Financial impacts of CBAM on metal industries and exposed lenders

Executive summary

As the EU phases out free European Emissions Trading (ETS) allowances and introduces CBAM, metals producers face rising carbon-cost exposure and lenders face a new transition-risk channel. Cyro built an ex-ante model linking CBAM commodity codes, EU ETS installations, and company financials across iron, steel, aluminium, and mixed metal sectors. His research showed that iron and steel face the sharpest EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) pressure, smaller firms may be disproportionately exposed, and banks need to price CBAM alongside energy, trade, and decarbonisation-readiness risks.

The challenge: who absorbs CBAM costs as free allowances disappear?

The EU CBAM is designed to reduce carbon leakage and protect the competitiveness of EU producers as free allowances under the EU ETS are phased out. But for metals producers, especially iron, steel, and aluminium, the policy also creates direct cost pressure at a time of thin margins, high energy costs, import competition, and heavy decarbonisation needs. For banks, the exposure is indirect but material: CBAM costs can weaken client profitability, alter debt-service capacity, and affect credit/default risk over typical lending horizons.

Data and method

The study focuses on EU iron and steel, aluminium, and mixed metal companies exposed to CBAM. It develops a mapping system that links covered CBAM commodity codes (CN codes) to industry NACE codes, EU ETS installations, and company-level financial data using EUETS.info, a Joint Research Centre study, and the Bureau van Dijk Orbis database. The final mapped dataset includes 97 installations linked to 82 companies.

The quantitative analysis forecasts annual carbon-cost exposure from 2025 to 2034 by estimating permit needs, expected free-allocation phaseout, historical emissions growth or reduction rates, BloombergNEF carbon-price forecasts, and a 30% proxy for import-related emissions exposure. Costs are expressed mainly as a percentage of forecast EBITDA and revenue. The bank-facing analysis then translates these results into qualitative risk-management implications for lenders exposed to metals clients.

Findings

• Iron and steel carry the highest CBAM cost burden. NACE 24.1, covering basic iron and steel and ferro-alloys, is the most exposed subsector, with average carbon costs rising to around 47% of EBITDA by 2034 under the business-as-usual trajectory. Keeping costs below 10% of EBITDA would require a much more aggressive decarbonisation pathway, estimated at around 20% annual emissions reduction.
• Aluminium is exposed, but the modelled EBITDA shock is less severe. Aluminium production still faces rising carbon costs, but NACE 24.42 peaks around 12% of EBITDA by 2034 in the study's trajectory. A 5% annual decarbonisation rate would be enough to keep the sector below 10% of EBITDA, reflecting a less severe modelled CBAM burden than iron and steel.
• Smaller and lower-margin firms look most vulnerable. The analysis suggests that companies with weaker margins and fewer resources can face much higher permit requirements and cost burdens than larger multinationals, raising concerns that CBAM and the free-allocation phaseout could disproportionately strain firms least able to fund rapid decarbonisation.
• Industry leaders are insulated by scale, strategy, and public support. ArcelorMittal, Norsk Hydro, and Vinci illustrate different resilience factors: green steel and aluminium investments, renewable-energy integration, carbon capture capacity, and access to substantial government support. These advantages help lower CBAM exposure but may be harder for smaller players to replicate.
• Moravia Steel shows the risk of high carbon intensity. Despite meaningful revenue, Moravia Steel's carbon-cost exposure rises sharply after 2030 because of high permit requirements relative to earnings. Its planned EAF and low-emission investment programme may be decisive, but the company remains exposed to energy-price and execution risks.
• CBAM risk is intertwined with energy and trade risk. Metals decarbonisation will increase demand for affordable low-carbon electricity, while CBAM may trigger trade tensions, retaliatory measures, or shifts in import/export competitiveness. Carbon price exposure is therefore only one part of a broader transition-risk picture.
• Banks need a more granular client-risk lens. The study recommends using carbon cost as a percentage of EBITDA as a practical credit-risk indicator, then combining it with energy-security exposure, decarbonisation plans, trade-policy sensitivity, and company-specific investment capacity.

Bottom line: CBAM will create rising and uneven carbon-cost pressure across EU metals firms

This makes company-level decarbonisation capacity a material credit-risk factor for exposed lenders.

Implications for decision-makers

For banks and exposed lenders

• Use CE% as an early warning metric. Carbon cost as a percentage of EBITDA can help lenders identify clients whose debt-service capacity may deteriorate as free allowances decline and CBAM costs rise.
• Ask sharper transition-plan questions. Client engagement should test annual decarbonisation targets, investment capacity, expected permit deficits, renewable-energy sourcing, and whether planned projects are sufficient for the 2030-2034 cost jump.
• Price transition risk beyond carbon alone. Credit frameworks should include energy-price volatility, renewable-power access, trade-policy retaliation, tariff exposure, and the credibility of government support.
• Design financing that supports credible decarbonisation. Sustainability-linked loans, blended finance, and co-investment with public actors may help smaller but viable metals firms fund transition investments while reducing lender downside risk.

For metals companies

• Accelerate emissions reduction before 2030. The steepest cost increases appear later in the allowance phaseout, so early action creates more room to avoid EBITDA compression and preserve lending terms.
• Treat energy strategy as transition strategy. For both steel and aluminium, access to affordable low-carbon electricity is central to lowering CBAM exposure and sustaining green-production investments.
• Make transition plans lender-readable. Companies should translate decarbonisation roadmaps into permit needs, EBITDA effects, financing requirements, and timing milestones that banks can incorporate into credit analysis.

For policymakers

• Protect competitiveness without weakening decarbonisation. CBAM can support EU metals competitiveness, but its implementation must account for thin margins, smaller-firm vulnerability, energy-cost pressures, and possible trade retaliation.
• Target support where transition capacity is weakest. Large incumbents already attract substantial public funding; smaller exposed firms may need more tailored support, exemptions, or financing mechanisms to avoid a disorderly transition.

Author

Cyro Duarte

Cyro is a recent gradate from the MSc Climate Change Finance and Investment at the University of Edinburgh Business School. Now based in London, he now works for advisory firm Climate Risk Services, where he manages relationships with development finance institutions, impact investors, and emerging market banks across Europe, Africa, and Latin America. Through this work Cyro helps institutions embed climate risk data into their decision-making.