The EU's Second Shot at Steel: How ESPR Product Grades Could Lock Chinese Exporters Out of the Market
CBAM makes high-carbon steel expensive. ESPR makes it unmarketable. The EU's second barrier isn't about price—it's about eligibility. This analysis breaks down the ESPR Steel Delegated Act, the CBAM-to-ESPR data gap, and what Chinese exporters must do before Q4 2026.
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This analysis is written for steel compliance officers, export managers, and strategists at Chinese mills and trading companies who are already filing CBAM reports—and who now face a second, less visible barrier.
On January 1, 2026, the EU Carbon Border Adjustment Mechanism (CBAM) ended its transitional phase and entered full operation [1]. Global steel traders barely had time to adjust before the second barrier appeared.
On May 20, 2026, the European Commission published the ESPR Steel Delegated Act for public consultation [2], with formal adoption planned for Q4 2026. The consultation window runs from May 20 to August 12, 2026.
1. What Is ESPR?
The Ecodesign for Sustainable Products Regulation (ESPR) entered into force on July 18, 2024. It covers over 90% of physical goods placed on the EU market.
Its core logic is simple: it doesn't just ask how much carbon you emitted. It asks whether your product is sustainable enough—starting from the design stage, where a product's lifetime environmental footprint is largely determined.
On April 16, 2025, the European Commission adopted the ESPR 2025–2030 Working Plan, identifying five priority product groups: steel and aluminium, textiles (focusing on apparel), furniture, tyres, and mattresses [3].
2. Why Steel Is a Target
The Commission identified four core problems in the steel sector:
- Insufficient supply-chain-wide environmental assessment in intermediate product manufacturing—both BF-BOF and EAF routes carry high energy use and emission burdens.
- Scrap quality degradation and contamination, limiting high-grade steel circular production.
- Insufficient demand for low-carbon steel, with low market willingness to pay a green premium.
- Fragmented low-carbon standards and opaque sustainability information, making green procurement decisions difficult.
In response, the EU has set four regulatory objectives: promote circular steel production, improve recyclability, boost demand and investment for low-carbon steel, and ensure transparency of sustainability information across the entire supply chain.
3. Three Core Requirements
The ESPR Steel Delegated Act introduces three core requirements:
3.1 Mandatory Information Disclosure
All steel products entering the EU market must disclose:
- Carbon footprint
- Recycled content
- Substances affecting recyclability
3.2 Digital Product Passport (DPP)
All information must be integrated into the Digital Product Passport (DPP) system, enabling buyers and regulators to directly access a product's full environmental profile [4].
The DPP is not an electronic user manual. It contains a unique product identifier, material and substance information, repair and maintenance instructions, disassembly and recycling guidance, and environmental impact data. Data must be accurate and remain accessible throughout the product's expected lifecycle.
Under the EU's phased implementation timeline, steel DPP requirements will be adopted in Q4 2026 [5].
3.3 Carbon Footprint Performance Classes
On April 1, 2026, the EU Joint Research Centre (JRC) published a technical report proposing carbon footprint performance classes for five representative steel intermediate products [6].
The five product categories are: hot-rolled coil, wire rod, cold-rolled galvanized coil, stainless steel, and electrical steel [7].
All products are assigned a class from A to E, with Class A representing the best performance and Class E the worst [8].
4. CBAM Controls the Price. ESPR Controls the Gate. Who Controls the Data?
CBAM and ESPR operate on fundamentally different logics:
| CBAM | ESPR | |
|---|---|---|
| Nature | Price penalty mechanism | Product classification system |
| How it works | Emissions above EU benchmark → purchase CBAM certificates [9] | Establishes low-carbon product thresholds; determines market access eligibility |
| Consequence | Higher carbon costs | Exclusion from public works, automotive supply chains, and green procurement |
CBAM asks: "How much will you pay?" ESPR asks: "Do you even qualify to enter?"
But the real complexity lies in the data layer.
In its April 1 performance class proposal, JRC used CBAM default values as reference benchmarks for imported products to calibrate its global production distribution model. This approach was challenged by multiple stakeholders at the April 14, 2026 stakeholder meeting—and JRC itself acknowledged the need to "rerun the exercise with real data" [10].
Here is what that means in concrete terms.
A company reports 2.1 tCO₂ per tonne of steel under CBAM using default values. JRC's A–E classification model may treat that 2.1 as the company's actual carbon footprint for grading purposes. But the company's true verified emissions could be 1.7—or 2.4.
Default values are a policy compromise. A–E product grades are a market verdict. A policy compromise, fed into a market verdict, with no one calibrating the gap.
This is why The Regulatory Gap exists.
Which CBAM default values put your product at risk under ESPR?
