CBAM, Carbon Costs, and the Strategic Turning Point for Vietnam’s Steel and Aluminum Industries. When Scrap Becomes a “Green Asset”

In the landscape of the global green transition, a green arrow is pointing downward, symbolizing efforts to cut emissions, while a grey arrow climbs upward, representing rising carbon costs. This contrast vividly reflects the reality facing the world’s steel and aluminum industries particularly for exporting nations like Vietnam as the European Union’s Carbon Border Adjustment Mechanism (CBAM) enters full implementation.

CBAM is not merely a trade or environmental tool. It is reshaping the competitive advantages of every production technology, every ton of raw material, and even every piece of scrap. In this context, enterprises involved in recycling, electric arc furnaces (EAF), and low-carbon materials. Including members of the Vietnam Metal Recycling Forum (VMRF), stand at a rare strategic crossroads.

CBAM: Europe’s New “Carbon Wall”

The EU designed CBAM to prevent “carbon leakage,” where companies move production to countries with lower environmental standards to evade emission costs. Initially, the mechanism focuses on high-emission sectors: cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen, sectors that account for a significant portion of global trade.

Unlike traditional trade barriers, CBAM does not impose a direct tax. Instead, it forces EU importers to purchase carbon certificates equivalent to the embedded emissions in the products. As the EU gradually phases out free emission allowances under the ETS (Emissions Trading System), carbon costs will be passed directly into the price of imported goods.

Independent studies indicate that for Vietnam, a rising exporter of steel and aluminum, the impact is significant. Steel export values could drop by approximately 4%, leading to a nearly 1% decline in output once CBAM is fully applied. The aluminum industry is projected to face similar declines. While these figures may not seem “shocking” at first glance, they are enough to erode the profit margins of businesses already under intense competitive pressure.

Production Technology Dictates Carbon Costs

The crux of CBAM lies in how the EU classifies technology and calculates emission factors. For steel, the draft CBAM annexes categorize three main technological routes: Blast Furnace-Basic Oxygen Furnace (BF/BOF), Direct Reduced Iron-Electric Arc Furnace (DRI-EAF), and Scrap-based EAF.

The disparity between these routes is vast. Traditional BF/BOF technology is expected to have an emission factor of about 1.53 tons of $CO_2$ per ton of steel. DRI-EAF drops to just over 1 ton, while steel produced from scrap-based EAF sits at only around 0.3 tons of $CO_2$ per ton of product.

With EU carbon prices hovering around 80–90 EUR per ton of $CO_2$, the CBAM cost for BF/BOF steel could exceed 120 EUR per ton (over $130 USD). Conversely, scrap-based EAF steel would incur costs under 40 EUR per ton. This gap is large enough to completely overhaul price structures and competitive advantages in the European market.

International reports on the future of green steel highlight this fundamental divide. While a ton of blast furnace steel can emit over 2 tons of $CO_2$, scrap-based production remains around 0.7 tons. In an era where carbon is “priced,” technology is no longer a purely technical choice; it is a matter of economic survival.

Scrap: A “Loophole” or a CBAM Lever?

One of the most debated aspects of CBAM is its treatment of scrap. Under current regulations, steel and aluminum scrap are considered to have zero embedded emissions. This opens the door for exporters to increase the proportion of scrap in their products to reduce the number of CBAM certificates they must purchase.

Environmental research organizations warn this could lead to “resource shuffling,” where high-quality scrap is prioritized for supply chains serving the EU. As the EU eliminates free allowances, internal blast furnace costs will soar, driving an even greater demand for scrap to lower average emissions.

The OECD has pointed to the risk of rising scrap prices in Europe, which could pull scrap from non-EU countries. This would make domestic supply scarce in exporting nations like Vietnam. For companies collecting, recycling, and trading scrap, this represents both an opportunity to increase value and a risk of domestic raw material imbalances.

Strategic Opportunities for VMRF Members

Within this challenging landscape, CBAM simultaneously opens a new window of opportunity for early movers in the green transition. Specifically, the role of high-quality scrap—with traceability and carbon certification—is becoming increasingly strategic.

