Steel exporters may improve their electricity mix while still facing significant carbon border adjustment mechanism (CBAM) exposure when direct process emissions and carbon-intensive precursors are unchanged. Lenders are therefore advised not to treat a green power purchase agreement (PPA) as a proxy for a company’s full decarbonisation strategy. Credit assessments are expected to separate electricity procurement from production-related factors that drive emissions exposure, while accounting for how these risks interact commercially.
Separating electricity procurement from production emissions
Lenders are expected to assess process and electricity risks separately. This includes evaluating furnace technology, fuels, scrap or ore inputs, precursor emissions, electricity prices, and renewable sourcing. While these elements affect operating costs and competitiveness, they do not enter every CBAM calculation in the same way.
For iron-and-steel and aluminium goods currently listed in Annex II, the existing CBAM calculation accounts for direct emissions. Renewable electricity procurement can support operating performance, customer relationships, financing, and decarbonisation without automatically reducing current certificate liability through purchased-electricity emissions. The transition approach described in the guidance combines renewable power procurement with measures addressing process emissions and precursor data.
The guidance also notes that relying on only one element can leave either carbon-related exposure or operating costs insufficiently managed. It frames the assessment as requiring both credible renewable sourcing and attention to process-related emissions drivers. In this context, precursor data is treated as part of the information needed to address emissions exposure.
Renewable PPAs and credit assessment requirements
A renewable PPA is described as potentially supporting creditworthiness by stabilising electricity costs. The same materials link such contracts to customer retention and improved access to green-finance products. They also indicate that PPAs may prepare producers for a future policy environment with broader downstream coverage and more extensive carbon-data requirements.
At the same time, the existence of a PPA or a Guarantee of Origin (GoO) is not presented as evidence that a steel producer has addressed material process-carbon risks. Lenders are expected to evaluate the actual benefits of the contract alongside the wider transition plan. Loan covenants should focus on material exposures, including product classification, emissions-data quality, customer concentration, electricity-price risk, and capital expenditure required for process decarbonisation.
The materials specify that a simple covenant requiring a PPA or GoO is not an adequate substitute for this analysis. They position covenant design around the exposures that affect CBAM-related risk and financing performance rather than around documentation alone. This approach is tied to how electricity procurement interacts with production-process factors.
Proposed downstream CBAM expansion from 2028
The legislative file referenced in the guidance proposes extending CBAM coverage from 2028 to selected steel- and aluminium-intensive downstream goods. It states that both the Council and the European Parliament support expansion, but their proposed product lists differ and remain subject to negotiation. Until final legislation is adopted, the current scope is treated as the operating baseline.
Downstream manufacturers are advised to map future CN codes potentially relevant to their sales. The guidance also calls for identifying products with the greatest exposure to EU customers. It links this mapping exercise to targeting renewable procurement, improving emissions data, and directing other investments where commercial benefits are most likely.
European Commission guidance on implementation
The European Commission published definitive-period sector guidance on 14 August 2026. The document includes dedicated guidance for electricity, iron and steel, and aluminium. The Commission also refreshed its general CBAM questions and answers on 15 October 2026.
The materials describe these outputs as supporting implementation rather than replacing binding regulation and implementing acts. Steel buyers are advised to evaluate renewable electricity against defined energy, customer, or decarbonisation benefits rather than relying on a generic CBAM saving that current product methodology does not support.
For lenders, the central transition question is framed as whether electricity, production-process, and market-access risks are assessed as distinct but connected exposures within the financing structure. This framing links financing analysis to both operational drivers of emissions exposure and commercial factors affecting market access. It also reinforces that green electricity procurement alone does not address all elements relevant to CBAM exposure.