By Shubham Thakur
Published by CleanCarbon.ai | Topic: EU CBAM, Steel Decarbonization & Trade Compliance
As the European Union’s Carbon Border Adjustment Mechanism (CBAM) approaches its financial compliance phase, global steel manufacturers face unprecedented pressure to decarbonize and report embedded emissions. In Africa, where production dynamics, energy grids, and infrastructure differ significantly from European standards, the impact of CBAM presents both unique opportunities and operational hurdles.
In this interview, Shubham Thakur, Climate Communications Expert and CBAM Analyst at CleanCarbon.ai, speaks with P. Vikranth Rao, an iron and steel industry veteran with nearly two decades of experience and key operational leader at Sentinel Steel in Ethiopia. They discuss how clean energy gives Ethiopian steel a competitive edge, the practical challenges of CBAM reporting in Africa, and why region-specific policy adjustments are critical for sustainable trade.
Executive Summary & Key Insights
- Hydro-Powered Advantage: Ethiopia’s electricity grid relies on 98% hydroelectric power and 2% wind power, giving local scrap-based secondary steelmakers a low-carbon footprint compared to traditional primary blast-furnace operations.
- Estimated CBAM Cost Hike: Unadjusted CBAM compliance and associated regional supply chain adjustments could increase steel manufacturing costs by 7% to 8%, disproportionately squeezing small and medium-sized enterprises (SMEs).
- Policy Misalignment: Current EU CBAM reporting requirements mirror European infrastructure standards, creating severe data collection and verification bottlenecks for African manufacturers lacking specialized testing systems.
- Actionable Policy Solutions: Experts advocate for phased regional frameworks focusing initially on direct energy sources, supported by government tax incentives and independent decarbonization departments distinct from workplace safety divisions.
Full Interview Transcript
Decarbonization Trends & The Ethiopian Steel Experience
Shubham Thakur: Hello and welcome to this podcast by CleanCarbon.ai, focusing on CBAM reporting and industrial climate policy. I’m Shubham Thakur, Climate Communications Expert and Journalist. Today, I am joined by Mr. P. Vikranth Rawi, an iron and steel industry expert with 17 to 20 years of experience who has been a driving force behind Sentinel Steel in Ethiopia.
Vikranthji, you have observed changes across the Indian and global steel sectors. How do you see decarbonization shaping the future of iron and steel production and its underlying business models?
P. Vikranth Rao: Thank you, Shubham. Decarbonization affects the steel industry primarily through two channels: energy consumption and process emissions.
In Ethiopia, we are fortunate because roughly 98% of our electricity comes from hydroelectric power, with the remaining 2% coming from wind. Energy-related carbon emissions are minimal here compared to regions reliant on coal-based grid power.
Secondly, regarding raw materials, our process relies heavily on steel scrap—a recycled, renewable input with significantly lower carbon intensity than virgin iron ore processed via blast furnaces. In the past, unsegregated scrap containing oils or residues created higher furnace emissions. Today, better scrap sorting, cleaning, and the implementation of primary and secondary Fume Exhaust Systems (FES) have reduced operational carbon output by 5% to 10%.
Furthermore, by adopting direct hot charging—transferring hot billets directly from continuous casting machines (CCM) to the rolling mill—we have cut reheating furnace fuel (HFO) consumption by 60% to 70%. In secondary steelmaking across Africa, these operational refinements yield low-carbon steel without requiring complete industrial overhauls.
Defining Green Steel in Practical Terms
Shubham Thakur: How do you define “Green Steel” in a practical, operational sense?
P. Vikranth Rao: Green steel is defined by two interconnected factors:
- Energy Provenance: The origin of the power supply (hydro, solar, wind, biomass, or green hydrogen vs. fossil fuels).
- Operational Efficiency: Maintaining monitored, verifiable production processes where carbon emissions are systematically measured and minimized.
Zero emissions in heavy manufacturing are unrealistic today. However, if a facility operates on renewable energy and tracks its embedded carbon with 80% to 90% accuracy, that output qualifies as green steel in practical industrial terms.
