CBAM in Practice: Why the New Carbon Rules Are Creating Uncertainty for Foundries

As of the beginning of 2026, the Carbon Border Adjustment Mechanism (CBAM) has moved into its full implementation stage. This article explores how the new regulation is influencing the pricing of pig iron, ferroalloys and aluminium, while also highlighting the approaches industry players are taking to adapt to a new and challenging regulatory and market environment.

A comprehensive study by Maria Pisanu, published in In Fonderia, examines the consequences of CBAM for Italian foundries and highlights developments that are relevant across Europe. With the Carbon Border Adjustment Mechanism reaching its final implementation stage on 1 January 2026, European manufacturing, and especially the foundry sector, is facing significant changes. While the majority of Italian foundries do not directly source raw materials from outside the EU, the impact of this climate regulation is spreading through the entire value chain. Rising purchasing costs and considerable uncertainty among market participants are emerging as unavoidable consequences.

CBAM Implementation: Moving from Data Collection to Financial Commitments

The purpose of the Carbon Border Adjustment Mechanism (CBAM) is to ensure fair competition between imported products and goods manufactured within the European Union, where companies already face carbon-related costs through the EU Emissions Trading System (ETS). Following the conclusion of the transitional period on 31 December 2025, companies now face substantially different requirements. Businesses importing CBAM-regulated materials, including pig iron, ferroalloys and aluminium, must first obtain the status of an Authorised CBAM Declarant. In Italy, this approval is issued by the Ministry of Environment and Energy Security (MASE) in coordination with the Customs Agency. Imports above the annual exemption limit of 50 tonnes cannot be carried out without this authorisation.

The exemption threshold is calculated according to the total quantity of imported goods and was introduced to exclude smaller-scale imports from the obligations. However, the European Commission may review this limit every year, increasing or decreasing it in steps of at least 15 tonnes. The most significant change in the definitive CBAM phase concerns the financial requirements. Companies holding authorised declarant status must submit an annual CBAM report and surrender a number of certificates corresponding to the embedded carbon emissions of the imported products.

For materials imported during 2026, CBAM certificates will be acquired via a central European trading platform, which is expected to become available only in February 2027. The first certificate surrender deadline has been set for 30 September 2027. This gap between the time when materials enter the market and when the related carbon costs are determined has introduced considerable uncertainty. Raw materials are already being purchased and processed, while the final environmental costs linked to these imports will not be known with certainty until more than twelve months later.

Throughout 2026, certificate prices will be calculated using the average closing price of ETS auctions from the respective quarter. Starting in 2027, the calculation method will shift to a weekly average ETS price. According to a raw materials trader interviewed by In Fonderia, the main challenge is that CBAM currently depends on systems and calculation methods that are still being established. This lack of operational clarity has contributed to ongoing uncertainty across the market. Companies have therefore had to create their own strategies for managing the new requirements, resulting in very different approaches. The industry expects that the opening of the verifier registry in September 2026 will provide greater transparency by clarifying the exact calculation and payment obligations. Some companies have chosen to base their calculations on emissions data supplied directly by their long-standing producers and accept the related risks, relying on established business relationships and confidence in the accuracy of the information provided. Other market participants have adopted alternative methods for handling the new CBAM requirements.

The Challenge of Default Emissions Data and Unclear Calculation Methods

One of the most pressing questions surrounding CBAM remains: how will embedded emissions actually be determined in practice? The regulation currently allows importers to choose between two methods. They can either submit verified emissions data provided by the non-EU manufacturer or use the default emission values defined by the European Commission. However, during the definitive phase, companies may only rely on actual emissions figures if these have been validated by an accredited verifier. As the official verifier registry will not be available until September 2026, many importers will have no choice but to apply default values for much of the first year of implementation. These default values were deliberately established as a strict measure. They are calculated using the average carbon intensity of the exporting country and include an additional factor designed to penalise insufficient reporting or failure to comply with CBAM requirements.

If national emissions data are considered unreliable, the European Commission applies the average emission intensity of the ten countries with the highest emission levels worldwide for the respective product category. For example, pig iron originating from Saudi Arabia receives particularly high default values because no recognised country-specific parameters are available. The uncertainty is increased further by the complexity of the formula used to calculate the final CBAM charge. Several elements of the calculation are still not fully defined, including the Cross-Sectoral Correction Factor (CSCF), which is linked to the progressive phase-out of free ETS allowances for European producers. As importers explain, companies are currently assuming a CSCF value of 1 for practical purposes. However, until the final implementing regulation has been published, the actual influence of this factor remains unclear.

This uncertainty has led companies to develop different approaches for handling future CBAM expenses. Some suppliers continue to offer a basic market price and add the CBAM-related costs separately through an additional invoice once quarterly ETS prices have been confirmed. This model enables foundries to estimate their financial exposure while settling the final amount retrospectively. Although this approach shifts part of the uncertainty to customers, it provides a high level of transparency. The market response, however, remains inconsistent: some companies use separate CBAM surcharges, others include fixed additional costs in their pricing, while some have not yet factored in CBAM expenses and plan to resolve the payments only in 2027. The last approach carries considerable risks. Importers that currently disregard CBAM-related costs may offer artificially lower prices than competitors, creating downward pressure across the market. The consequences of this strategy will become clear in September 2027, when the European Commission requires companies to provide a complete overview of the certificates that must be surrendered.

