Scrap accounting is emerging as a key topic in discussions on the EU’s Carbon Border Adjustment Mechanism (CBAM) for steel. Electric-arc-furnace (EAF) producers use recycled steel to lower production emissions, while EU policymakers are examining how the border mechanism should treat different scrap streams. The debate also includes how to avoid changes in material allocation that do not lead to genuine global emissions reductions.
The European Parliament’s 2026 negotiating position on strengthening the CBAM file increases attention 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 through trilogue negotiations and later implementing provisions.
Pre-consumer versus post-consumer scrap in carbon accounting
Scrap is not treated as 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 be subject to different policy treatment.
For EAF producers, the distinction can affect how recycled inputs are handled under future CBAM rules. It includes how recycled materials interact with free-allocation adjustments and precursor accounting. The final methodology is expected to determine which emissions are attributed to different scrap categories and how recycling benefits are recognised.
The policy challenge is to account consistently for recycled materials while avoiding incentives that redirect lower-carbon inputs toward EU-bound production in ways that redistribute emissions rather than reduce them globally.
Scrap provenance requirements across supply chains
Regardless of legislative outcomes, steelmakers and scrap processors can improve preparedness by keeping more detailed records on 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 all scrap streams as an undifferentiated commodity could be tested if final legislation requires more granular distinctions. Traceability may also support circularity and responsible-sourcing claims beyond statutory CBAM reporting.
Verification is expected to rely on records of 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.
Where several suppliers, outsourced operations, or mixed production routes complicate assigning emissions values to specific materials, exceptions require documented explanations and approvals.
Implications for EAF economics and documentation burdens
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 routes could strengthen their competitive position.
Documentation requirements could also affect smaller recyclers. If such businesses cannot provide required information, their material may be harder to incorporate into supply chains serving customers that require verified emissions data.
These issues apply both to procurement decisions and regulatory compliance. Delivered cost per tonne of steel remains linked to purchase price, freight, and processing costs, while CBAM adds certificate costs tied to embedded emissions and applicable adjustments. Precursor selection, material yield, and verified process intensity can therefore influence 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 expectations for Southeast European scrap flows
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 demonstrate input characteristics 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 could affect product emissions intensity, procurement costs, and the value of different supply sources.
Preparing for possible reforms 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. 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 connect 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 clear, with documented fallback treatments where preferred data cannot be substantiated.
These controls can also support consistent explanations of 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 also support subsequent verification reviews, price adjustments, and management reporting.