Hydro's main concern is that CBAM's current design creates an unfair competitive disadvantage for EU/EEA low-carbon aluminium producers and recyclers. The regulation assigns zero emissions to aluminium scrap imports, which means foreign competitors can sell remelted aluminium in the European market without incurring the same carbon costs as EU producers. This creates a massive loophole in the system. This undermines the fundamental principle of CBAM, namely, equal costs for equal emissions, and threatens the competitiveness of the European aluminium industry while failing to properly incentivize global decarbonization.

Yes. In addition to the scrap loophole, Hydro is deeply concerned about the effects of including indirect emissions from electricity on top of direct emissions, as well as the limited CBAM product scope. Indirect emissions are currently out of scope for CBAM on aluminium, but the European Commission is assessing whether to include it at some point. The inclusion of indirect emissions would unfairly disadvantage European aluminium producers who already face high indirect carbon costs from the EU ETS and the European marginal pricing system for electricity. These indirect carbon costs are unique to Europe. If indirect emissions are added while indirect cost compensation is removed, it would significantly increase costs for EU producers, including those using 100 percent renewable energy, while this cost would not be mirrored for third country producers.

Our request is that indirect emissions should be excluded from CBAM until the European grid is much closer to decarbonization and the carbon price element in the power price is substantially lower. We also maintain that ETS indirect carbon cost compensation, which is given by national governments to certain energy and trade intensive industries, is a far superior tool to protect industry against carbon leakage and therefore should be extended post 2030.

Furthermore, another issue is the current CBAM scope covers primary aluminium and some semi-finished products, but it does not cover finished goods. This could lead to increased costs across the entire supply chain, creating a risk of carbon leakage. We ask that CBAM must be expanded to include all products with high aluminium content. The European Commission has recognized this risk and is currently working on a solution.

Non-EU producers can import remelted aluminium process scrap into Europe under the guise of "carbon-free" material, even though its initial production carried significant carbon emissions. This allows foreign recyclers and scrap dealers to gain an unfair cost advantage over European producers who pay for carbon emissions at every stage of production.

The most effective solution is to include all scrap-based aluminium imports in CBAM and assign scrap content a default carbon value equivalent to primary aluminium. This would ensure that imported products reflect their true carbon footprint and prevent circumvention through misreported use of scrap.

Additionally, the European Commission must introduce robust verification mechanisms for the declared recycled content of imported aluminium to prevent circumvention. This should be done before CBAM enters its permanent phase.

The loophole is already being exploited. Some companies are advertising "CBAM ready" aluminium based on easily remelted scrap. The current exclusion of scrap allows up to half of all global aluminium products to evade CBAM costs, whereas EU/EEA producers face the full carbon costs of the EU ETS. By 2035, this regulatory gap could lead to a 10 percent higher cost burden on EU recyclers compared to their non-EU competitors, translating to a potential cost disadvantage of over EUR 200 per tonne of aluminium.

The current circumvention rules are insufficient because they do not address the fundamental flaw in the methodology: the zero-emission assignment to aluminium scrap. If CBAM does not allocate emissions to remelted scrap, enforcement mechanisms will be ineffective, as non-EU producers can legally exploit this loophole.

The issue is gaining attention because the real world implications of the CBAM methodology are becoming more evident. This methodology is decided through secondary legislation, not in the CBAM regulation itself. Industry analysts have highlighted how the regulation could unintentionally harm European industry. The European Commission has also acknowledged the need to minimize unintended consequences and is also drafting the rules for the permanent period of CBAM. This means that there is enough time to make necessary corrections.

If left unchanged, CBAM will:

• Worsen carbon leakage by imposing a lasting cost burden on European industry, echoing the energy crisis after Russia’s invasion of Ukraine.
• Increase costs for European aluminium producers and recyclers while giving foreign competitors a major cost advantage. Therefore, reducing European competitiveness.
• Encourage the export of remelted process scrap to Europe under false "carbon-free" claims, undermining genuine decarbonization efforts.
• Jeopardize Europe’s strategic autonomy in critical raw materials, particularly in defense and the energy transition.

By assigning zero emissions to aluminium scrap, CBAM allows foreign producers to label high-carbon aluminium as "green" simply by remelting it once before export. This misrepresents the true environmental impact of the material and undermines legitimate sustainability efforts by European producers.

Hydro supports CBAM if it reaches its intended objectives, namely, to protect Europe’s low-carbon aluminium industry from carbon leakage and to drive decarbonization abroad. This means urgently correcting the scrap loophole, expanding its scope to downstream and limiting the scope to indirect emissions, to ensure that CBAM remains effective and does not inadvertently disadvantage European industry.

Some stakeholders argue that excluding aluminium scrap from the CBAM scope is necessary to encourage recycling and increase circularity. However, this perspective overlooks the fact that CBAM, in its current form, disproportionately harms European recyclers. Rather than supporting circularity, it undermines the competitiveness of European aluminium recycling while enabling foreign competitors to exploit the loophole at the expense of EU industry.

Additionally, there are calls for removing aluminium from CBAM entirely. While it is true that the aluminium industry did not initially advocate for CBAM, Hydro is committed to making the mechanism work as intended. If CBAM is not properly reformed, free allocation under the EU ETS remains a more effective tool for preventing carbon leakage provided it is maintained at least at current levels. Moreover, CBAM should not replace indirect carbon cost compensation as a carbon leakage protection measure.

Hydro is investing in carbon-free aluminium production through renewable energy sources and advanced recycling techniques. However, the current CBAM structure makes it harder for Hydro to compete against non-EU producers who can bypass carbon costs through the scrap loophole.

The loophole undermines the EU’s green transition by encouraging carbon intensive imports while making it harder for European producers to compete. This discourages investment in genuine low-carbon solutions within the EU/EEA.