EU tax plan catches big New Zealand steel and aluminum exporters

Large New Zealand exporters of manufactured aluminium and steel products will be caught up in a planned extension of the European Union's carbon tax.

The EU's 2023 Carbon Border Adjustment Mechanism (CBAM) regulations originally covered materials like raw steel and aluminium, though a limited scope on manufactured goods had left room for circumvention of the rules.

"For example, non-EU producers exporting aluminium might instead manufacture semi-finished or finished products, like window frames, to avoid paying the CBAM, while EU manufacturers of those same products face higher input costs due to the ETS (emissions trading system) and CBAM," the European Roundtable on Climate Change and Sustainable Transition (ERCST) said in a statement.

Chapman Tripp partner Nicola Swan said New Zealand exporters of steel and aluminium to the EU had been reporting and paying a carbon tariff since January.

"New Zealand's aluminium exports to the EU have significantly risen, making this a critical issue for exporters."

However, she said the extension of the CBAM regulations would not include New Zealand's small manufacturers.

"It's manufactured products that have a high, high steel aluminium content, so we're talking sort of close to 80 percent upwards," she said, such as heavy machinery, car parts or specialised aluminium products that might be components of larger products.

She said all New Zealand exporters should be alert to these kinds of requirements and be ready to meet these requirements.

"I think that these measures, they're not signalling an immediate move at all towards agricultural products, etc, but certainly it's a direction of travel, and certainly it shows these types of carbon border adjustment mechanisms bedding down and becoming well understood and well expected for some of these big export markets like the EU."

For example, the UK was expected to introduce CBAM-type measures, and was also being considered in Australia and the United States.

"That's the most important thing I think for a country like New Zealand to be to be taking note of," Swan said.

How CBAM works

CBAM came into force in 2023 and imposed a cost on embedded emissions in [https://www.rnz.co.nz/news/business/515485/global-sustainability-standards-impact-new-zealand-exportsaffect certain carbon-intensive exports to the EU.

The Council of the European Union, the primary decision-making body of the EU, had updated the Carbon Border Adjustment Mechanism (CBAM) framework, amid concerns it was disadvantaging European manufacturers.

The 2023 regulations covered primary goods like iron and steel, fertilisers, cement, aluminium, electricity, and hydrogen, though had a limited scope on manufactured goods, which left room for circumvention.

The updated draft regulation, tabled in 2025, extended CBAM compliance to select downstream goods containing large amounts of iron, steel, and aluminium, while also tightening anti-circumvention measures, and refining rules on electricity imports, which included non-renewable, carbon-embedded generation, alongside technical changes.

"This step underscores the EU's commitment to drive forward a clean industrial transition: tackling carbon leakage, while strengthening EU competitiveness, accelerating decarbonisation investment, and supporting Europe's strategic independence," the EU's directorate for taxation and customers said.

Cost concerns

ERCST said the draft changes were crucial to prevent carbon leakage, but raised concerns about costs.

It suggested some tweaking to the certification and accreditation architecture was required to avoid unnecessary administrative burdens and costs on downstream products.

"The overall certification and accreditation architecture is disproportionate to the deductions most producers will realistically claim," ERCST said.