The playwright George Bernard Shaw once said that a wise man changes his mind; a fool never will. We can, but also hope that supranational political entities like the European Union (EU) have the confidence and wisdom to reject foolish policy and legislation when it is exposed as such. Yet few measures better capture the EU’s reluctance to turn its back on eco-inspired folly and a negative industrial mindset than the Carbon Border Adjustment Mechanism (CBAM).
CBAM marks a decisive shift from the open-market orthodoxy that once defined Brussels to a more defensive, strategic form of capitalism, one that clumsily seeks to marry climate ambition with industrial survival. For the aluminium sector, the implications are profound.
Image used for representational purposes
Aluminium is often described as “solid electricity”: roughly 40 per cent of its production costs stem from energy. This makes the sector both an emblem of Europe’s industrial decarbonisation challenge and a test case for CBAM’s credibility. For years, European smelters have faced a punishing combination of high-power prices, volatile carbon costs and competition from producers in regions where energy is cheaper and environmental rules lighter. The result has been attrition. Since 2008, Europe has lost more than a third of its primary aluminium capacity, with further closures looming.
A misguided attempt to level the playing field
CBAM is designed to stop this industrial erosion by imposing a carbon price on imported aluminium equivalent to what EU producers pay under the Emissions Trading System (ETS). In principle, it aims to level the playing field: aluminium from third countries will no longer enjoy a “carbon discount” when entering the European market. But in practice, CBAM represents far more than a technical tariff adjustment; it will reorder supply chains, pricing structures and even diplomatic relations.
In the short term, the adjustment period during which importers must report embedded emissions but do not yet pay is giving the industry a glimpse of the complexity to come. Calculating the carbon intensity of aluminium is far from straightforward. Upstream emissions depend not only on the smelting process but also on the electricity mix and the source of alumina. European regulators are discovering that traceability in global metals markets is often opaque and that reliable data from third countries can be scarce or politically sensitive. For producers in Africa, the Gulf or Southeast Asia, compliance costs could be steep, especially for smaller firms lacking the administrative infrastructure to report carbon data at EU standards.
Over the medium term, CBAM will push the global aluminium industry into two camps. On one side will stand producers who can credibly demonstrate low-carbon credentials through hydropower-based smelting, recycled feedstock or renewable energy procurement. On the other hand, those reliant on coal-powered production will find the European market increasingly closed or prohibitively expensive. The winners will not necessarily be the cheapest producers, but those most adept at navigating a carbon-regulated trading environment.
A needless provocation of global partners
Europe’s policymakers hope that this mechanism will trigger a “race to the top”, encouraging other countries to adopt carbon pricing or green production technologies. Yet, CBAM could easily accelerate geopolitical frictions. China, India and South Africa have already signalled discomfort, framing CBAM as a veiled form of protectionism that contradicts World Trade Organisation principles. For resource-dependent emerging economies, the fear is that Europe’s green border will morph into a new form of industrial exclusion, one that rewards existing technological advantages rather than supporting global decarbonisation.
For European aluminium itself, CBAM offers both protection and peril. In theory, it shores up the competitiveness of the continent’s low-carbon producers. In practice, it risks reinforcing Europe’s structural disadvantage if power prices remain elevated and investment in clean energy lags. Without affordable renewable electricity, no amount of carbon border equalisation will restore the viability of energy-intensive manufacturing. CBAM may buy time, but not indefinitely.
There is also a danger that policymakers overestimate how much CBAM can achieve in isolation. The mechanism addresses imports, but not the investment environment within Europe. If domestic producers continue to face high regulatory costs and uncertain energy policy, CBAM may slow, rather than reverse the sector’s decline. A credible strategy would be needed to complement the border measure: accelerating renewable deployment, supporting recycling infrastructure and providing targeted relief for electricity-intensive industries in the transition phase.
For the aluminium sector, the next decade will determine whether Europe remains a player in primary production or becomes a recycler of imported scrap. CBAM tilts the scales towards resilience, but only if accompanied by coherent climate and energy policy at home. The mechanism is not a shield so much as a signal that the era of free carbon rides is ending and that access to Europe’s market will increasingly depend on the carbon embedded in every tonne of metal. This is a dangerous policy approach and one that aims to protect an industry already hollowed out by the EU’s own energy transition.
Killing CBAM would be a better approach
A far better approach would be for the EU to raise the white flag and scrap CBAM completely on account of the negative economic, trade and political impact that it will have. Global climate progress relies on cooperation, shared technology and a degree of mutual trust. Yet CBAM risks being seen as Europe exporting its regulatory regime to the rest of the world. Rather than spurring others to raise their climate ambitions, it may entrench opposition and complicate efforts to forge multilateral agreements.
The result could be a net loss of goodwill: eroding confidence in EU climate leadership, straining trade relationships, placing new burdens on developing economies and raising costs for European industry, all while delivering only modest environmental benefits compared with a genuinely cooperative global approach. The European Commission’s recent announcement that it proposes to dilute its digital regulations in response to outside pressure is a sign that U-turns in the name of common sense are possible. Our fingers are crossed that the EU will see sense and change its mind.