European aluminum producers have raised concerns about potential greenwashing risks arising from a loophole in the upcoming EU carbon border tax, as reported by the Financial Times on July 9. The proposed Carbon Border Adjustment Mechanism (CBAM) aims to impose a levy on carbon emissions associated with imported goods from 2026. The levy will initially target goods in six carbon-intensive sectors, including cement, iron and steel, aluminum, fertilizer, electricity, and hydrogen. However, remelted waste pieces of aluminum would be classified as zero-carbon products and exempted from carbon taxes, even if the original material is produced using fossil fuels.

Aluminum companies including Norsk Hydro [NHY:NO] and Speira have warned that the loophole could incentivize producers outside the EU to manufacture scrap aluminum, remelt it, and export it to Europe to take advantage of the exemption. Although the CBAM intends to create a fair competition environment for EU businesses, which must comply with stricter climate policies than their peers in other jurisdictions, the loophole could undermine its goal of preventing carbon leakage and increasing the risks of widespread greenwashing. In addition, the loophole could impede the EU’s efforts to accelerate decarbonization in global industrial sectors. According to statistics from the trade body European Aluminum, EU smelters emit an average of 6.8kg of CO2 from producing 1kg of aluminum, significantly less than the global average of 16.1kg.

Sources:

https://www.ft.com/content/8c048807-bd2a-4ec9-97e3-e1acc7fe4553

https://www.recyclingtoday.com/news/aluminum-steel-europe-carbon-border-tax-eaf-recycling/

https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en