The latest CBAM draft confirms what industrial and power-market analysts have long suspected: electricity is no longer a peripheral factor in carbon pricing—it is becoming the structural backbone through which CBAM transmits cost, risk, and compliance across manufacturing value chains. The EU’s expansion of CBAM to finished and semi-finished steel and aluminium products formalizes a reality already in practice: competitiveness in peripheral European manufacturing increasingly hinges on electricity sourcing, pricing, and carbon intensity, not just on factory-level emissions.
Unlike raw materials, electricity is both a direct input and a system-level constraint. Steel tube producers, machinery assemblers, and fastener manufacturers rely on power systems shaped by fuel markets, cross-border flows, balancing constraints, and fluctuating renewable output. By linking CBAM to downstream products, the EU is effectively pricing the electricity systems that underpin manufacturing beyond its borders, making carbon intensity a systemic concern rather than a factory-specific metric.
From embedded carbon to electricity risk
Under the original CBAM framework, compliance focused on embedded carbon in slabs, billets, or aluminium ingots relative to EU benchmarks. The expanded approach is broader: how carbon-intensive was the electricity powering rolling mills, extrusion presses, CNC lines, galvanising baths, or assembly cells? Electricity is now the transmission channel through which CBAM costs propagate across hundreds of product categories previously outside climate policy.
Regional disparities and systemic exposure
The effect is particularly pronounced in South-East Europe and neighbouring regions. Manufacturing in Serbia, Bosnia and Herzegovina, North Macedonia, Ukraine, and Türkiye relies on power systems with coal-linked baseloads, limited interconnection, hydro-driven volatility, and underdeveloped balancing markets. As CBAM reaches downstream products, these structural energy factors transform from national energy policy concerns into embedded trade liabilities.
Stricter electricity accounting under CBAM
Electricity under CBAM is no longer treated as a simple input with default emissions factors. The revised rules tighten reporting, reduce flexibility, and scrutinize power purchase arrangements. Contractual green tariffs or guarantees of origin are insufficient unless aligned temporally and physically with actual consumption. Peak-hour coal or gas generation can negate the carbon claims of average or contractual renewables. Electricity risk is becoming an operational variable rather than a static compliance checkbox.
Industrial strategy meets power-market reality
Manufacturers now face a choice: internalize electricity risk through demand response, storage, load-shifting, or hybrid procurement, or accept rising CBAM exposure that erodes EU market margins. Flexibility—not just renewable capacity—is becoming the decisive factor. The convergence of industrial policy and electricity market design is clear: systems that provide predictable, low-carbon power give exporters a trade advantage, while inflexible, carbon-intensive grids impose hidden costs.
CBAM’s updated electricity rules apply, with downstream sectors phased. This sequencing allows the EU to establish robust electricity accounting methodologies before extending coverage. Power procurement decisions today—PPAs, grid connections, on-site generation—will determine CBAM exposure later, making electricity strategy a forward-priced regulatory consideration.
CBAM reframes competitiveness as a system-level outcome. Two identical plants with the same equipment can face drastically different costs depending on the electricity system in which they operate. Plant-level efficiency alone is no longer sufficient; success requires system-aware strategies that align production with low-carbon, flexible power supplies.