The EU tightens the carbon wall – These are threats to Finnish companies

On Wednesday, the Commission presented significant changes to the Carbon Limit Mechanism (CBAM), which is a key tool for achieving the EU’s climate goals. According to the Commission, the reforms aim to secure the competitiveness of European industry.

The carbon limit mechanism introduced in 2023 is intended to equalize competition between EU and non-EU producers by setting a carbon price for imported products.

Currently, CBAM only applies to basic materials such as aluminum, cement, electricity, fertilizers, hydrogen, iron and steel. It sets a price for the emissions of imported products so that materials produced in the EU are on the same line.

As the EU is about to remove free allowances for emissions trading, it may lead to an increase in costs for producers covered by CBAM. This, in turn, can lead to the transfer of production to countries outside the EU, where the climate policy is weaker, or to the replacement of EU products by carbon-intensive imports.

To reduce these risks, the Commission proposed on Wednesday the extension of CBAM to 180 steel- and aluminum-based downstream products, such as machinery, equipment, vehicle parts and household appliances. This ensures that the same carbon price is paid for products coming to the EU as for products produced within the Union.

Control is being tightened

The Commission also intends to introduce new means to prevent circumvention of the rules. Reporting requirements are being tightened, and steel and aluminum scrap from the pre-consumer stage is included in the CBAM calculations.

In addition, the Commission is empowered to demand additional evidence to verify the production location and emission intensity if the reported values ​​are unreliable.

The Commission also plans to establish a fund for the years 2026-2027 to support EU producers exposed to carbon leakage risks in third country markets. The fund compensates part of the costs of emissions trading if the producer shows concrete actions to reduce emissions.

The Commission’s proposals also include relief for trusted trading partners. The goal is to strengthen CBAM’s role as a promoter of the global transition away from coal.

Effects on Finnish companies

The carbon limit mechanism affects steelmakers in Finland in particular, such as Outokumpu and to SSAB Europe and to machine shops.

Chief economist and director of the technology industry Petteri Rautaporras says that the Commission’s proposal contains both threats and opportunities for Finnish companies. However, he considers the Commission’s presentation necessary.

“For Finnish raw material manufacturers, CBAM is necessary so that they can compete with Asian steel, for example, when the free allocation of emissions trading is reduced.”

The carbon limit mechanism also encourages third countries to produce with lower emissions.

“In this sense, the mechanism is an opportunity and important from the point of view of clean production, so that the competitiveness of the EU does not suffer, but we operate with the same rules of the game,” says Rautaporras.

According to the leading economist, the threats to companies become concrete, especially in the export market.

“If a machine or device is manufactured in Europe that is exported outside the EU, the carbon limit mechanism brings an additional cost to the European manufacturer compared to a competitor outside the EU,” says Rautaporras.

This can weaken the competitiveness of Finnish export companies.

“Threats should be taken seriously and efforts should be made to anticipate their effects,” says Rautaporras.

According to the leading economist of the technology industry, the biggest criticism is related to the fact that there are very few impact assessments of the effects of CBAM measures on the competitiveness of the entire value chain, which makes the preparation rushed and sometimes hasty.