European aluminium producers are seeking stronger protection against imported metal and downstream products as changes to the EU carbon-market framework raise concerns about the competitiveness of electricity-intensive manufacturing. The interaction between electricity costs, carbon-border rules, scrap accounting and free-allocation policy is increasingly relevant for investment decisions across the aluminium value chain.
On 20 October 2026, the EU reached a provisional agreement to raise the Market Stability Reserve allowance-invalidation threshold from 400 million to 700 million allowances. The change is intended to preserve more permits for future scarcity, but it does not reduce industrial electricity bills or release an immediate block of allowances to manufacturers.
For aluminium smelters, commercial considerations remain tied to power purchase agreements, network charges, process efficiency and competition from imported primary metal. A 2026 Commission industrial assessment reported that around half of EU primary aluminium capacity had been idled since 2021. The EU accounted for about 3.8% of global primary aluminium production, while European primary and secondary production together covered roughly 46% of regional domestic demand.
Different emissions profiles for primary and secondary aluminium
Primary aluminium production relies on substantial electricity for electrolysis and generates direct process emissions, including carbon dioxide and perfluorocarbons (PFCs) under certain operating conditions. Secondary production uses scrap and generally has different material and energy requirements, with scrap availability, contamination and alloy specifications limiting how far recycling can replace primary metal in specific applications.
Emissions accounting is therefore expected to distinguish between smelting, casting and downstream transformation rather than treating aluminium as a single uniform commodity. The production route, the origin of intermediate materials and the boundaries used for emissions calculations can all influence the resulting carbon footprint.
CBAM coverage for aluminium goods from January 2026
Under the definitive EU Carbon Border Adjustment Mechanism (CBAM), selected aluminium goods have been covered since 1 January 2026. The Commission reported a third-quarter 2026 certificate price of €82.32 per tonne of CO₂ equivalent, which provides a reference point for carbon pricing.
Liability under CBAM depends on embedded emissions and the relevant free-allocation adjustments. The treatment of indirect electricity emissions under CBAM differs from accounting for direct emissions, so buying renewable electricity does not automatically reduce an aluminium importer’s CBAM certificate liability in line with electricity procurement benefits.
Downstream product scope and a proposed five-tonne exemption threshold
The European aluminium value chain spans unwrought metal through bars, profiles, sheet, foil, structures and fabricated products. Some items are already covered by Annex I of the CBAM Regulation, while additional downstream goods are proposed for inclusion from 2028.
The Commission, Council and European Parliament have put forward different product lists and approaches to scrap treatment. European Aluminium has called for broader downstream coverage and for lowering the annual mass-based exemption threshold from 50 tonnes to 5 tonnes, though the lower threshold remains a proposal rather than current law.
The implications extend to manufacturers importing relatively small quantities of components or finished goods. Even if product lists or exemption arrangements change later, companies are expected to apply the rules currently in force until amendments are adopted.
Pre-consumer scrap accounting under COM(2025) 989
Pre-consumer scrap treatment is a central policy issue in ongoing debate. Policymakers are considering how emissions linked to certain scrap flows should be reflected in subsequent metal products and how pre-consumer material should be distinguished from post-consumer scrap.
The Commission’s COM(2025) 989 proposal aims to address potential circumvention and resource shuffling while accommodating legitimate recycling flows. Producers are concerned that some accounting practices could present newly manufactured primary metal as low-carbon recycled material without adequately reflecting its production history.
The issue also affects equipment manufacturers and component suppliers because production steps can span multiple countries. An aluminium window profile may be made using billets cast elsewhere, while stamped automotive components may include alloy inputs from several origins. Importers need reliable information on customs classification, precursor origins and production-route emissions to determine applicable CBAM treatment.
An input described as low-carbon has limited commercial value if its emissions data cannot be reproduced and substantiated through the supply chain for an EU authorised CBAM declarant. Traceability and consistent material balances are therefore becoming important for compliance and supplier qualification.
Free-allocation phase-out proposals for CBAM-covered sectors
The Commission has also proposed a slower phase-out of free allocation for sectors covered by CBAM. Under existing legislation, the CBAM factor is 97.5% in 2026 and 51.5% in 2030.
A July 2026 proposal would raise the proposed 2030 factor to 59% and extend the phase-out period to 2038, instead of 2034. This remains a proposal intended as a negotiating scenario rather than an adopted schedule.
For aluminium producers evaluating plant upgrades, restarts or new capacity, differences between scenarios affect long-term assumptions about carbon costs and competitive conditions. Financial models are expected to keep the existing legal framework separate from alternative policy scenarios until legislative outcomes are settled.
Electricity contract design for smelter restarts
Electricity-contract design is described as particularly important for primary aluminium smelters because operations require reliable power around the clock. A low headline renewable tariff may not prevent expensive residual electricity costs during hours when solar and wind output is limited.
Hydropower or long-duration electricity contracts may improve supply profiles, but each option carries hydrological, credit and availability risks. Investors assessing restarts of idled capacity are expected to evaluate full delivered electricity costs, including network charges and financing requirements for additional storage or infrastructure rather than relying only on headline generation prices in power purchase agreements.
The assessment also needs to account for commercial terms determining how supply shortfalls, price volatility and balancing requirements are allocated. Viability depends on reliability and affordability across the overall electricity arrangement rather than nominal renewable generation prices alone.
Verification requirements across full production routes
Casting routes and process emissions create measurement challenges under emissions calculations. Alongside carbon dioxide linked to anode consumption, certain primary operations can release PFCs under specific operating conditions.
Secondary production requires accurate scrap and alloy balances as well as defensible accounting for purchased intermediates. If emissions calculations exclude a material stage or allocate emissions inconsistently, footprints may understate impacts relative to actual production processes.
Independent verification is therefore described as important for confirming system boundaries, allocation methods and supporting records rather than endorsing public low-carbon claims. For importers, reliable evidence can help determine whether supplier emissions data meet relevant CBAM reporting and verification requirements.
Evidence requirements for Western Balkan exporters
Competitiveness for aluminium-related exporters in Serbia, Bosnia and Herzegovina, and Montenegro is described as depending on production-route evidence, electricity costs, certified material balances and realistic supplier contracts. Manufacturers supplying EU customers need emissions information that can be traced through chains from primary metal or scrap through casting and transformation.
For EU smelters, retaining more allowances in the Market Stability Reserve could influence longer-term expectations about allowance scarcity but would not address electricity-cost disadvantages faced by energy-intensive production. Carbon-border protection measures alongside scrap rules and allowance policy are described as part of broader interactions with industrial energy costs and verifiable production data.