The mining industry contributes between 4% and 7% of total Greenhouse Gas (GHG) emissions globally. This environmental impact will likely intensify as demand for crucial metals, like Lithium and copper, continues to increase. Mining operations face dual pressures: reducing greenhouse gas emissions while meeting escalating demand for raw materials vital to energy transition efforts. The Carbon Border Adjustment Mechanism (CBAM) offers a potential solution to this challenge. CBAM, which began its transitional phase on 1 October 2023, requires EU-based importers to report the embedded emissions in their imports, consequently preventing carbon leakage by ensuring foreign producers face similar costs as EU manufacturers. Additionally, CBAM initially targets carbon-intensive sectors including iron, steel, cement, aluminium and hydrogen, which are all crucial to sustainable mining practices.
The Relevance of CBAM to Mining
CBAM is intended to prevent "carbon leakage", a scenario in which companies move production to countries with laxer environmental rules, undermining the EU’s climate ambitions. Developing nations with weaker sustainability requirements are most at risk of this practice.
How Does CBAM Work?
CBAM ensures that imported goods face the same carbon costs as those produced domestically within the EU Emissions Trading System (ETS). It works by imposing a carbon levy on the embedded GHG emissions of selected imported goods. CBAM currently applies to six sectors:
- Iron and steel
- Aluminium
- Cement
- Fertilisers
- Electricity
- Hydrogen
A transitional phase began in October 2023, during which importers are required to report emissions data without financial penalties. By January 2026, however, they will need to purchase CBAM certificates to cover the carbon footprint of their imports.
Mining as a High-Emission Sector
The mining sector underpins several CBAM-targeted industries. From the concentration of iron ore to the manufacture of pig iron or steel, the carbon intensity of upstream mining activities directly influences export competitiveness and market access to the EU. Additionally, CBAM applies to both direct emissions (Scope 1), indirect emissions from electricity (Scope 2) and those which stem from the production of the precursor materials (Scope 3). This comprehensive approach is particularly relevant for mining operations since Scope 3 emissions account for most of the sector's carbon footprint.
CBAM's Implications for Mining Supply Chains
The impact of CBAM will be felt across the mining value chain, particularly in countries and companies that export to the EU. The mechanism introduces a tiered burden of proof, regulatory scrutiny and potential cost exposure depending on a company’s emissions profile and data transparency.
Carbon Pricing at the Border
Mining companies that export concentrated iron ore or other raw materials used in steel and aluminium production will now face scrutiny over the carbon intensity of their operations. European importers will need to declare the embedded emissions in imported regulated goods and purchase CBAM certificates accordingly. For example, an iron ore concentrate producer in Brazil exporting to a steelmaker in Germany must now provide verified data on the carbon footprint of its ore concentrate. If this data is not available, the EU will apply default values, often based on the highest known emissions for that product category, increasing costs significantly. This creates a competitive disadvantage for high-emission producers and incentivises transparent, low-carbon mining practices.
Traceability and Data Transparency
CBAM is fundamentally a data-driven policy. It requires importers to present auditable and granular emissions data, including:
- Direct (Scope 1) emissions from ore concentrating operations
- Indirect (Scope 2) emissions from electricity use during the production process
- Process-specific emissions in mineral processing or refining
To meet these requirements, mining and refining companies will need to implement:
- Advanced carbon accounting systems
- Digital tools such as blockchain for traceability
- Third-party verification and assurance processes
This marks a shift from voluntary ESG reporting to mandatory carbon disclosure for international trade.
Incentivising Low-Carbon Mining Technologies
To remain competitive in CBAM-covered markets, mining operations will need to reduce their carbon footprints. This can be achieved by adopting sustainable mining technologies, including:
- Integration of on-site renewable energy like solar, wind, and hydro
- Use of green hydrogen in ore processing and refining
Re-evaluation of Trade Routes and Partners
Carbon costs will influence not only what is exported but also where from. This may result in European companies prioritising imports from suppliers with lower-carbon profiles. For instance, when it comes to regions with significant mining and refining activity, countries like Norway and Canada that utilise renewable-heavy electricity grids may gain market share. On the other hand, mining and metal companies in coal-reliant regions like India and South Africa may risk being shunned by European importers unless they decarbonise.
Read More: What CBAM Means for Global Trade | Tunley Environmental
Decarbonisation Strategies to Reduce CBAM Costs
Mining and refining enterprises face increasing financial pressure from CBAM regulations yet implementing proactive decarbonisation strategies offers opportunities to mitigate these costs effectively. It enhances sustainability in mining and creates competitive advantages in emerging low-carbon markets.
On-site Renewable Energy Integration: Several forward-thinking mining operations have already integrated renewable energy solutions into their operations. Some mines in Brazil and Chile have committed to powering their operations solely from renewable sources.
Low-carbon Processing Technologies: Electrification represents a core aspect of decarbonisation efforts in mining that directly reduces CBAM-related costs:
- Process optimisation through digital tools including AI improves energy efficiency, reduces waste and cuts emissions
- Battery energy storage systems ensure consistent power supply from intermittent renewable sources
Switching to Low-emission Suppliers
Mining and refining companies can further reduce their CBAM exposure through strategic supplier management. Companies that do not innovate to reduce embedded emissions face additional costs, as CBAM certificates must be purchased based on carbon emissions in imported products. Conversely, those who innovate may claim price premiums for their goods. In response to these dynamics, companies should evaluate Power Purchase Agreement (PPA) terms carefully, optimise tax benefits, and pursue industry collaborations to facilitate renewable energy adoption, particularly for smaller manufacturers struggling with capital requirements.
The Bottom Line
The future of mining undoubtedly depends on balancing increased production demands with significant emissions reductions. By linking trade access to carbon intensity, CBAM pushes mining companies toward greater transparency, efficiency and innovation. Mining companies that are proactive in investing in clean energy, digitising emissions data and embracing circularity will remain competitive in the industry.