CBAM Impacts on African Steel Exports & Cost Structure
Shubham Thakur: The EU Carbon Border Adjustment Mechanism will impose financial carbon tariffs on embedded emissions starting in 2026. How will CBAM impact steel production and export businesses across Africa?
P. Vikranth Rao: CBAM presents both opportunities and challenges. However, applying a single, rigid policy across all global regions presents operational difficulties.
For instance, Ethiopia produces steel using clean hydro energy, whereas other regional manufacturing hubs like Nigeria rely heavily on heavy fuel oil (HFO) due to grid constraints. A uniform carbon tariff penalizes facilities operating within underdeveloped energy infrastructure.
In terms of financial impact, CBAM compliance and emissions management could increase product manufacturing costs by 7% to 8%. Because steel manufacturing operates on tight margins dependent on volume, this cost increase directly compresses profitability.
| Estimated CBAM Impact on Exporters | |
|---|---|
| Cost Increase | 7%–8% average production cost hike |
| Vulnerability | SMEs suffer most due to limited Capex reserves |
| Main Bottleneck | Lack of accredited emissions data labs |
Shubham Thakur: Will this price increase impact large enterprises and smaller players equally?
P. Vikranth Rao: Large corporations generally possess the capital expenditure (Capex) reserves and technical teams needed to adapt. The primary risk lies with small and medium enterprises (SMEs). Without dedicated compliance budgets or specialized technical staff, SMEs risk being priced out of the European export market.
Data Collection & Infrastructure Challenges
Shubham Thakur: What are the biggest hurdles African steel manufacturers face regarding accurate, timely CBAM emissions reporting?
P. Vikranth Rao: The primary challenge is data collection and verification infrastructure. European CBAM regulations assume access to sophisticated, continuously calibrated monitoring systems and accredited third-party verifiers. Many African industrial facilities operate basic monitoring tools sufficient for local environmental compliance, but lack the laboratory infrastructure required for precise product-level embedded emissions accounting.
Additionally, CBAM reporting frameworks ask for granular data, including employee transit emissions and indirect supply chain steps. For many African manufacturers, capturing this broader data is currently unfeasible.
Shubham Thakur: Should the European Commission support capacity building before enforcing strict financial penalties?
P. Vikranth Rao: Yes. A phased, region-specific approach would be far more effective. In the initial 2-to-5-year phase, regulatory bodies should focus strictly on primary energy sources and direct furnace emissions (Scope 1 and Scope 2). Once localized measurement systems and verification bodies mature, reporting can expand to complex Scope 3 parameters.
Policy Relief, Incentives, and Workforce Development
Shubham Thakur: Beyond reporting software, what financial or policy mechanisms would provide meaningful relief to steel producers undergoing green transitions?
P. Vikranth Rao: Rather than direct subsidies, governments and international bodies should implement tiered corporate tax structures and target-based incentives:
- Graduated Tax Relief: Reduce business profit taxes proportionally when an industrial plant demonstrates verified carbon reductions (e.g., dropping from baseline to an 80% or 60% emission threshold).
- Technical Institutes & Training: Establish regional training centers to build a skilled workforce proficient in carbon auditing, energy management, and greenhouse gas accounting.
Most industrial facilities currently assign environmental responsibilities to general safety officers. To achieve real decarbonization, plants must establish dedicated, independent environmental and carbon management departments.
Shubham Thakur: Is buyer demand actively driving green steel adoption in Asian and African markets, or remains restricted to Europe?
P. Vikranth Rao: Currently, premium demand for green steel is concentrated in Europe. In Asian and African commercial markets, purchasing decisions remain heavily driven by price per ton rather than carbon footprint.
However, this dynamic will shift as governments incentivize public infrastructure contractors to procure verified low-carbon materials, establishing a sustainable commercial demand cycle.
Shubham Thakur: Thank you so much, Vikranthji, for sharing these practical industry insights.
P. Vikranth Rao: Thank you, Shubham. It was a pleasure speaking with you.