Europe’s aluminium industry is dealing with high electricity costs, reduced primary smelting capacity and uncertain investment returns, according to industry representatives. They say carbon-border protection alone does not address the economics of domestic metal production while the EU works to align import carbon costs with those faced by European manufacturers.
Speaking at the FT Metals and Mining Summit 2026, James Watson, director general of European Metals, said carbon costs on imported aluminium would not remove the electricity cost disadvantage for European smelters. Watson said CBAM does not create a business and argued that industrial competitiveness requires measures beyond carbon regulation.
CBAM alignment starts in 2026, but power costs remain central
The EU’s definitive CBAM regime began on 1 January 2026, progressively aligning carbon costs of covered imports with those faced by European producers under the EU Emissions Trading System (ETS). For primary aluminium, industry concerns focus on electricity expenditure as a key driver of operating margins and investment decisions.
In 2025, European smelters used an average of about 15.5 MWh per tonne of primary aluminium, according to the International Aluminium Institute. At that consumption level, differences in electricity prices can produce large production-cost gaps between facilities.
A producer paying €50/MWh more than an overseas competitor would face about €775 in additional electricity costs per tonne, assuming comparable power use. For a plant producing 200,000 tonnes annually, the difference would be roughly €155 million per year.
Industry estimates indicate that energy accounts for 30–40% of production costs at some aluminium facilities. With aluminium prices set largely by global markets, European producers have limited ability to pass higher electricity costs directly to customers.
Capacity curtailments since 2021 linked to multiple factors
The impact is reflected in Europe’s production capacity. A European Commission assessment published in 2026 reported that more than half of Europe’s primary aluminium capacity had been idled since 2021.
The assessment attributed closures and production curtailments to a combination of energy shocks, import competition and structural costs rather than CBAM itself. Industry arguments therefore place electricity economics alongside carbon policy when evaluating competitiveness.
Direct versus indirect emissions under CBAM for aluminium
The current CBAM framework assesses imported aluminium mainly on direct production emissions, excluding indirect emissions tied to purchased electricity from the aluminium carbon charge. The distinction matters because electricity generation represents a substantial share of aluminium’s total carbon footprint.
European Aluminium has argued that expanding CBAM to indirect emissions without addressing how ETS-related electricity costs are treated could further disadvantage European smelters. It said carbon prices can affect wholesale electricity costs under the EU market structure depending on contracts and market exposure for industrial buyers.
The industry position is that European producers may face indirect carbon-related costs that overseas competitors do not bear on equivalent terms. Preferred measures cited include maintaining compensation for indirect carbon costs, protecting eligible free ETS allowances during the transition and improving CBAM effectiveness against avoidance practices.
An additional concern was raised by research published in August 2026 by the International Growth Centre. It concluded that excluding electricity-related emissions weakens incentives for overseas producers to switch to cleaner electricity when direct emissions are comparable.
EU review of indirect emissions expected in 2027
The EU is expected to review whether indirect emissions should be included for aluminium and other sectors in 2027. Any change could affect procurement agreements and long-term investment decisions as well as how imported and domestically produced metal are treated relative to each other.
The source material notes that including electricity-related emissions could reward cleaner production abroad. It also states that doing so without addressing corresponding costs borne by European producers could create another competitive imbalance.
Power support measures and financing conditions across the EU
Electricity prices and supply reliability are described as central to financing decisions for aluminium smelters alongside processing margins, operational efficiency, environmental obligations and access to capital. A project may meet EU decarbonisation objectives yet still fail a lender’s profitability assessment if projected power costs undermine cash flow.
Long-term renewable power purchase agreements can improve price visibility, but wind and solar contracts alone do not remove balancing costs for intermittent generation or the need for reliable supply. The material says competitive industrial arrangements depend on coordination between generation investment, transmission networks, storage, firm supply and long-term commercial contracts.
The EU’s Clean Industrial Deal State Aid Framework allows targeted support for electricity-intensive industries alongside assistance for clean energy investment and industrial decarbonisation. In April 2026, the European Commission approved electricity price-relief schemes with budgets of €3.8 billion in Germany, €334 million in Bulgaria and €90 million in Slovenia.
The schemes are not exclusively intended for aluminium producers but are presented as examples of direct support aimed at industrial operating costs. The material also points to differences in national fiscal capacity as a factor affecting competition within the single market.
Investment needs for decarbonising aluminium value chains
European Aluminium estimates that decarbonising the industry’s value chain will require at least €33 billion by 2050. The estimate covers industrial electrification, recycling, new technologies and supporting infrastructure.
The ability to mobilise capital depends on whether investors expect sustainable returns over the operating lives of European production assets. Power prices, supply reliability and financing conditions are described as central across smelting, recycling and downstream processing.
The issue extends beyond primary aluminium production because manufacturers of sheets, extrusions, components and finished products face input-cost pressures linked to carbon pricing on both imported and domestically produced metal. Overseas firms may also process aluminium into finished goods outside Europe before exporting them into EU markets.
Status of proposed CBAM extension to downstream products
The European Commission proposed extending CBAM to selected downstream steel and aluminium-intensive products from 1 January 2028. The European Parliament adopted amendments in September 2026, but negotiations remain ongoing.
The material says expanding product coverage could reduce incentives to relocate processing outside the EU while not eliminating differences in electricity, labour, logistics and capital costs. It also notes a limitation for exporters: CBAM primarily addresses competition in the EU import market rather than compensating manufacturers selling into third countries where competitors may face lower energy and carbon-compliance costs.
Critical raw materials funding request from European Metals
The competitiveness debate is linked to broader EU financing discussions for non-ferrous metals production and critical raw materials processing. In a letter dated 9 October, European Metals asked EU leaders for a dedicated €10 billion funding envelope for critical raw materials within the proposed European Competitiveness Fund.
The association said meeting Europe’s 2030 strategic raw materials objectives would require restarting inactive facilities and developing an additional 10 mines, 15 processing plants and 15 recycling facilities across the non-ferrous metals sector. It said these targets cover the wider sector rather than aluminium alone.