Double pressure for Europe with risen ETS costs for aluminium recyclers while valuable scrap moves to higher-paying international markets

As part of AL Circle’s latest initiative, “European Aluminium Recycling Market”, an exclusive interview between AL Circle and Emanuele Manigrassi, Director Climate & Energy at European Aluminium, addressed the loopholes of the updated EU Emissions Trading System benchmarks for 2026-2030, particularly for the recycled aluminium industry. According to Mr Manigrassi, production costs may rise for recyclers due to fewer free allowances under the revised ETS benchmarks. He also pointed to a precarious structure in which EU recyclers remain exposed to ETS and CBAM-related costs, while aluminium scrap and recycled aluminium are not properly covered under CBAM.

This comprehensive interview draws attention to the detailed structure of the ETS and CBAM and how they may put the European recycled aluminium industry at risk through uncompetitive costs and increased scrap leakage.

AL Circle: European Aluminium warns the updated EU Emissions Trading System benchmarks for 2026-2030 could put aluminium recycling and critical raw materials supply in Europe at risk. In your view, what is the most immediate pressure point for aluminium recyclers under the revised framework?

Emanuele Manigrassi: The most immediate pressure point is the reduction of the generic heat and fuel fallback benchmarks that apply to aluminium recycling. In practical terms, these benchmarks determine how many free ETS allowances an installation receives. When the benchmark is reduced, recyclers receive fewer free allowances and must buy more allowances on the carbon market, which directly increases their production costs.

This is particularly challenging because aluminium recycling is not covered by a dedicated sector-specific benchmark, and is therefore grouped together with many different sectors with lower heat requirements and different abatement options, despite being a strategic activity for Europe’s circular economy and critical raw materials resilience. If these additional costs weaken recyclers’ ability to invest, expand capacity or compete for scrap, Europe risks undermining the very recycling base it needs to reduce the carbon footprint of the aluminium produced in Europe and reduce import dependence.

AL Circle: Do the updated ETS benchmarks accurately reflect the technical limits of aluminium recycling furnaces, especially when it comes to decarbonising heat-intensive processes?

Emanuele Manigrassi: No. The fallback benchmarks do not accurately reflect the technical realities of aluminium recycling furnaces. Recycling, remelting, cast-house and semi-manufacturing operations are grouped under generic heat and fuel fallback benchmarks, rather than being covered by a sector-specific aluminium recycling benchmark.

This is problematic because these processes often require high-temperature heat, including above 400°C, and there are currently no commercially available decarbonisation technologies that can reduce this cost exposure at the necessary scale in the short term. The methodology therefore assumes an abatement potential that does not match the sector's technical reality.

That is why European Aluminium is calling for a dedicated benchmark design for aluminium recycling  post-2030 and, in the short term, a freeze of the fallback benchmarks at 2021-2025 levels until 2030.

AL Circle: European Aluminium argues that the updated benchmarks represent only 50 per cent reduction compared with original Phase 3 levels, meaning recyclers would receive fewer free allowances and would have to buy more ETS allowances. How much cost impact do you think will this policy post on EU recyclers?

Emanuele Manigrassi: For aluminium recycling, the 50 per cent reduction of the fallback benchmarks would bring carbon costs to an unaffordable level of around 10 per cent of EBITDA, which international competitors are not expected to pay.

This comes at a time when the sector is already under stress due to high energy prices and scrap leakage, jeopardising further investment in recycling capacity and putting Europe’s circularity potential at risk. In practice, the policy would not only increase compliance costs for EU recyclers, but also weaken their ability to invest in the very recycling capacity Europe needs for its circular economy and critical raw materials objectives.

AL Circle: CBAM excludes recycled-based aluminium, while EU recyclers remain exposed to ETS and CBAM-related costs. Could this create a structural disadvantage for European recyclers, and what policy measures would be needed to close this gap?

Emanuele Manigrassi: Yes. This creates a clear risk of structural disadvantage for European recyclers. EU recyclers remain exposed to ETS and CBAM-related costs, while aluminium scrap and recycled aluminium are not properly covered under CBAM. At the same time, CBAM is expected to increase the cost of aluminium raw material inputs in Europe, while scrap can still be used outside Europe at a lower cost and without equivalent carbon-cost exposure.

This creates a mismatch between scrap prices and input costs in Europe and outside Europe, undermining the competitiveness of European aluminium recycling companies. In practical terms, European recyclers could face higher compliance and input costs, while international competitors may be able to source and process scrap under more favourable conditions. That risks further encouraging scrap leakage, discouraging investment in European recycling capacity, and weakening Europe’s circular economy and critical raw materials resilience.