Rising Raw Material Costs: The Financial Consequences of CBAM for Foundries

The introduction of CBAM is expected to have a considerable effect on foundry cost structures, particularly when it comes to the procurement of imported raw materials. Pig iron represents one of the most significant examples. Italy currently sources almost 90% of its pig iron demand from countries outside the European Union. Based on a CO₂ price of €80 per tonne, applying the default emission values could increase the cost of South African pig iron by approximately €210 per tonne in 2026. This additional financial burden is expected to rise further in the coming years as CBAM-related adjustment factors gradually increase.

The impact varies considerably depending on the country of origin. Ukrainian pig iron is estimated to become around €100 per tonne more expensive, whereas Brazilian pig iron is expected to see a comparatively smaller increase of approximately €40 per tonne. These major differences in CBAM exposure are already influencing international sourcing strategies. “Default values are exceptionally high for certain countries of origin,” explains one market participant. “This has led to a sharp increase in demand for Brazilian pig iron. Many Brazilian producers are already preparing verified emissions reports, which could significantly reduce or even eliminate their CBAM-related costs. Even without this verification, Brazil remains one of the countries with the most favourable default values. As a result, buyers have increasingly turned to this source, driving prices upwards.”

Ferroalloys are facing similar challenges. Around 75% of Italy’s ferronickel supply is imported from outside the EU, with Indonesia accounting for approximately 56% of these imports. Due to its high emission intensity, Indonesian ferronickel could face a CBAM surcharge of around €335 per tonne in 2026, assuming a CO₂ price of €80 per tonne. By 2028, this additional cost could rise to nearly €480 per tonne.

Other ferroalloys, including ferromanganese and ferrochrome, are also expected to experience significant cost increases, with the impact depending heavily on their carbon intensity. Low-carbon ferromanganese, for example, could already see additional costs approaching €400 per tonne in 2026. Primary aluminium is subject to similar pressures. Imports from non-EU countries represent around 68% of European primary aluminium consumption. In 2026, aluminium from Mozambique could face additional CBAM costs of approximately €170 per tonne, while imports from countries such as Malaysia or Oman may experience increases of around €40 per tonne. The overall market situation is therefore becoming increasingly complex, with considerable uncertainty for both suppliers and buyers.

“The wide variation in default values, together with the ongoing development of the certification system, is having a major influence on import decisions,” another industry participant states. “The impact depends not only on the country of origin, but also on the individual producer and the type of relationship between producer and trader. Some suppliers with whom we have maintained direct cooperation for many years have provided reliable commitments. They plan to submit verified emissions data once the certification process begins in September 2026. Based on current information, we can already estimate that their CBAM-related costs will be close to zero, as they operate electric furnaces and CBAM currently applies only to direct emissions. This level of transparency allows us to accept the associated risks. However, not every supplier provides the same degree of visibility. Large international groups often work through more complex distribution structures and are less willing to offer comparable assurances. In such cases, materials affected by high default values may lose their competitiveness entirely.”

Competitive Imbalance: How CBAM Creates Challenges for European Foundries

While the Carbon Border Adjustment Mechanism increases the cost of important raw materials used by European foundries, it currently offers only limited protection against the import of finished cast components from outside the European Union. The current scope of CBAM covers many essential input materials, including pig iron, ferroalloys and primary aluminium. However, only a small number of finished cast products are included in the mechanism. A further weakness of the system is that, even for those castings that fall within the CBAM framework, only direct emissions are taken into account. Emissions resulting from electricity consumption are not included in the calculation. This regulatory gap creates a notable advantage for foundries located in countries where electricity generation is highly carbon-intensive. These producers may continue exporting cast components to the European market while facing very low or even zero CBAM-related costs. The consequence is a growing distortion of competitive conditions. European buyers are increasingly confronted with a difficult decision: either accept the higher and less predictable costs associated with castings produced within Europe or turn to suppliers from non-EU countries. In the long term, this situation could weaken the very industrial foundation that CBAM was designed to support.

Beyond Immediate Challenges: Why Further Measures Are Required

Since Europe does not have sufficient domestic capacity to supply strategic raw materials such as pig iron and primary aluminium, CBAM currently represents an additional financial burden for an industry that is already facing significant economic pressure. In response to these concerns, Assofond has been actively working with both national and European authorities to push for rapid improvements and adjustments to the mechanism. Until potential changes are introduced, foundries and raw material traders must operate in an environment of considerable uncertainty. Companies are required to manage substantial financial risks while adapting to a regulatory system that is still developing and whose practical implications continue to evolve. This article is based partly on insights and discussions from the webinar “CBAM Is in Force: Rules, Obligations and Critical Issues for Foundries”, organised by Assofond in February 2026 together with Kickster, a consultancy focused on climate policy and carbon markets.