For all its ambition, the European Union’s Carbon Border Adjustment Mechanism (CBAM) suffers from a problem not uncommon in modern climate regulation: data complexity outpacing policy design. In our previous editorial derived from the same study by European Aluminium, we have explored how aluminium scrap has become a billion-euro backdoor for foreign producers to undercut CBAM fees and outprice European producers. But underneath the circumvention tactics lies an even bigger story, one of missing traceability, legal grey zones, and statistical blind spots that could seriously undermine CBAM’s integrity over the next decade.
This time, we delve deeper into why CBAM’s loophole isn’t just about policy, it’s about enforcement infrastructure, legal classification, and the technical debt of global trade accounting.
One of the most striking omissions in CBAM’s current design is the lack of embedded emissions assignment to aluminium scrap, both pre-consumer and post-consumer. While that may seem like a reasonable simplification at first glance (scrap is recycled, after all), it completely ignores the carbon inheritance of the original metal.
Even worse, CBAM doesn’t distinguish between scrap types, nor does the international trade classification system (HS Code 760200). That code, used globally to record aluminium scrap flows, makes no distinction between pre-consumer scrap, post-consumer scrap, or process scrap. As a result, policymakers and customs officers are flying blind.
There’s no way to verify claims of scrap content in imported goods or trace their origin without robust, installation-level emissions disclosure and tracking systems, which currently do not exist.
If pre- and post-consumer scrap pose a traceability challenge, process scrap is the ghost in the machine.
Generated during the semi-fabrication (rolling, extrusion, casting) process, scrap never leaves the facility. It is remelted on-site, reused, and never logged as ‘waste’ or ‘product’. This makes it invisible to trade statistics and virtually impossible to monitor. Yet, foreign producers can (and will) claim this internal loop as scrap content to lower CBAM exposure.
In China alone, process scrap volumes in 2023 exceeded 18 million tonnes, according to IAI estimates. That’s more than enough to ‘greenwash’ all Chinese aluminium exports to Europe without altering a single smelting furnace.
If process scrap continues to fly under the radar, CBAM won’t just be circumvented — it will be rendered moot.
Here’s where things get murky. There is no international consensus on what constitutes ‘scrap’. The relevant ISO standards don’t mandate whether process scrap should be treated as:
- A co-product (part of production, like scale or dross) or
- A secondary material (like pre- or post-consumer waste).
This legal ambiguity allows producers to reclassify internal waste as scrap, declare high scrap content, and dramatically reduce their reported emissions under CBAM. The EU’s own regulatory apparatus lacks the clear taxonomy and procedural standards needed to challenge or verify such claims.
Image source: https://european-aluminium.eu/wp-content/uploads/2025/05/20250424_EA_Ramboll-CBAM_Executive-Summary.pdf
Here’s why scrap needs a passport
The heart of the issue lies in a single fact: CBAM is a carbon accounting mechanism without a globally enforceable ledger.
In theory, CBAM calculates emissions on a product-by-product basis, reported by the producer or importer. But aluminium scrap flows — often blended, anonymised, and traded across borders—cannot be accounted for without a global traceability system, something akin to digital material passports or blockchain-based verification.
Until such systems exist, regulators have only one tool: default values.
Assigning national default emissions values for all aluminium imports (as proposed in the original study) would dramatically reduce the risk of circumvention. It would also eliminate the need for constant scrap disclosure audits, which are technically unfeasible for most border authorities.
Macroeconomics meets metal
CBAM is not just an environmental tool — it is a market shaper. As the study shows, the inclusion or exclusion of scrap content can swing the CBAM fee by over €100/tonne, which is 4.5-6.5 per cent of the LME aluminium price.
Such price signals ripple through the entire value chain, wherein recyclers pay more for raw scrap, even when emissions are unaccounted for. Downstream manufacturers, at the same time, face inflated premiums without receiving any climate incentive. Substituting with alternative materials (plastics, composites) accelerates, potentially undoing decades of aluminium’s rise as a sustainable choice.
The study warns that these distortions could result in a net reduction in aluminium consumption in Europe as industries switch to cheaper, less-regulated materials.
A major contradiction lies in how EU producers and foreign producers are charged for carbon.
Under the Emissions Trading System (ETS), European aluminium producers must account for every tonne of emissions—across smelting, recycling, and semi-fabrication. Whereas, under CBAM, foreign producers can choose what to report, claim scrap arbitrarily, and don’t face the same internal audit trails.
This is a structural imbalance that CBAM, as it stands, does not reconcile. ETS and CBAM price signals should mirror each other, but they don’t, creating a two-tiered carbon market that punishes local compliance and rewards global ambiguity.
What Europe needs: Not just policy, but infrastructure
Ultimately, the study’s message is clear: CBAM cannot work without an enforcement infrastructure, which ultimately means:
- Default emissions values by country and product category.
- A harmonised definition of scrap, embedded in EU legislation and WTO-aligned trade codes.
- A multi-year roadmap for digital traceability, potentially built on blockchain or serialised product passports.
- Investment in border audit capabilities, including emissions verification labs, AI-driven trade anomaly detection, and cooperation with customs networks.
- A rethink of CBAM’s phase-in strategy — if loopholes persist, full implementation by 2034 could lock in the very leakage it aims to stop.
From scrap to systemic risk
At a glance, aluminium scrap may seem like a marginal technicality in a sprawling climate mechanism. But zoom out, and it becomes a litmus test for the global enforceability of climate regulation.
If the EU cannot track carbon inheritance, define material classifications, or verify emissions claims across borders, then CBAM risks becoming just another customs fee, complex in structure and limited in impact.
As carbon pricing goes global, data will be the currency, and traceability will be the backbone. The question is no longer whether aluminium scrap can be exploited. It’s whether the systems built to decarbonise global trade are robust enough to stop it.
Until then, Europe must guard its green border not just with policy but with precision.
