be then be remelted and exported to Europe.

“This loophole enables the widespread greenwashing of imported aluminium products and undermines the effectiveness of CBAM in preventing carbon leakage,” said Hilde Merete Aasheim, chief executive of Norway’s Norsk Hydro.

Lightweight and durable, aluminium is vital for building aircraft and cars and is used in solar power components. However, it is the most energy-intensive metal known in the industry and is sometimes referred to as “solid electricity”.

Aluminium production accounts for around 3 per cent of the world’s industrial emissions, according to the International Energy Agency.

The CBAM will initially be introduced without charges during a trial phase that starts in October this year; producers will have to pay the levy from 2026. In the initial phase, it will cover seven different sectors including aluminium, iron, steel, fertiliser and hydrogen.

The aim is to prevent products made with lower cost but dirtier production processes from undercutting companies within the EU that have to comply with the bloc’s stricter climate laws and pay for pollution under the EU’s emissions trading system. EU officials hope that it will promote more rapid decarbonisation in industrial sectors around the world.

In the EU, smelters emit around 6.8kg of CO₂ for every kilogramme of aluminium, compared to a global average of 16.1kg of Co2 per kg, according to the trade body European Aluminium.

But the loophole risks undercutting its purpose, say its critics.

Ana Šerdoner, senior manager in industry and energy systems at the environmental NGO Bellona, said that some manufacturers “might use [this loophole] to reshuffle their exports a bit and make sure those scraps are remelted and sold to Europe as carbon neutral”.

Europe’s aluminium producers’ claims come on top of concerns about a lack of rebates for exports containing imported aluminium that had been taxed, finished products such as cars or cans containing highly polluting aluminium being allowed in without paying for emissions generated in metal production and the loss of the sector’s free emission allowances.

“The details and current design raise more concerns than opportunities,” said Volker Backs, head of public affairs at Speira, a large German aluminium rolling and recycling company, who warned of CBAM’s impact on Europe’s broader manufacturing competitiveness.

Paul Voss, head of European Aluminium, said that if the measures were poorly designed the sector “will be undercut so badly there will be nothing left to decarbonise and it won’t help the planet”.

Europe’s aluminium industry has already been ravaged by higher energy costs after Russia invaded Ukraine, leading to approximately half of the EU’s smelting capacity to shut.

For some, opposition to CBAM is more fundamental. Nick Keramidas, executive director of EU Affairs at Greek aluminium producer Mytilineos Energy & Metals, said that the domestic producers facing soaring costs needed a level playing field.

“CBAM threatens to cripple European production out of serving the European and global market. It would actually cause the problem it seeks to address by causing more carbon leakage,” he said.

The CBAM has been heavily contested by countries outside the EU, which argues that it punishes producers in less developed nations that are economically reliant on exports to the bloc.

The European Commission, which is consulting on the final details of CBAM until July 11, declined to comment.