How will the EU CBAM implementation in 2026 change the competitiveness of Canadian versus Chinese aluminum suppliers?
Executive summary
The EU’s Carbon Border Adjustment Mechanism (CBAM), entering full force in 2026, will raise the effective cost of exported aluminium into the EU by pricing the CO2 embedded in production and thus tilt competitiveness toward lower‑emission suppliers — a structural advantage for many Canadian producers and a challenge for higher‑emitting Chinese capacity unless they rapidly decarbonize or document paid domestic carbon prices [1] [2] [3]. The size of the effect will depend on certificate prices, default emission values, how indirect emissions are treated over time, and whether importers use supplier‑specific data or default values — all variables that leave outcomes predictable in direction but uncertain in magnitude [4] [5] [6].
1. CBAM’s mechanism and why it matters for aluminium trade
CBAM requires EU importers to declare embedded emissions and purchase certificates priced in line with the EU ETS, shifting a carbon cost onto imports that previously avoided EU carbon pricing; for aluminium this means importers must quantify production emissions and pay a CBAM liability that can be sizeable depending on the ETS price [1] [7] [4]. The mechanism replaces free ETS allowances for EU producers over 2026–2035, meaning CBAM is explicitly designed to neutralize advantages from production in jurisdictions with weaker carbon pricing — a direct competitiveness lever for global aluminium exporters [3] [8].
2. Why Canada starts from a stronger position than China on average
Multiple analysts point to Canada’s opportunity to win market share in the EU because a significant share of Canadian aluminium production is powered by low‑carbon electricity and producers have been positioning to sell “low‑carbon” metal to Europe, reducing CBAM exposure compared with high‑emission producers [2] [1]. Consulting and industry briefings identify Canadian aluminium as a strategic alternative for EU importers seeking to minimize CBAM costs and decarbonize supply chains, framing CBAM as an opening for Canadian exporters to expand in Europe [2] [9].
3. China’s exposure and the mitigation paths available
China is a leading global supplier whose average aluminium emission intensity has historically been higher than some competitors, making Chinese shipments more likely to attract larger CBAM charges unless exporters can prove lower actual emissions or show they have paid an equivalent domestic carbon price [4] [3]. The EU allows recognition where a producer has already paid an equivalent carbon price at origin, and default values — which importers must use when supplier data aren’t available — carry markups in early years to incentivize supplier reporting, creating both a penalty channel for opaque high‑emission supply and a compliance path for those who document reductions [5] [4].
4. Quantifying the competitive shift — direction clear, magnitude contested
Industry estimates and provisional benchmarks suggest metals will bear the bulk of CBAM costs and that aluminium imports to the EU could fall modestly (estimates vary: imports down ~4% for aluminium in one model) while total importer liabilities for covered goods may run into the billions, indicating material but uneven impacts across suppliers and product grades [9] [6]. The OECD and World Bank emphasize that sector‑level exposure varies and that overall macroeconomic exposure may be small for many countries, but individual high‑emission producers risk losing market share — a nuance that matters when comparing pockets of Canadian low‑carbon output to diverse Chinese capacity [8] [10].
5. Practical levers and strategic responses for suppliers and buyers
Canadian suppliers can translate low‑carbon power sources and early decarbonization steps into verified emissions data to minimize CBAM certificates, gaining preferential access to EU buyers hunting low‑carbon inputs; meanwhile Chinese mills face incentives to invest in cleaner electricity, provide verified emissions data, or accept higher CBAM costs and adjust pricing — all while potential loopholes, default values, and transitional simplifications create room for regulatory gaming and disputes [2] [7] [5]. Political reactions and trade frictions are also foreseeable — critics warn CBAM risks being perceived as protectionist and could invite retaliatory measures or parallel domestic carbon schemes in trading partners [11] [4].
6. Bottom line and open uncertainties
The 2026 CBAM rollout will, in direction, strengthen lower‑carbon Canadian aluminium suppliers’ competitiveness in EU markets relative to higher‑emitting Chinese suppliers by making emissions financially relevant at the border, but the ultimate scale of advantage depends on ETS prices, default benchmarks, treatment of indirect emissions over time, and the ability of Chinese producers to document emissions or pay equivalent domestic carbon costs — variables still evolving as provisional benchmarks and implementation details are finalized [6] [5] [3]. Reporting and modeling to date make the directional forecast clear while leaving significant quantitative uncertainty about market shares and price pass‑through [1] [10].