In this interview with Anıl Akalın, environmental markets, country president Turkey & GCC at Redshaw Advisors, CBAM, we discussed the first tangible changes observed among steel importers following the implementation of the EU’s Carbon Border Adjustment Mechanism (CBAM) and the related data-sharing crisis. Akalın, who has examined how carbon costs are reshaping global trade flows, outlines a roadmap for financial risk management for industry players.
With the start of the financial obligation phase of the EU’s CBAM, what has been the first tangible change in the market? Is there a gap between expectations and reality?
The most tangible change is hesitation by importers. That is because embedded emissions in 2026 imports are a new financial liability, but many companies are struggling to quantify it. In the rush to avoid what look like penal default values, companies are being forced to make a choice between trying to sell their product including the cost of CBAM certificates at the default level, at the certified level, or to delay importing altogether while they work out what to do. Naturally the uncertainty has created heightened urgency around emissions data collection, supplier engagement and internal compliance processes, and has been compounded by final benchmarks and default values only being published in late December 2025, leaving little preparation time.
How do uncertainties around verified emissions data and benchmarks create challenges?
Three key challenges have emerged:
• Lack of verified data from suppliers: many companies will have to rely on default values because actual emissions must be formally verified. Given that verifiers have not yet been accredited, this cannot happen until the end of the year. Obtaining cooperation from a supplier after a transaction has been contracted, delivered and paid for can be a challenge. Firms unable to meet the EU’s verification timeline face disadvantaged cost outcomes.
• Provisional and evolving benchmarks: it is impossible to manage the risk of CBAM if the EU has not provided the basis of the calculation - the benchmarks that importers must compare their product's process to. We still do not have the final numbers but fortunately there have been enough leaks so that we have a fairly good idea of what to expect when the final numbers are published.
• High “default value penalties”: vertically integrated importers have an advantage over traders in that they can generally be assured that their product imports will ultimately obtain verified emissions figures that are reasonably predictable today. Everyone else risks being lumbered with high default values and this may dent their ability to compete until such time that they can be sure of production emissions.
How does EU CBAM certificate price volatility affect pricing strategies? Can companies hedge this risk?
The price of EU CBAM certificates is related to EU Allowance (EUA) prices (the currency of the EU Emissions Trading Scheme, the EU ETS) and are therefore highly volatile, influenced by factors such as energy markets, policy shifts and macroeconomic conditions. Not hedging this volatility makes it extremely difficult for companies to price long-term contracts or maintain predictable margins. [redshawadvisors.com]
Companies can hedge and many large importers have begun doing so by buying:
• Virtual CBAM Certificates (VCCs) - a trademarked product of Redshaw Advisors that is designed to be an exact match for CBAM certificate costs or,
• EU Allowances which can provide a reasonably close match to CBAM certificate costs provided that they are re-sold at a price that matches EUA auctions and sales are averaged over the requisite CBAM certificate pricing period (i.e., a quarter-year in 2026 or a given week in 2027 and beyond)
Redshaw Advisors’ analysis found that forward hedging strategies demonstrated substantial savings - up to 47 percent gross savings for a steel importer over a 10-year horizon when hedging EU CBAM costs. EU Allowances are widely expected to increase in cost over time due to the structure of the EU ETS, so longer-term CBAM certificate hedging is worth considering.
Has the EU’s CBAM levelled the competitive playing field, or created new cost pressure?
The design of the EU’s CBAM aims to equalise carbon costs between EU and non-EU producers. In practice:
• The EU’s CBAM reduces carbon leakage risk and theoretically levels the playing field between EU ETS-covered producers and non-EU producers.
• However, it introduces a new cost burden for non-EU producers with higher carbon intensities, especially those using BF-BOF steelmaking, and for importers unable to obtain verified emissions data.
• Administrative burdens and data gaps hit smaller importers particularly hard, despite simplifications such as the 50-tonne threshold.
• CBAM does not level the playing field for EU producers because, if they increase production, they must purchase 100 percent of the EUAs required to cover their emissions unless they increase production by more than 15 percent for at least two years.
In short: the EU’s CBAM moves toward fairness, but EU consumers will pay higher costs for covered goods and efficient importers are likely to make windfall profits. For importers, uneven readiness and data disparities create asymmetric cost pressure.
What are the prospects for carbon-intensive products shifting to other markets?
There is a real risk of market redirection, so-called resource shuffling, due to producers with lower-emission product lines becoming incentivised to ship low-carbon goods, potentially longer distances, to the EU while higher-carbon output can be expected to be diverted to non-CBAM (non-EU) markets.
There has already been some modelling that suggests substantial reductions in EU steel imports by 2034 under medium- and high-carbon price scenarios.
The EU’s CBAM thus reshapes global trade flows and even runs the risk of higher global emissions due to longer transport distances being incentivised.
What does the current environment mean for Turkey’s steps toward establishing its own ETS?
The implementation of the EU’s CBAM regime increases pressure on Turkey to implement an ETS swiftly because the Turkish authorities should rather earn a carbon tax for itself than pay one to the EU. Because the EU’s CBAM allows for the deduction of domestic carbon pricing from importers’ new carbon liability, a Turkish ETS, whereby Turkish Emissions Allowances are bought from the Turkish government, can reduce its exporters' CBAM burden while retaining carbon revenues within Turkey.
A less obvious but very significant benefit of CBAM is the acceleration of the implementation of monitoring, reporting and verification systems in countries exporting CBAM-covered goods to the EU due to countries without these systems being forced to rely on default values, resulting in higher costs.
What will be the most critical impact of the EU’s CBAM on the steel sector going forward?
The steel sector faces the largest exposure to the EU’s CBAM of the included sectors:
• According to a recent Fastmarkets report, in the early years steel is expected to account for 75 percent of all EU CBAM liabilities.
• High-emission BF-BOF producers will face the steepest cost increases, which will generally incentivise the push toward DRI-EAF and scrap-EAF technologies.
• The EU’s CBAM will significantly alter trade patterns. Modelling suggests that there will be a 24 percent reduction in steel imports from current suppliers by 2034.
• Ultimately, the EU’s CBAM, combined with the withdrawal of free allocations from European-based steel production, will likely cause rapid decarbonisation in steel value chains, impacting upstream production, downstream costs and sourcing strategies across Europe.