European aluminium producers are seeking stronger protection against imported metal and downstream products as changes to the EU carbon-market framework raise concerns about the competitiveness of electricity-intensive manufacturing. Electricity costs, carbon-border rules, scrap accounting and free-allocation policy are increasingly relevant for investment decisions across the aluminium value chain.
On 20 October 2026, the EU reached a provisional agreement to raise the Market Stability Reserve allowance-invalidation threshold from 400 million to 700 million allowances. The change is intended to preserve more permits for potential future scarcity, but it does not reduce industrial electricity bills or provide an immediate release of allowances to manufacturers.
For aluminium smelters, commercial factors highlighted include power purchase agreements, network charges, process efficiency and competition from imported primary metal. A 2026 Commission industrial assessment reported that around half of EU primary aluminium capacity has been idled since 2021.
The same assessment put the EU’s share of global primary aluminium production at about 3.8%. It also estimated that European primary and secondary production together cover around 46% of regional domestic demand.
Different emissions profiles for primary and secondary aluminium
Primary aluminium production relies on substantial electricity for electrolysis and generates direct process emissions. These include carbon dioxide and, under certain operating conditions, perfluorocarbons (PFCs).
Secondary aluminium production uses scrap and generally has different material and energy requirements. Scrap availability, contamination levels and alloy specifications can limit how far recycling can replace primary metal in specific applications.
Emissions accounting is therefore required to distinguish between smelting, casting and downstream transformation rather than treating aluminium as a single commodity. The production route, the origin of intermediate materials and the boundaries used for emissions calculations can change the resulting carbon footprint.
CBAM coverage for aluminium goods and electricity treatment
Under the definitive EU Carbon Border Adjustment Mechanism (CBAM), selected aluminium goods have been covered since 1 January 2026. The Commission reported a third-quarter 2026 certificate price of €82.32 per tonne of CO₂ equivalent, which serves as a reference point.
The liability applicable to importers depends on embedded emissions and relevant free-allocation adjustments. The framework’s treatment of indirect electricity emissions differs from how direct emissions are accounted for.
As a result, purchasing renewable electricity does not automatically reduce an aluminium importer’s CBAM certificate liability in line with electricity procurement benefits. Producers and buyers are expected to separate procurement outcomes from the emissions treatment permitted under applicable rules.
Downstream product scope and an exemption threshold proposal
The European aluminium value chain spans unwrought metal through bars, profiles, sheet, foil, structures and fabricated products. Some products are already included under Annex I of the CBAM Regulation, while additional downstream goods have been proposed for inclusion from 2028.
The Commission, Council and European Parliament have put forward different product lists and approaches to scrap treatment. European Aluminium has called for broader downstream coverage and for reducing an annual mass-based exemption threshold from 50 tonnes to 5 tonnes.
The lower threshold remains a proposal rather than existing law. It could affect compliance obligations for manufacturers importing smaller quantities of components or finished goods if product lists or exemption arrangements change.
Until amendments are adopted, companies must apply the rules currently in force even if legislative proposals evolve during negotiations.
Pre-consumer scrap accounting under COM(2025) 989
The treatment of pre-consumer scrap is a central policy issue under discussion. Policymakers are considering how emissions linked to certain scrap flows should be reflected in subsequent metal products and how pre-consumer material should be separated from post-consumer scrap.
The Commission’s COM(2025) 989 proposal aims to address potential circumvention and resource shuffling while accommodating legitimate recycling flows. Producers are concerned that accounting could allow newly manufactured primary metal to be presented as low-carbon recycled material without reflecting its production history.
The issue extends beyond smelters to equipment manufacturers and component suppliers. An aluminium window profile may be produced in one country using billets cast in another, while stamped automotive components may incorporate alloy inputs from multiple origins.
Importers need information on customs classification, precursor origins and production-route emissions to determine applicable CBAM treatment. Where emissions data cannot be reproduced and substantiated through the supply chain for use by an EU authorised CBAM declarant, low-carbon inputs have limited commercial value.
Free-allocation phase-out proposals affecting long-term planning
The Commission has also proposed a slower phase-out of free allocation for sectors covered by CBAM. Under existing legislation, the CBAM factor is set at 97.5% in 2026 and 51.5% in 2030.
A July 2026 proposal would raise the proposed 2030 factor to 59% and extend the phase-out period to 2038 rather than 2034. This remains a proposal treated as a negotiating scenario rather than an adopted schedule.
For aluminium producers evaluating plant upgrades, restarts or new capacity, the difference affects long-term assumptions about carbon costs and competitive conditions. Financial models are expected to keep the existing legal framework separate from alternative policy scenarios until legislative outcomes are settled.
Electricity contract design for smelter restarts
Electricity-contract design is highlighted as particularly important for primary aluminium smelters due to their need for reliable power around the clock. A low headline renewable tariff may not prevent expensive residual electricity costs during periods when solar and wind output is limited.
Hydropower or long-duration electricity contracts may improve supply profiles but involve hydrological, credit and availability risks. Investors considering restarts of idled capacity are expected to assess full delivered electricity costs including network charges.
The assessment also includes financing requirements for additional storage or infrastructure rather than relying only on headline generation prices in power purchase agreements. It must also reflect commercial terms governing supply shortfalls, price volatility and balancing requirements.
Verification requirements across casting routes and scrap balances
Casting routes create measurement challenges alongside process emissions. Along with carbon dioxide linked to anode consumption, some primary aluminium operations can release PFCs under specific operating conditions.
Secondary production requires accurate scrap and alloy balances as well as defensible accounting for purchased intermediates. If an emissions calculation excludes a material stage or allocates emissions inconsistently, it may understate actual impacts across production boundaries.
Independent verification is therefore described as important for confirming system boundaries, allocation methods and supporting records rather than relying solely on public low-carbon claims by producers. For importers, reliable evidence can help determine whether supplier emissions data meet relevant CBAM reporting and verification requirements.
Evidence requirements for Western Balkan exporters
For exporters in Serbia, Bosnia and Herzegovina, and Montenegro supplying EU customers, competitiveness depends on production-route evidence alongside electricity costs. Certified material balances and realistic supplier contracts are also identified as factors affecting performance in these markets.
Manufacturers supplying EU customers need emissions information traceable across chains from primary metal or scrap through casting and transformation stages. For EU smelters, retaining more allowances in the Market Stability Reserve could influence longer-term expectations about allowance scarcity but would not address electricity-cost disadvantages faced by energy-intensive production.