Cleaner production cuts carbon border costs for MENA steel exporters

Steel remains one of the hardest industries to decarbonize, and for the exporters of the Middle East and North Africa it has long carried a double burden: the region’s fossil-heavy electricity grids and blast-furnace fleets make every tonne of steel carbon-intensive, while tightening climate policy in consumer markets threatens to price those emissions out of the market. A new study published in Communications Earth & Environment argues that this narrative is not destiny. According to the research, led by Ayşe Demir and colleagues, deliberate decarbonization of the steel sector in MENA countries would substantially reduce the carbon border costs these exporters face under emerging carbon leakage policies, most prominently the European Union’s Carbon Border Adjustment Mechanism. In other words, the very policies designed to shield European industry from cheap, dirty imports may become a powerful commercial incentive for steelmakers in the southern and eastern Mediterranean to clean up.

The Carbon Border Adjustment Mechanism, or CBAM, works by attaching a price to the embodied carbon of imported goods. When an exporter ships steel into the European Union, the importer must purchase certificates corresponding to the emissions released during production, valued against the EU Emissions Trading System allowance price. If the steel was made in a country with its own carbon pricing, that cost can be deducted, but most MENA producers operate under regimes with no explicit carbon price at all. The study models what this means in practice: a tonne of blast-furnace steel produced in the region can embody on the order of two tonnes of carbon dioxide when process emissions from coke consumption and limestone calcination are counted alongside fuel combustion and grid electricity. At a carbon price of, say, 80 euros per tonne of CO2, that translates into a border cost approaching 160 euros per tonne of steel, a sum large enough to erase the thin margins on which commodity steel trading depends.

The researchers frame the question as one of comparative vulnerability. MENA steel exporters, including major producers such as Turkey, Egypt, Algeria, Saudi Arabia, Iran and Morocco, ship significant volumes of long products, rebar, billets and semi-finished steel to Europe. Their production mix is dominated by two routes: the traditional integrated blast furnace-basic oxygen furnace route, which relies on coking coal and generates large direct process emissions, and the electric arc furnace route, whose emissions profile depends almost entirely on the carbon intensity of the electricity feeding it. The second route is widespread in the region precisely because natural gas has historically been abundant and cheap, and in the Gulf states direct reduced iron plants paired with electric arc furnaces have been a natural fit. That structural detail, the study shows, matters enormously for how the carbon border bill lands.

In the direct reduced iron process, iron ore is reduced in its solid state using a gaseous reducing agent, typically reformulated natural gas consisting chiefly of hydrogen and carbon monoxide, rather than being melted in a blast furnace with coke. This avoids the coking coal requirement and cuts direct emissions substantially, but the process still releases CO2 from the reforming reaction and from the oxidation of carbon that enters the iron. The electric arc furnace then melts the DRI or scrap using electrical energy. The result is a production pathway whose carbon intensity is highly tunable: swap natural gas for green hydrogen produced by electrolysis, power the reforming and melting with solar or wind electricity, and the embodied emissions of the final steel can fall by an order of magnitude. The paper quantifies this tunability and connects it directly to border-adjustment exposure, showing that each step down the emissions-intensity curve translates almost linearly into avoided border costs.

The study’s central quantitative finding is that decarbonization pays. Scenarios in which MENA producers shift toward DRI-electric arc furnace production, increase scrap sharing, deploy renewable electricity and eventually adopt hydrogen-based reduction show border adjustment costs falling from levels that would be commercially crippling to levels comparable with, or below, those faced by competing exporters. The authors estimate that the carbon border bill for the region’s steel exports could be reduced by a substantial share under plausible technology pathways, with the largest savings accruing to producers who combine low-carbon power with gas-based DRI retrofitted for partial hydrogen use. Critically, the savings are not uniform: countries with abundant renewable resources and existing DRI capacity, such as Saudi Arabia, Algeria and Egypt, are positioned to capture disproportionate benefit, while those locked into coal-based blast furnace routes face steeper adjustment challenges.

