From Carbon Leakage to Greenshoring: Industrial Competitiveness in the CBAM Era – The Case of Iron and Steel

In recent years, Europe has experienced a radical shift in its industrial landscape. The urgency to decarbonize, driven by the fight against climate change and the Paris Agreement, has deeply impacted energy-intensive sectors. To address this, the EU introduced the Emission Trading Scheme (ETS) in 2005 to incentivize carbon reductions through pricing. Over time, the ETS has raised the price of CO₂, pushing companies to invest in efficient technologies. However, rising costs and increasing bureaucracy have left many firms at a crossroads. In this uncertain environment, many industries have shifted production to countries with lower environmental standards and energy costs, a phenomenon known as "carbon leakage." This undermines global decarbonization efforts as Europe reports reduced emissions, but imports from high-carbon-intensity countries persist. To counter this, the EU has introduced the Carbon Border Adjustment Mechanism (CBAM), set to take effect in 2026. CBAM will apply additional costs to imported goods based on their carbon emissions, targeting countries with weaker environmental regulations. This measure aims to create a level playing field and encourage businesses to adopt sustainable practices. The implementation of CBAM has sparked a new strategic approach known as Greenshoring. Unlike offshoring, Greenshoring involves relocating production to countries with stringent decarbonization policies and advanced technologies. It aims to build resilient, low-emission supply chains that can adapt to new regulations while maintaining global competitiveness. In this context, the Greenshoring Global Initiative (GSGI) was launched through a collaboration between The European House – Ambrosetti and the Saudi Ministry of Investment (MISA). This partnership aims to foster dialogue and cooperation, guiding both regions toward more resilient and sustainable industrial ecosystems. The thesis evaluates the impact of CBAM on affected industrial sectors, with a focus on Greenshoring as a strategic response. The first phase examines the functioning of CBAM, identifying sectors and products subject to the tax and possible exemptions. It also compares the European ETS with global carbon pricing systems, identifying countries with existing carbon taxes or emission trading systems. The Greenshoring Global Initiative (GSGI) aims to build resilient supply chains by forming strategic partnerships with countries that adopt advanced technologies and ambitious climate policies. It provides a platform for stakeholders, including governments, producers, and importers, to navigate the new regulatory framework and identify competitive advantages. The iron and steel industry, with its high carbon footprint, is a key focus of this analysis. It includes studying EU import flows, identifying key exporters, and estimating carbon costs for relevant products. This approach helps understand the economic and strategic implications of CBAM on the steel industry’s adaptation to the ecological transition. Building on the analysis, Saudi Arabia's competitiveness is evaluated, considering both its current market position and future developments with the aim of identifying and enhancing the decarbonization strategies that the country can implement to become a strategic partner for Europe.