Europe’s aluminium sector is dealing with high electricity costs, reduced primary smelting capacity and uncertain investment returns, according to industry representatives. They say carbon-border protection alone does not address the economics of domestic metal production while the EU aligns import carbon costs with those faced by European manufacturers.
Speaking at the FT Metals and Mining Summit 2026, James Watson, director general of European Metals, said carbon costs applied to imported aluminium would not remove the electricity cost disadvantage for European smelters. Watson said CBAM does not create a business and argued that industrial competitiveness requires measures beyond carbon regulation.
EU CBAM starts aligning import carbon costs from 1 January 2026
The EU’s definitive CBAM regime began on 1 January 2026, progressively aligning carbon costs of covered imports with those faced by European producers under the EU ETS. The regime applies to covered imports, with carbon charges reflecting emissions associated with production.
For primary aluminium, electricity spending remains a key driver of operating margins and investment decisions, industry representatives said. They argue that even with carbon costs on imports, differences in power prices can still determine whether smelting assets remain viable.
Electricity use per tonne highlights exposure of primary smelters
European smelters consumed an average of approximately 15.5 MWh of electricity per tonne of primary aluminium in 2025, according to the International Aluminium Institute. At that consumption level, electricity price differences can translate into significant production-cost gaps.
The figures cited show that a producer paying €50/MWh more than an overseas competitor would incur about €775 in additional electricity costs per tonne, assuming comparable power use. For a facility producing 200,000 tonnes annually, the difference would amount to roughly €155 million per year.
Industry estimates also indicate energy accounts for 30–40% of production costs at some aluminium facilities. Because aluminium prices are largely set by global markets, European producers have limited ability to pass higher electricity costs directly to customers.
Capacity idling since 2021 linked to multiple pressures
A European Commission assessment published in 2026 reported that more than half of Europe’s primary aluminium production capacity had been idled since 2021. The assessment attributed closures and production curtailments to a combination of energy shocks, import competition and structural costs rather than CBAM itself.
The same cost dynamics are reflected in how smelters compete for electricity supply arrangements. A plant using low-carbon electricity may have an environmental profile while still facing commercial disadvantage against competitors with cheaper long-term power contracts, subsidised energy or access to abundant domestic generation.
Direct-only CBAM treatment leaves indirect electricity emissions unresolved
The current CBAM framework assesses imported aluminium mainly on direct production emissions, excluding indirect emissions linked to purchased electricity from the aluminium carbon charge. European Aluminium has argued that extending CBAM to indirect emissions without addressing how related ETS costs are treated could further disadvantage European smelters.
The group said carbon prices can affect wholesale electricity costs under the EU market structure, including for industrial facilities buying low-carbon power depending on contract terms and market exposure. It said European producers may face indirect carbon-related costs that overseas competitors do not face on equivalent terms.
The industry’s preferred measures include maintaining compensation for indirect carbon costs, protecting eligible free ETS allowances during the transition and improving CBAM effectiveness against avoidance practices. It also highlighted concerns about incentives for overseas producers to switch to cleaner electricity if indirect emissions are excluded.
Review expected in 2027 on indirect emissions inclusion
Research published in August 2026 by the International Growth Centre concluded that excluding electricity-related emissions weakens incentives for overseas aluminium producers to move to cleaner power. The research said coal-intensive power users and hydropower-based producers can face similar CBAM obligations when their direct production emissions are comparable.
The EU is expected to review possible inclusion of indirect emissions for aluminium and other sectors in 2027. Any change could affect procurement agreements and long-term investment decisions as well as how imported and domestically produced metal are treated relative to each other.
State aid and national support schemes target industrial power costs
Electricity prices and supply reliability are central to financing decisions for aluminium smelters alongside processing margins, operational efficiency, environmental obligations and access to capital. Industry representatives said projects can meet EU decarbonisation objectives but still fail lender profitability assessments if projected power costs undermine cash flow.
The EU’s Clean Industrial Deal State Aid Framework allows targeted support for electricity-intensive industries alongside assistance for clean energy investment and industrial decarbonisation. In April 2026, the European Commission approved electricity price-relief schemes with budgets of €3.8 billion in Germany, €334 million in Bulgaria and €90 million in Slovenia.
The schemes are not exclusively intended for aluminium producers but demonstrate direct support aimed at industrial operating costs. Differences in national fiscal capacity were also raised as a factor affecting competition within the single market.
Investment needs for decarbonising the aluminium value chain
Beyond short-term relief measures, European Aluminium estimated that decarbonising the industry’s value chain will require at least €33 billion by 2050. The estimate covers industrial electrification, recycling, new technologies and supporting infrastructure.
The ability to mobilise capital depends on whether investors expect sustainable returns across the operating lives of European production assets. Power prices, supply reliability and financing conditions were described as central across smelting, recycling and downstream processing investments.
Downstream pressure and proposed extension of CBAM coverage from 2028
The issue extends beyond primary aluminium output as manufacturers of aluminium sheets, extrusions, components and finished products face input-cost pressures linked to carbon pricing affecting both imported and domestically produced metal. Overseas manufacturers may process aluminium into finished goods outside Europe before exporting them into EU markets, creating additional competitive pressure for downstream firms.
The European Commission proposed extending CBAM to selected downstream steel and aluminium-intensive products from 1 January 2028. The European Parliament adopted amendments in September 2026, but negotiations remain ongoing on the legislation.
The proposal could affect incentives around where processing takes place but would not remove differences tied to electricity prices, labour costs, logistics or capital availability. Exporters were also described as facing limitations because CBAM primarily addresses competition in the EU import market rather than compensating firms selling into third countries.
Critical raw materials funding request linked to non-ferrous capacity plans
The competitiveness debate is also connected to broader EU financing discussions for non-ferrous metals production and critical raw materials processing. In a letter dated 9 October, European Metals asked EU leaders for a dedicated €10 billion funding envelope for critical raw materials within the proposed European Competitiveness Fund.
The association said meeting Europe’s 2030 strategic raw materials objectives would require restarting inactive facilities and developing an additional 10 mines, 15 processing plants and 15 recycling facilities. It said these targets cover the wider non-ferrous metals sector rather than aluminium alone.