CBAM and Brazilian industry: the impact on steel, aluminium and cement

What CBAM is and why it affects Brazilian industry

CBAM, the Carbon Border Adjustment Mechanism, is Europe's carbon border adjustment. The logic is simple: if European producers pay for the carbon they emit (through the EU ETS), imports from countries without equivalent carbon pricing should pay a proportional charge, so production does not simply leak to jurisdictions with looser rules.

CBAM initially covers six product categories: iron and steel, aluminium, cement, fertilisers, hydrogen and electricity. These are the most carbon-intensive sectors and the most exposed to international trade.

For Brazil, the impact is concentrated. In 2024 Brazil exported more than US$ 3 billion of iron and steel to the EU, alongside significant volumes of aluminium. Brazil is not the largest exporter of these products to Europe, but the carbon surcharge can erode competitive margins, or, managed well, create a competitive advantage over rivals with dirtier power mixes.

The CBAM transitional period (2023-2025) required only reporting of embedded emissions, with no payment. From 2026, payment begins, based on the EU ETS carbon price. If the exporter or the country of origin already pays a carbon price, there is a proportional deduction.

Products covered and how embedded emissions are calculated

Calculating embedded emissions under CBAM follows its own methodology, set out in Implementing Regulation (EU) 2023/1773.

Direct emissions. Combustion and process emissions at the installation producing the good. For steel, that covers the blast furnace, the steelworks and the forming processes. For cement, it covers the calcination of limestone (a process emission) and fuel burned in the kiln. For aluminium, it covers the emissions of electrolytic reduction.

Indirect emissions. Emissions from the electricity consumed in production. This is where producers differ most. A steel mill powered by hydro has far lower indirect emissions than one powered by coal. CBAM requires both to be reported, although initially only direct emissions trigger payment for most products (aluminium being the exception, where indirect emissions are included).

Precursors. Intermediate products used in manufacturing also carry emissions. Steel may use pig iron, direct reduced iron (DRI) or scrap as a precursor, each with a different emissions profile. CBAM requires tracking the emissions of relevant precursors.

Default values. Where the exporter does not supply verified data, the EU applies default values based on the average of the country of origin or, at worst, the average of the 10% most emitting installations in the world. Using default values is always a losing position: efficient producers end up paying more than they should.

Impact on steelmaking

Brazilian steelmaking has features that create both risks and opportunities under CBAM.

The integrated route (coke blast furnace, BOF). Most flat steel production in Brazil uses a blast furnace fed with imported metallurgical coke. Direct emissions are comparable to European and Chinese producers, in the 1.8 to 2.2 tCO2 per tonne of crude steel range. On this route, the Brazilian advantage is limited.

The charcoal route. Brazil is the only significant producer of pig iron and steel using charcoal from planted forest (eucalyptus). Where the charcoal comes from renewable biomass, the biogenic emissions are treated as neutral by the IPCC, sharply reducing direct emissions. This route is the main competitive advantage of Brazilian steelmaking under CBAM.

Electric arc furnace (EAF). Mills using an electric arc furnace with scrap as the main input have far lower direct emissions, in the 0.3 to 0.5 tCO2/t range. With Brazil's predominantly renewable power mix, indirect emissions are low too. Brazilian long steel producers on the EAF route are among the cleanest in the world.

The evidence problem. The Brazilian advantage only materialises if the exporter gives the European importer verified emissions data. Without data, the EU applies unfavourable defaults. Investing in measurement and verification is the condition for capturing the advantage.

Impact on aluminium

Primary aluminium is one of the products most sensitive to CBAM, because of its indirect emissions.

The electrolytic process. Producing primary aluminium by the Hall-Héroult process consumes enormous quantities of electricity, roughly 13 to 16 MWh per tonne of aluminium. The electricity emission factor determines the indirect emissions. In China, where much of the power comes from coal, indirect emissions can reach 15 tCO2 per tonne of aluminium. In Brazil, with predominantly hydro electricity, the figure can be under 1 tCO2/t.

Process emissions. Electrolysis generates direct CO2 emissions and PFCs (perfluorocarbons), gases with extremely high GWP, thousands of times that of CO2. Modernising electrolytic cells and controlling anode effects cuts PFCs significantly.

Brazil's competitive advantage. Brazil is one of the world's largest producers of primary aluminium, with smelters powered mainly by hydro in the Amazon region. That configuration gives Brazilian aluminium one of the smallest carbon footprints in the world, a direct advantage under CBAM.

But watch CBAM's treatment of indirect emissions. Unlike steel and cement, CBAM includes indirect emissions in the aluminium calculation from the outset. The advantage of Brazil's power mix is captured in full, provided it is properly documented.

Impact on cement

Cement is the third most CBAM-exposed product in Brazil, although export volumes to the EU are smaller than for steel and aluminium.

Process emissions (calcination). Producing clinker, the reactive component of cement, involves the thermal decomposition of limestone (CaCO3 → CaO + CO2). That chemical reaction accounts for around 60% of a cement plant's direct emissions. It cannot be removed by switching fuels, it is inherent to the process.

Combustion emissions. Clinker kilns run above 1,400°C, demanding large amounts of thermal energy. Cement plants use a mix of petroleum coke, coal and alternative fuels (tyres, biomass, industrial waste). Co-processing waste as an alternative fuel cuts emissions and solves waste disposal problems at the same time.

Clinker ratio. The proportion of clinker in the final cement is the main driver of emissions. Cements blended with blast furnace slag, pozzolan or limestone filler carry a lower emission factor per tonne of cement. Brazil has a tradition of blended cements with a low clinker ratio, another potential advantage.

Carbon capture (CCUS). For the cement industry, carbon capture and storage is considered one of the few routes to net zero, given that process emissions cannot be eliminated. Pilot projects are running in Europe, but the technology is not yet economically viable at scale.

Mitigation strategies

Brazilian exporters can take several steps to maximise their competitiveness under CBAM.

1. Measure accurately. The first step is calculating embedded emissions per product with real installation data, not defaults. That requires a granular inventory, with process data, energy and input consumption by production line. The product carbon footprint is the right tool.

2. Get independent verification. Emissions data used under CBAM has to be verified by accredited auditors. Verification follows standards such as ISO 14064-3 and the specific rules of the CBAM Implementing Regulation.

3. Optimise the process. Invest in energy efficiency, substitution of fossil fuels with renewables, higher scrap use (steel), PFC reduction (aluminium) and a lower clinker ratio (cement). Every reduction in emissions cuts the carbon surcharge at the European border.

4. Document the power mix. Renewable energy contracts, I-REC certificates and self-generation data evidence that the electricity consumed is low-carbon. That documentation is essential to the indirect emissions calculation.

5. Track the carbon price. The EU ETS price (currently in the EUR 50-70/tCO2 range) sets the value of the surcharge. If Brazil's SBCE prices carbon domestically, the corresponding deduction lowers the CBAM surcharge.

How Mangue Tech helps

Mangue Tech offers specialised services for industry and mining companies exposed to CBAM.

The product carbon footprint calculation follows the methodologies of the CBAM Implementing Regulation and ISO 14067, granular by installation and by product. The platform separates direct, indirect and precursor emissions, producing reports ready for European importers.

The Scope 1, 2 and 3 inventory rounds out the picture with the full corporate footprint, useful for CDP and IFRS S2 reporting and for SBCE compliance.

Regulatory consulting supports interpretation of CBAM requirements, preparation for independent verification and mitigation strategy, identifying the highest-impact levers for each sector and installation.