Electric arc furnace (EAF) steelmaking relies on electricity in a way that goes beyond current CBAM requirements. Power prices, carbon intensity, flexibility and supply reliability can affect the competitiveness of EAF mills. This dependence also creates commercial opportunities for renewable electricity producers and suppliers.
European Commission guidance and how it relates to CBAM rules
The European Commission published definitive-period sector guidance on 14 August 2026, covering electricity, iron and steel, and aluminium. It later refreshed its general CBAM questions and answers on 15 October 2026. The materials are intended to clarify implementation but do not replace the binding regulation and implementing acts.
For iron-and-steel and aluminium goods currently listed in Annex II, the existing CBAM calculation takes account of direct emissions. Renewable electricity procurement can therefore deliver operational, customer, financing and decarbonisation benefits without automatically reducing current certificate liability through purchased-electricity emissions.
Renewable PPAs for cost predictability and lower-carbon claims
A long-term renewable power purchase agreement (PPA) can reduce exposure to wholesale electricity price fluctuations. It can also establish a more predictable cost base for electricity-intensive melting. Hourly or shaped electricity products can support procurement strategies for customers seeking lower-carbon steel.
These procurement approaches can be used even while the current CBAM calculation for listed goods remains centred on direct emissions. The guidance materials distinguish between benefits arising from renewable electricity procurement and the treatment of purchased electricity within the existing certificate-liability calculation.
Role of generators, traders and documentation requirements
Independent power producers (IPPs), traders and renewable generators can strengthen their commercial proposition using granular generation data. They can also rely on relevant Guarantees of Origin (GoOs) and stable long-term pricing. Steel producers may incorporate these inputs into production planning and customer-facing evidence, while retaining responsibility for substantiating their claims.
Wind, solar and hydropower developers can contract with EAF mills as anchor offtakers. Traders can provide balancing and shaping services to align electricity supply with industrial demand. The parties should maintain separate records for CBAM electricity evidence, GoOs and steel-product emissions data, even when they support the same commercial proposition.
Lender due diligence on profile risk and evidence quality
Lenders focus on whether the industrial offtaker can absorb electricity profile risk. They also assess whether the renewable project can deliver the agreed shaped product without incurring open-ended replacement exposure. The offtaker’s credit quality can be as important to the financing structure as any environmental premium attached to the electricity.
Where customers request low-carbon steel, producers should define the product boundary and emissions-allocation methodology before assigning a renewable-power benefit to particular products. This is intended to prevent distributing a plant-wide energy claim across more tonnes of steel than underlying evidence supports.
Steel buyers should pay for renewable electricity against a defined energy, customer or decarbonisation benefit. This approach is contrasted with paying for a generic CBAM saving that the current product methodology does not support.
COM(2025) 989 proposes changes to electricity treatment under CBAM
The legislative proposal COM(2025) 989 would materially change electricity treatment. It includes updates to the methodology for electricity default values and conditions for using actual values. It would also broaden physical PPAs to include intermediaries and revise elements of the congestion and nomination framework.
The Council adopted its negotiating position on 12 June 2026, followed by the European Parliament on 15 September 2026. The proposal remains under interinstitutional negotiation and is not enacted law.
The same legislative file proposes extending CBAM downstream coverage from 2028 to selected steel- and aluminium-intensive goods. Both institutions support expansion, but their proposed product lists differ and remain subject to negotiation. Until final legislation is adopted, the current scope remains the operating baseline.
EAF decarbonisation can stimulate demand for renewable electricity well before CBAM legislation gives purchased electricity a broader role in calculating certificate liability for steel products.