This chapter outlines the overall scope and analytical boundaries of the study. It defines which sectors and countries are included in the assessment, and clarifies key terminology used throughout the report.
3.1 Scope of sectors and countries
The report focuses on five sectors covered by CBAM: iron/steel, aluminium, cement, and fertilizers, given their strategic economic and climate relevance in the region. The geographic focus is Denmark, Finland, and Sweden.
Selected sectors
Iron and steel
The iron and steel industry are one of the most energy- and emissions-intensive sectors globally, and a critical focus of CBAM. In the Nordics, the majority of primary steel is produced via the integrated blast furnace–basic oxygen furnace (BF–BOF) route, which relies heavily on coal-derived coke as both fuel and reducing agent (See e.g. Toktarova et al., 2020). Electric arc furnaces (EAFs), which are significantly less carbon-intensive, are also present and increasingly used. The Nordic region currently hosts three integrated steel plants and a number of EAF-based facilities. Importantly, several Nordic steel producers have announced or initiated major investments in fossil-free steelmaking, positioning the region as a potential frontrunner in decarbonizing this sector. Understanding how CBAM interacts with these investments is essential to inform both climate and industrial policy. The Nordic steel market is distinguished by a strong emphasis on the production and export of high-quality, specialized steel products, while simultaneously relying on imports of lower-grade and commodity steel to meet broader domestic demand.
Steel production in the Nordic countries—particularly in Sweden and Finland—is highly advanced and capital-intensive, with a focus on niche products, high-strength steels, and customized steel solutions for sectors such as automotive, engineering, and construction. These value-added steel products are primarily exported to European and global markets, supported by strong industrial R&D and investments in fossil-free steel technologies. At the same time, the Nordic region imports a significant share of lower-grade, mass-produced steel, such as rebar, standard coils, and sheets. These imports typically come from countries with lower production costs and environmental standards, including some outside the EU. The introduction of CBAM is therefore particularly relevant, as it may shift the balance by raising the cost of carbon-intensive steel imports, thereby improving the competitiveness of domestic production—especially in the lower-grade segment—while also supporting ongoing investments in low-carbon, high-quality steel production.
Cement
Concrete continues to play a central role as a structural material in buildings and infrastructures. However, cement production, central to concrete manufacturing, significantly contributes to global greenhouse gas emission. Alternatives to carbon-intensive cement and concrete products exist today and have the potential to scale and cost-effectively decarbonise the construction industry dramatically within the coming years. In order to bring about mass deployment, industry must be given the right signals to decarbonise as soon as possible.
Most cement is produced and consumed locally due to its relatively low value per unit weight, meaning transport makes up a disproportionately high percentage of its total manufacturing cost. Despite regional trade and the presence of a few independent importers, the Nordic cement manufacturers typically dominate their respective home markets (see e.g. Rootzén & Johnsson, 2015, 2017). While the proportion of cement production exported internationally has increased, the market remains largely regional in nature. The low trade intensity and local production means that the risk of carbon leakage for the cement industry is relatively low.
The cement industries in Denmark, Sweden, and Finland have all announced plans and are, at varying stages, implementing carbon capture and storage (CCS) technologies as a key strategy to achieve deep decarbonization. Implementation of CBAM, coupled with a removal of free allocations, would send strong signals to industry and help the Nordic cement industry become a world leader in low-carbon cement and concrete and other alternative construction technologies.
Fertilizers
Fertilizer production is one of the most energy intensive industries in the world, being responsible for 3%– 5% of global natural gas consumption every year (Song et al., 2018). Given the central role of agriculture in Denmark’s economy, the country imports and uses considerable quantities of fertilizer. Sweden has two on-going start-up projects to develop fossil-free ammonia and fertilizer production in Sweden (Power2Earth, n.d.). LKAB is lead on the other project, constructing a demonstration facility to among other things develop mineral fertilizers from material streams from iron ore production (LKAB, 2024). Simultaneously, there is a significant fertilizer production in Europe, from both natural and artificial sources. Fertilizer is an interesting case in this project, as it is readily available from European producers, but the import from non-European countries is significant. Developing countries dominate EU imports, unlike exports, making them more vulnerable to economic losses from rising export costs due to certification requirements. Higher costs could hurt fertilizer-exporting nations, leading to increased fertilizer prices and potential risks for the agricultural sector. Focusing on fertilizers in this project will help to evaluate how important price is as a factor for fertilizer importers. As well as how CBAM will affect national initiatives to decarbonise the sector and secure regional production. This can in turn support policies, that aims to reduce imports from outside of Europe and ensure long term stability for low-carbon investments.
Aluminium
Aluminium is an energy intensive raw material to produce, requiring both high amounts of heat and electricity. In 2024, only 3.8% of primary aluminium was produced within Europe with 59% of primary aluminium produced in China (Primary Aluminium Production, 2024). In 2023, 72% of the energy used to smelt primary aluminium in China came from coal, which is bound to lead to a high level of embedded carbon per tonne imported aluminium (‘Primary Aluminium Smelting Power Consumption – by Country’, n.d.). Due to the high environmental impact of producing primary aluminium, and due to the high degree of imports into the EU, aluminium is a material with a high risk of carbon leakage.
Conversely, aluminium is produced in high quantities in Norway, which offers a short-term alternative to imported aluminium (Norwegian Aluminium Industry with Billion in Added Value, n.d.). There is also a significant environmental potential to recycling aluminium. Aluminium as a material is highly recyclable, and secondary aluminium can be recycled many times without losing material properties (Zore, 2024).
