Scrap accounting is emerging as a key issue in the EU’s Carbon Border Adjustment Mechanism (CBAM) debate for steel. Electric-arc-furnace (EAF) producers use recycled steel to reduce production emissions. EU policymakers are considering how the border mechanism should treat different scrap streams while avoiding changes in material allocation that do not deliver genuine global emissions reductions.
The European Parliament’s 2026 negotiating position on strengthening CBAM places greater emphasis on pre-consumer and post-consumer scrap, along with the emissions treatment of downstream goods. The Council has also addressed pre-consumer scrap. These positions relate to proposed changes rather than final rules for 2026 imports, with outcomes expected to depend on trilogue negotiations and subsequent implementing provisions.
Pre-consumer and post-consumer scrap accounting questions
Scrap is not a uniform input for carbon-accounting purposes. Post-consumer scrap comes from products recovered after use, while pre-consumer scrap can arise during manufacturing processes and may face different policy treatment.
For EAF producers, the distinction can affect how recycled inputs may be handled under future CBAM rules. This includes interactions with free-allocation adjustments and precursor accounting. The final methodology will determine which emissions are attributed to different scrap categories and how recycling benefits are reflected.
The policy challenge is to account consistently for recycled materials without creating incentives to redirect lower-carbon inputs toward EU-bound production in ways that redistribute emissions rather than reduce them globally.
Scrap provenance requirements across supply chains
Steelmakers and scrap processors can improve preparedness regardless of the final legislative outcome by keeping more detailed records of scrap origin and classification. Information highlighted includes supplier identity, scrap category, quantity, origin, processing route, and the production process where the material is used.
A procurement approach that treats every scrap stream as an undifferentiated commodity could become difficult if legislation requires more granular distinctions. Traceability can also support circularity and responsible-sourcing claims beyond statutory CBAM reporting.
Verification needs documentation tied to actual material flows and production processes. Mills are expected to reconcile source streams, precursor receipts, production quantities, material yields, and covered output over the reporting period. Exceptions require documented explanations and approvals, especially where multiple suppliers, outsourced operations, or mixed production routes complicate assigning emissions values to specific materials.
Implications for EAF competitiveness and procurement costs
Recycled-input treatment can influence the relative economics of EAF and integrated steelmaking routes as CBAM develops. If final rules recognise recycled content appropriately while preventing circumvention, EAF producers with lower-emissions production routes could see a competitive advantage.
Documentation requirements may also create barriers for smaller recyclers. If they cannot provide required information, their material may be harder to integrate into supply chains serving customers that require verified emissions data.
These issues affect procurement decisions as well as regulatory compliance. The delivered cost of a tonne of steel depends on purchase price, freight, and processing costs, while CBAM adds certificate costs linked to embedded emissions and applicable adjustments. Precursor selection, material yield, and verified process intensity can therefore shape commercial assessments.
The phase-down of free allocation under the EU Emissions Trading System (EU ETS) adds a longer-term factor. Emissions differences that have limited financial effect in 2026 may become more significant for steelmakers’ margins later in the decade.
Data needs for Southeast European scrap markets
Southeast Europe has active scrap-trading markets and several EAF-based steel operations. The region could benefit from stronger recycled-steel economics if scrap flows can be documented to standards required by EU-linked customers.
Informal or poorly documented supply chains may face greater difficulty supplying products marketed on verified low emissions. Stronger provenance records can help mills and recyclers show characteristics of their inputs and support more reliable procurement decisions.
Steelmakers and recyclers are expected to begin classifying scrap streams more carefully and preserving supplier documentation before proposed CBAM amendments are finalised. Scenario analysis can test how alternative treatments of pre-consumer and post-consumer scrap might affect product emissions intensity, procurement costs, and the value of different supply sources.
Preparing for possible CBAM changes without treating them as final
The Commission proposal and the negotiating positions of the Council and Parliament can inform future contract provisions and compliance planning. However, they should not be incorporated into declarations for 2026 imports as though proposed changes were already law.
A two-scenario model—one based on current legislation and another on potential reforms—can help companies prepare data systems and contractual options without creating compliance positions dependent on legislation still under negotiation.
The supporting records should link scrap classification and origin to purchasing documentation, production records, the relevant CN code, the applicable process boundary, and the emissions values used in calculations. Responsibilities for approving assumptions should be defined, including documented fallback treatments when preferred data cannot be substantiated.
These controls can also help companies explain emissions assessments to verifiers and commercial managers. Integrating evidence with purchasing, production, customs, and finance records can make future changes in suppliers or material routes easier to manage as requirements evolve.
As CBAM’s financial implications develop, unresolved documentation gaps could become recurring carbon costs. Establishing scrap provenance and classification procedures in advance can support subsequent verification reviews, price adjustments, and management reporting.