Supporting regulations like the CSRD (Corporate Sustainability Reporting Directive) force EU manufacturers and importers to ensure transparency throughout the value chain. This drives demand for “clean” recycled materials with clear emission data. In the ASEAN region, the demand for carbon-certified recycled aluminum is growing rapidly, creating the potential for a low-carbon material supply hub for the global market.

For VMRF members, now is the time to invest in clean processing technologies, modern sorting systems, and partnerships with international certification bodies. Scrap is no longer a cheap raw material; it is evolving into a high-value “green asset.”

Electric Furnaces and the “Green Premium” of Low-Carbon Steel

An interesting paradox of CBAM is that while it raises the cost of importing steel into the EU, it simultaneously creates an advantage for scrap-based EAF steel. With the lowest emission levels, EAF steel faces significantly lower CBAM fees than blast furnace steel.

As the demand for green steel surges, market analysts predict the emergence of a “green premium”, a price gap that buyers are willing to pay for low-carbon steel. Estimates suggest green steel could be priced over $100 USD higher per ton than traditional steel in the coming years as emission policies tighten.

This provides a distinct advantage to businesses using electric arc furnaces, especially when paired with renewable energy. In this scenario, carbon pressure is no longer a burden but a business lever.

Transparent Supply Chains: From Requirement to Competitive Edge

CBAM does not stop at the final production stage. The mechanism requires emission reporting across the entire supply chain, from raw inputs to the exported product. This drives demand for digital traceability systems, standardized data, and information sharing between links in the chain.

Studies on the ASEAN scrap market suggest that to maintain long-term competitiveness, the region must quickly deploy digital tracking technologies, including blockchain, to monitor material lifecycles. Standardizing impurity levels, refining sorting processes, and investing in clean-energy smelting will be decisive factors.

In this framework, the VMRF can play a central role—not just as a forum for exchange, but as a body to build common standards, support technology transfer, and connect data among members.

Challenges Not to Be Underestimated

Despite the clear opportunities, the path to CBAM adaptation is not easy. The biggest challenge for Vietnamese enterprises lies in the capacity to collect and manage emission data for the entire supply chain. This is not just a technical issue; it is a matter of cost and human resources.

Building a carbon management system requires investment in software, personnel training, and close coordination with raw material suppliers. For small and medium-sized enterprises (SMEs), this is a significant burden.

Furthermore, the risk of scrap scarcity and price volatility is real. If the EU continues to treat scrap as zero-emission, the flow of scrap to Europe could increase sharply. Conversely, if the EU adjusts policies to assign emissions to scrap, current advantages may shrink. This requires businesses to closely monitor policy shifts and proactively diversify their markets.

The Road Ahead: From Defense to Proactivity

To avoid being passive players, experts suggest that Vietnam’s steel and aluminum industries must shift from a “reactive” to a “proactive” mindset. This includes prioritizing investment in EAFs, combining scrap with renewable energy, and gradually adopting advanced technologies like DRI-EAF for deeper emission cuts.

In parallel, developing carbon traceability systems, applying digital technology, and establishing industry-wide standards are key to global market integration. Diversifying export markets and developing certified green steel and recycled aluminum products will increase value and reduce dependence on a single region.

At the macro level, coordination between enterprises and regulators to build a domestic carbon pricing mechanism could help keep revenue within the country while providing a “training ground” for businesses to habituate to carbon pricing before entering the global market.

CBAM: A Major Opportunity for Recycling and Low-Carbon Materials

CBAM, with carbon costs potentially reaching $80 USD per ton of steel, is creating a shock to traditional, high-emission blast furnace models. However, within that very pressure lies a massive opportunity for recycling, electric furnaces, and low-carbon materials.

For the VMRF and its members, this is not just a time to adapt, but a time to lead, leading the way in technological transformation, data transparency, and restructuring supply chains toward a greener future. Those who move first will hold the advantage, not only in mitigating the impact of CBAM but in positioning Vietnam on the global map of green materials. In this future, scrap is no longer a byproduct of the economy; it is the foundation of a sustainable future.