[SMM Stainless Steel Flash] EU ETS Reform: Steel Producers Cash In While SMEs Foot the Bill

Published: Jul 31, 2026 10:57

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The EU Commission continues to present CBAM as a fairness mechanism, but critics argue the actual framework creates severe asymmetry between importers and domestic steel producers. Under CBAM's Article 31 formula, only a normative allocation entitlement is mirrored, not actual economic relief — domestic mills with benchmark allocations exceeding actual emissions retain tradable surplus allowances, while importers can at best achieve zero liability with no transferable entitlement. Since 2005, European steel producers have received over 3.4 billion free ETS allowances, of which approximately 884 million were surplus — representing a calculated gross value of nearly €71 billion at current carbon prices. The latest ETS reform proposal (COM(2026) 616) fails to address this imbalance, extending free allocation for CBAM sectors to 2038 while leaving historical surplus allowances fully intact. SMEs and downstream processors hold no legacy allowance reserves and must prefinance CBAM certificates upfront, while large steel corporations draw on decades of accumulated surpluses — entrenching rather than resolving the structural asymmetry.

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