What makes the analysis technically interesting is the way it dissects the accounting behind border costs. Carbon border charges are calculated on the embodied emissions declared for a product, and the rules allow actual measured emissions to be reported rather than default values, provided verification standards are met. Default values tend to be conservative and penalizing, particularly for exporters from regions assumed to have dirty grids. The study emphasizes that MENA producers have an immediate, low-cost lever available: rigorous measurement, reporting and verification of their actual emissions intensity, coupled with procurement of verified low-carbon electricity. Because electricity often accounts for a large fraction of the emissions attributed to EAF-based steel, the carbon intensity of the grid becomes a direct determinant of border cost. A producer in Morocco drawing on one of the world’s largest concentrated solar complexes, or a Gulf producer pairing its DRI plant with photovoltaic capacity, can document an emissions profile far below the default assumptions.

The paper also engages with the economics of the transition itself. Decarbonizing steel is capital-intensive: hydrogen electrolyzers, renewable generation, electric arc furnaces and carbon capture retrofits all require investment that commodity steel margins struggle to support. The authors argue that avoided border costs function as an internal carbon price signal, effectively converting the CBAM threat into a revenue stream that can justify green capital expenditure. When avoided certificate purchases are treated as cash flow, the business case for renewable-powered DRI and hydrogen blending strengthens considerably. The study suggests that the prospect of guaranteed access to the European market, the world’s largest importer of embodied-carbon-regulated steel, gives MENA producers a first-mover advantage: those who decarbonize early not only pay less at the border but may also capture premium demand from European buyers seeking verified low-carbon inputs for their own downstream industries.

The regional implications extend beyond trade balances. MENA economies face a structural dilemma familiar to fossil fuel exporters: their comparative advantage in cheap natural gas is eroding in a decarbonizing world, and their industrial bases need new anchors. Green steel offers one. The region’s exceptional solar irradiance, with capacity factors among the highest on Earth, means that electrolytic hydrogen produced there could be among the cheapest globally, potentially undercutting hydrogen produced in Europe itself. Several Gulf states and North African countries have already announced hydrogen strategies and renewable targets, and the study provides an economic rationale for connecting those energy ambitions directly to heavy industry. Rather than exporting molecules or electrons alone, MENA producers could export the embodied energy as finished low-carbon steel, capturing more value along the chain.

The authors are careful about caveats. The CBAM framework is still evolving, with transitional reporting phases giving way to full financial obligations, and the scope of covered products may expand. The study’s scenarios depend on assumptions about future carbon prices, renewable capital costs, hydrogen production efficiencies and scrap availability, each of which carries uncertainty. Hydrogen-based direct reduction at scale remains unproven commercially, and the infrastructure requirements, storage, pipelines, water for electrolysis in a water-stressed region, are non-trivial. There is also a distributional question within the region itself: producers with state-backed financing and existing gas infrastructure can move faster than smaller firms, and the transition could concentrate the benefits of low-carbon steel exports in a handful of national champions unless policy design spreads the opportunity.

Still, the study’s core message reframes the policy debate. Carbon border adjustment mechanisms are often portrayed in exporting countries as protectionism dressed in green, a unilateral tax that penalizes development. This analysis complicates that view by demonstrating that the mechanism creates a quantifiable, predictable reward for decarbonization, and that MENA producers are better positioned to claim that reward than their reputation for fossil dependence suggests. The region’s existing DRI capacity, its renewable resource endowment and its geographic proximity to European markets combine into a credible pathway toward carbon-competitive steel. For policymakers in MENA capitals, the implication is to treat decarbonization not as a concession demanded by Brussels but as an industrial strategy with a calculable return. For European policymakers, the finding suggests that well-designed border adjustment, paired with technology cooperation and recognition of verified low-carbon production, can pull rather than merely push, drawing trading partners into a race toward cleaner steel rather than simply walling them off.

As the full financial phase of carbon border regulation approaches, the study offers steel exporters in the Middle East and North Africa a decision framework grounded in engineering reality and trade arithmetic. Every tonne of CO2 removed from a tonne of steel is a certificate that does not need to be purchased, a margin that survives, and a step toward an industrial future in which the region’s sunlight, rather than its hydrocarbons, powers its flagship export. The research makes clear that for MENA steel, going green is not merely climate compliance; it is the cheapest available defense of market share in the world’s most valuable steel market.