The Impact of the EU's Carbon Border Adjustment Mechanism on the Korean Steel Trade, with Implications for Policy

Climate-conscious trade norms are rapidly taking root worldwide, transforming the trade environment andfueling uncertainty in the steel industry. This new trade paradigm presents a significant challenge to the Koreansteel industry, the country’s largest emitter of greenhouse gases (GHGs). With the European Union (EU)having finally adopted a Carbon Border Adjustment Mechanism (CBAM) after years of rumor and speculation,Korean steelmakers — and particularly those with businesses exporting carbon-intensive steel — mustbrace for the impact of the CBAM and other carbon regulations. While the introduction of the CBAM poses threatens steelmakers who rely heavily on exports to the EU(particularly of steel plates), the CBAM also creates new opportunities for market participants. In this paper,we analyze the potential impacts of the CBAM on Korean steel exports and imports. Assuming the currentexport basket and carbon intensity levels remain unchanged, initially the CBAM is likely to erode the marketshare of Korean steel in Europe. But it could also create space for Korean producers to capture demanddisplaced from competitors even less prepared for the new regulatory regime. This effect is likely to intensifyafter 2030 as the CBAM’s carbon reduction measures tighten. The evolving landscape in the Europeanmarket may also see increased competition from steel producers in China as well, with implications forKorea’s own domestic market. The path forward for the Korean steel industry lies in embracing green steelmaking. This necessitates swiftand decisive action from Korean decisionmakers, who ought to immediately begin implementing a roadmapfor achieving net zero in steelmaking, enhancing the competitiveness of Korean steel and navigating theincreasingly uncertain trade environment. Broad-based support from both the government and society isnecessary to ensure that Korean steelmakers are equipped to effectively compete with their internationalrivals backed aggressive state investments in green technologies.