Embodied energy trade: Geopolitics and regulation

How border carbon charges now decide which products travel

Embodied energy trade lets energy-rich countries export value instead of fuel, but carbon pricing at borders and energy security policy now decide which products travel.

Tailwinds

Agora Industry estimates that importing green hot briquetted iron could cut overall steel production costs in Germany by 12 to 15% in 2040, from iron-ore- and renewables-rich exporters.¹¹

IRENA expects almost three-quarters of hydrogen to be used as methanol, steel or ammonia, which are easier to ship than hydrogen itself.⁸

Cold climate, near all-hydro power in Norway, tax relief and fast permitting have drawn atNorth, AWS and Microsoft to Sweden, and Google, Microsoft and TikTok to Finland.¹⁷

Headwinds

From 1 January 2026 the EU Carbon Border Adjustment Mechanism moved from reporting to its definitive regime: importers of cement, iron and steel, aluminium, fertilisers, electricity and hydrogen must surrender CBAM certificates each year for the embodied emissions, priced from EU ETS auctions, with a de minimis exemption of 50 tonnes a year per importer (not for hydrogen and electricity). The mechanism reaches full effect in 2034. It rewards low-carbon embodied energy and penalises coal-based metal.²³²⁴

The aluminium sector emitted about 1.11 Gt CO2e in 2022 (about 15.1 t CO2e per tonne of primary metal), and coal plants supplied about 72% of China's smelting capacity in 2023.¹

Finland's March 2025 removal of preferential electricity tax rates added uncertainty; the IEA flags grid bottlenecks as a key risk to data centre growth.¹⁷¹⁴

Direct reduced iron can re-oxidise with air or water, creating fire risk, which is why it is hot-briquetted before shipping.¹⁰

The common pattern is that clean, cheap energy is becoming a source of comparative advantage for heavy industry, while border carbon rules such as CBAM make the embodied emissions, not just the energy, part of the trade price.

Sources

1. Green aluminium bundle: understanding aluminium's emissions (using IAI data) ING Think, 2024
2. Global hydrogen trade IRENA, 2022
3. SteelWatch explainer: why green iron trade will catalyse steel industry decarbonisation SteelWatch, 2025
4. Green iron trade: unlocking opportunities for Europe (presentation of September 2025 study) Agora Industry, 2025
5. Energy and AI: Executive summary IEA, 2025
6. Nordic incentives keep data center costs competitive (Techerati article reposted by atNorth; company-hosted) atNorth / Techerati, 2025
7. Start of the definitive period of the CBAM in the EU European Commission, Access2Markets, 2026
8. CBAM definitive regime European Commission, DG Taxation and Customs Union, 2026