I. Latest Developments in EU CBAM Policy

The EU Carbon Border Adjustment Mechanism (CBAM) officially entered its "charging phase" on January 1, 2026, marking the transition from administrative declaration to full financial responsibility. Six product categories are initially covered: steel, cement, aluminum, fertilizers, electricity, and hydrogen.

Since 2026, several significant adjustments have been made to CBAM:

(1) Carbon Price Remains High

In Q2 2026, the CBAM certificate price stood at €75.28/ton (approximately RMB 585/ton), maintaining a high level. Starting in 2027, the pricing mechanism will shift from quarterly to weekly announcements, linked in real-time to EU ETS auction clearing prices.

(2) Default Values Significantly Reduced

On July 31, 2026, the EU issued Regulation (EU) 2026/1740, substantially revising CBAM default values. Steel products saw widespread significant reductions:

Product Category Previous Default Value (tCO₂/ton) New Default Value (tCO₂/ton) Reduction

Billets/Semi-finished (7207) 8.230 3.169 -61.5%

Pig Iron (7201) 7.920 1.660 -79.0%

Alloy Steel Semi-finished (7224) 9.960-10.000 6.110-6.180 -38%

The new regulation removes the 10%, 20%, and 30% markup coefficients from the previous (EU) 2025/2621 regulation, reverting to differentiated default values based on different production routes.

(3) Scope Expansion

On July 9, 2026, the European Parliament's Environment Committee voted to extend CBAM coverage from basic materials to downstream finished products. In December 2025, the European Commission proposed adding approximately 180 steel and aluminum-intensive downstream products, covering machinery, hardware and metal products, vehicle components, household appliances, and construction equipment. The expansion is expected to take effect on January 1, 2028.

(4) Anti-circumvention Measures Tightened

The new regulation strengthens anti-circumvention provisions, where "minor processing" is no longer considered a legitimate avoidance method. When circumvention patterns are identified, the Commission has the authority to apply punitive default high-emission values from the country of origin.

(5) 50-Ton Exemption Threshold

In 2025, the Commission introduced an annual 50-ton import exemption threshold. Assessments indicate this threshold will exempt approximately 90% of importers while still covering about 99% of relevant carbon emissions.

II. Impact Analysis on the Steel Pipe Industry

As steel deep-processed products, steel pipes face multiple challenges under the CBAM framework:

(1) Direct Carbon Cost Impact

Using default value calculations, exporting one ton of CBAM-covered steel products may incur an additional RMB 130 to 4,670 in carbon costs. Although CBAM certificates are purchased and surrendered by EU importers, importers often pass part or all of these costs back to Chinese suppliers through price reductions or contractual carbon cost sharing clauses.

China's steel production is predominantly blast furnace-basic oxygen furnace (BF-BOF), with CO₂ emissions of approximately 2.0–2.2 tons per ton of steel—far higher than the EU's electric arc furnace (EAF) route at 0.4–0.6 tons. Based on the early 2026 EU carbon price of €88/ton, after free allowances are fully phased out by 2034, CBAM costs for steel exports to the EU could increase by €140–160 per ton.

(2) Expansion Impact – Steel Pipes Directly Included

Previously, steel processing products like pipes may have enjoyed some buffer by not being classified as "basic materials." However, as CBAM extends to steel and aluminum-intensive downstream products, steel pipes, structural steel components, and cast iron pipes will be directly included in the regulatory scope.

It is important to clarify: CBAM expansion does not tax the entire finished product, but rather calculates the embedded emissions of steel and aluminum contained within the product. For steel pipes, CBAM only calculates the embedded carbon of the steel consumed in pipe production—the subsequent processing and manufacturing emissions are not within scope.

(3) Dual Stacking of Tariffs and Carbon Costs

The new EU steel import regulations effective July 2026 cut duty-free import quotas by approximately 47% and doubled excess import tariffs from 25% to 50%. Carbon costs and tariff barriers now create a compounding effect, significantly increasing the total tax burden on steel pipe exports.

(4) Significantly Higher Compliance Threshold

Under full CBAM implementation, exporters must comply with strict carbon emissions data reporting obligations, including product carbon footprint accounting, third-party data verification, and compliance report submission. Chinese steel enterprises currently face gaps in carbon measurement standards and data traceability systems, creating short-term risks of non-compliance.

III. Recommendations for Steel Pipe Exporters

1. Review Product CN Codes: Check whether your steel pipe products are already covered or will be covered under the CBAM scope by 2028.

2. Establish Carbon Data Management Systems: Build digital carbon management systems from product-level to supply chain-level, creating authentic, transparent, and traceable carbon emissions data records.

3. Prioritize Actual Value Reporting: Although default values have been significantly reduced, they remain higher than actual emission levels for most Chinese enterprises. Using verified actual emission values can significantly reduce carbon tax costs. Note that actual value reporting requires professional accounting and verification by accredited third-party agencies.

4. Drive Low-carbon Transformation: Reduce product carbon intensity at the source by optimizing energy structures, introducing low-carbon raw materials, and improving production processes.

5. Coordinate with EU Importers: Establish carbon data sharing mechanisms with EU importers and communicate carbon cost sharing arrangements in advance to avoid order delays or losses due to compliance issues.