To close this scrap loophole, pre- and post-consumer scrap should be treated equally as precursors under CBAM, and a single default value should be implemented to avoid distortions between scrap prices in Europe and outside Europe. CBAM should also be extended to more downstream aluminium products, anti-circumvention risks should be addressed, and free allocation should remain in place until CBAM is proven to be fully effective in preventing carbon leakage. These measures are necessary to ensure that European recyclers are not penalised for producing low-carbon, circular aluminium in Europe.

AL Circle: Given that ETS-related costs will increase for European recyclers, how will this affect aluminium scrap pricing within the EU? Do you expect scrap prices to move more closely in line with global primary aluminium price trends?

Emanuele Manigrassi: Higher ETS-related costs risk increasing the cost exposure of European aluminium recyclers and putting further pressure on scrap economics within the EU. European recyclers already face high energy costs and growing competition for scrap, and additional carbon costs would further weaken their ability to source and process scrap competitively.

Scrap prices are correlated with LME aluminium prices and regional premiums, so there is clearly an interlinkage between primary and secondary aluminium markets. When primary aluminium becomes scarcer or more expensive, downstream users tend to look more to scrap as an alternative input. That increases competition for available scrap and can put upward pressure on prices.

However, EU scrap prices do not move one-to-one with global primary aluminium prices. Scrap prices also depend on the specific scrap type, alloy, quality, availability and end-use. What matters is that higher LME prices, higher European premiums, tighter primary supply and stronger global demand for scrap can all pull EU scrap prices upward.

The main concern is that Europe could face double pressure: higher costs for recyclers within the EU, while valuable scrap is pulled toward higher-paying international markets. If scrap can be processed more cheaply outside Europe, and European recyclers face higher ETS, energy and input costs, this increases the risk of scrap leakage and weakens Europe’s recycling base.

AL Circle: Do you think the increased domestic aluminium scrap prices will push European manufacturing countries to rely on imported scrap?

Emanuele Manigrassi: The more immediate concern is that European producers may have less access to scrap overall. Europe already exports large volumes of aluminium scrap — around 1.3 million tonnes in 2025 — while also importing scrap for its own secondary production. If global demand continues to rise and higher-paying international markets pull more material out of Europe, EU recyclers could face even tighter domestic availability and higher input costs.

At the same time, Europe’s ability to compensate through imports is not guaranteed. In 2025, EU scrap imports were around 652,000 tonnes and even declined slightly compared with the previous year. Around half of those imports came from Switzerland, the UK and Norway, while imports from North America also fell significantly. Geopolitical disruptions can also affect supply from other regions.

So the risk is not simply that European manufacturing countries will import more scrap. The risk is that Europe exports more scrap, imports less or cannot secure enough replacement volumes, and therefore faces a deterioration in scrap availability for domestic recyclers. That would make it harder to maintain and expand secondary aluminium production in Europe.

This is why the European Commission’s expected dedicated trade instrument to address aluminium scrap leakage is so important. The measure should help ensure that more aluminium scrap remains available on the EU market and that recyclers can access sufficient feedstock at competitive prices. We are not calling for a blanket export ban, but for a targeted, market-based measure that addresses distortions caused by unfair practices, geopolitical disruption and policy asymmetries in third countries.

Without such action, Europe risks losing recycling activity, investment and circular raw material value to regions where scrap can be sourced and processed under more favourable conditions.

AL Circle: Could the current ETS framework unintentionally weaken Europe’s circular economy goals by making recycled aluminium more expensive to produce within the EU?

Emanuele Manigrassi: Yes. Europe is asking industry to recycle more aluminium, retain more strategic raw materials, and build a more circular, low-carbon economy. But if the ETS and CBAM framework increases the cost of recycling in Europe while allowing scrap to be used more cheaply elsewhere, it sends the wrong economic signal.

The issue is not one single measure in isolation. It is the combined effect of reduced free allocation, higher ETS exposure, high energy costs, the lack of commercially available decarbonisation options for high-temperature heat, persistently high scrap leakage, and the CBAM scrap loophole. Together, these factors risk making European recycling less competitive.

Aluminium recycling should be treated as a strategic enabler of decarbonisation and circularity, not as an activity penalised by a framework that does not reflect its technical and market realities. The priority should therefore be to align ETS and CBAM with Europe’s circular economy objectives: protect recycling from disproportionate carbon costs, close the scrap loophole, and ensure that investment in recycling capacity remains in Europe.