Focusing on aluminium in this report helps clarify how CBAM will affect the sector and enables policymakers to identify market mechanisms that could complement the regulation.
Selection of countries
Denmark, Finland, and Sweden have been chosen for the comparative analysis. All three countries are committed to ambitious climate targets and are exploring decarbonization pathways for industry. They each have significant activity in at least one of the selected sectors, making them particularly relevant for understanding the sector-specific impacts of CBAM. Despite their similarities, they differ in industrial composition, trade patterns, and exposure to international competition—providing useful variation for the analysis.
Since neither Norway nor Iceland is part of the EU, it is up to each EEA (European Economic Area) country to decide if new EU legislation should be implemented or not.
The Norwegian government announced its intention to implement the Carbon Border Adjustment Mechanism (CBAM) in a press release in late 2024 after consulting with national business and workers’ organisations, both of which expressed support for its implementation (Finansdepartementet, 2024). The government currently plans to introduce the mechanism from 1 January 2027, with the Norwegian Environment Agency leading the process (Miljødirektoratet, 2025). Norway was not included in the transitional phase of CBAM, and some of the key questions for this study are not yet relevant for Norway. Norway will, however, be able to benefit from the learnings from the transition phase from the other Nordic countries once they are compiled and assessed in the tendered project. Iceland’s stance on CBAM is still not determined and it is thus assumed that no implementation plans are being developed for the time being (as of 2025).
3.2 Terminology
To support a consistent understanding of the analyses presented in this report, this section introduces key terms and concepts central to interpreting the implications of CBAM. Clarifying these concepts is essential, as CBAM interacts with multiple emission scopes, methodological frameworks, and trade‐related dynamics, all of which influence how impacts are assessed and compared across sectors and countries.
Impacts of CBAM on calculation/estimates of consumption-based emissions
Calculations of estimates are generally based on environmentally extended multi-regional input-output (EE-MRIO) models. These models trace the embedded emissions of goods and services consumed in a country, including those produced abroad based on trade flow data, sectoral production data and country- or region-specific emission intensities. However, these models often use average national emission intensities rather than firm- or batch-specific data. CBAM is designed to target the actual embedded emissions in specific imports (e.g. a tonne of cement from one factory in Turkey). Current EE-MRIO is not adapted to capture this level of granularity. Further Input-output models are based on statistical data that may be several years old. CBAM's effects—especially early shifts in trade patterns or cleaner production methods—may not be captured in real time.
Direct and indirect emissions
Under the CBAM framework, direct and indirect emissions are defined in Regulation (EU) 2023/956 and relate to emissions associated with the production of specific goods. Direct emissions under CBAM refer to emissions from fuel combustion and production processes at the installation producing the CBAM-covered good. Indirect emissions under CBAM refer to emissions from the generation of electricity consumed during the production of certain CBAM-covered goods, as specified in the Regulation.
Scope 1, Scope 2 and Scope 3 emissions are accounting concepts used in corporate greenhouse gas reporting. While there is partial overlap with CBAM concepts, the definitions and boundaries do not fully correspond, and the terms should not be used interchangeably. The CBAM levy is determined by the emissions embedded in imports, which include direct emissions from fuel combustion and the production process and, for selected CBAM-covered products, indirect emissions from electricity used in production. Emissions embedded in input materials are included only where those inputs are themselves CBAM-covered. Under the current CBAM Regulation and in the definitive regime from 2026, only cement and fertilisers are subject to CBAM charges for indirect emissions from electricity consumption. For iron and steel, aluminium and hydrogen, only direct emissions are taken into account under CBAM, while electricity as a CBAM-covered product has no separate category of indirect emissions, as emissions from power generation are treated as direct emissions. Computing indirect emissions for the product categories where they are covered under CBAM will pose significant challenges along the value chain due to the granularity details needed in the data that is often not available in current reporting systems.
Furthermore, as the Nordic economy decarbonizes, electricity usage and costs become an increasing part of the production process. Hence, the exclusion of indirect emissions can directly impact the competitiveness of Nordic industry, both in the domestic and international markets. Combined with the phase-out of free allowances under the EU ETS and a higher EU carbon price, production prices will rise and can cause a competitive disadvantage for Nordic products in international markets.
Including indirect emissions in CBAM fees could in turn have additional impact on third countries incentives to implement a carbon pricing mechanism on emissions. Crediting the climate policies of third countries could encourage them to adopt such measures and avoid double charging for the carbon in the goods covered. However, not crediting them is technically and administratively simpler. The key issue isn’t just whether to credit these policies, but also presents challenges, like differences in sectoral coverage across countries.
The inclusion of indirect emissions could therefore potentially have significant impact on both Nordic industries´ competitiveness as well as incentives along the value chain in third countries to reduce carbon emissions from production processes for goods imported to the EU. While at the same time, posing some challenging questions to the EU on defining which other carbon credit schemes should be accredited, which sectors to include and what price levels should be considered equivalent to the EU ETS.
Addressing indirect emissions therefore has significant impact on the competitiveness on Nordic industries combined with environmental impact along the value chain and inconsistencies in carbon pricing across sectors and countries. While the EU ETS is the primary driver of decarbonisation in the Nordics, CBAM may complement this process by influencing competitiveness and trade patterns, which in turn could affect the green transition, particularly in electrification-intensive heavy industry sectors.