Based on the JRC draft methodology, the directional risk profile for key steel products is as follows:
| Steel Product | Directional ESPR Risk |
|---|---|
| Hot-rolled coil | 🔴 High risk |
| Wire rod | 🔴 Highest risk |
| Cold-rolled galvanized coil | 🟡 Moderate-high risk |
| Stainless steel (304) | 🟡 Moderate-high risk |
| Electrical steel (GO) | 🔴 Extreme risk |
| Electrical steel (NO) | 🔴 Extreme risk |
⚠️ For detailed CBAM default values, verified actual data comparisons, and the exact tCO₂ thresholds that determine each A–E class, see the full paid report linked below.
The consultation document offers no answer. JRC's technical report offers no answer. JRC itself says the exercise "needs to be rerun." Yet the Delegated Act is scheduled for Q4 2026.
Add the Industrial Accelerator Act (IAA), which will prioritize low-carbon steel that meets ESPR standards for public procurement and industrial subsidies—and you have a complete policy loop: CBAM controls the price, ESPR controls the gate, and the IAA controls the subsidy.
The global steel industry has entered a new era: low-carbon data determines market eligibility.
5. The Deadline Is Approaching. The Gap Remains.
CBAM makes high-carbon steel expensive. ESPR makes it unmarketable.
But that slogan is useless to a company facing real compliance decisions. What companies need to know is: where exactly is the gap between CBAM reporting data and ESPR grading data—and what happens inside it?
Every steel supplier exporting to the EU must now answer a critical question before Q4 2026: Will your CBAM data strategy drag down your ESPR product grade?
How to prepare for ESPR steel delegated act 2026? The core issue is data integrity. Switching from CBAM default values to verified actual emissions before the ESPR grading model is finalized may be the single most consequential decision your compliance team makes this year. The paid report walks through five concrete actions, sequenced by urgency.
6. What This Means for Chinese Steel Exporters
For Chinese steel producers and downstream exporters, the impact hits across four dimensions:
1. Market Access Thresholds Rise Significantly
The EU will enforce a unified low-carbon steel standard. Products that fail to meet it will be shut out of the EU market [11]. Combined with DPP requirements, companies must build full-chain data traceability systems—raw materials, production, emissions, all subject to complete verifiability.
2. Costs and Competitiveness Under Dual Pressure
Chinese steel production is dominated by the BF-BOF route, with higher carbon intensity than EU EAF-based production. The new regulation, layered on top of CBAM, will significantly drive up export costs. Some high-carbon products face the risk of exporting at a loss.
3. Supply Chain Contagion Risk
Steel is the core input for automotive, machinery, and construction sectors. EU downstream customers will prioritize compliant low-carbon steel. Chinese component suppliers unable to provide low-carbon steel certification face order losses. The pressure will transmit to small and medium-sized enterprises across the entire supply chain.
4. Trade Patterns Forced to Shift
EU green public procurement will favor compliant low-carbon steel. Chinese steel products may be excluded from EU government procurement markets. Combined with the possibility of tighter steel import quotas, China's steel export volumes to the EU may shrink substantially over the long term.
7. Timeline
| Date | Event |
|---|---|
| July 18, 2024 | ESPR enters into force |
| April 16, 2025 | ESPR 2025–2030 Working Plan adopted; steel listed as priority product |
| January 1, 2026 | CBAM enters full operational phase [12] |
| April 1, 2026 | JRC publishes steel product carbon footprint performance class proposal [13] |
| April 14, 2026 | JRC stakeholder meeting: agency acknowledges need to "rerun the exercise with real data" [14] |
| May 20, 2026 | European Commission publishes ESPR Steel Delegated Act for consultation [15] |
| May 20 – Aug 12, 2026 | Public consultation period |
| Q4 2026 | ESPR Steel Delegated Act expected to be adopted |
| Q4 2026 | Steel DPP Delegated Act expected to be adopted [16] |
FAQ: Quick Answers for Compliance Teams
Q: What is the main difference between CBAM and ESPR for steel?
A: CBAM adds a carbon cost; ESPR sets a market eligibility threshold based on product carbon footprint classes A–E.
Q: When will the ESPR steel rules take effect?
A: The delegated act is scheduled for adoption in Q4 2026, with DPP requirements following shortly.
Q: Can I still use CBAM default values after ESPR takes effect?
A: Yes, but default values may not reflect your actual emissions position under the ESPR grading methodology. Switching to verified actual data before the grading model is finalized is critical.
Q: What is the difference between CBAM default values and actual emissions in ESPR grading?
A: Default values are conservative policy estimates; ESPR grading is designed for actual verified data. Feeding default values into the ESPR model creates a systematic downgrade risk for importers.
📩 This article identifies the problem. The paid report tells you: if you're using CBAM default values right now, what ESPR grade your steel products are walking into—and the five things you can do about it.
Paid subscribers will unlock:
- CBAM default values vs. actual values: a product-by-product risk matrix showing how CBAM data flows into ESPR grading
- Complete data flow and timeline map across the three regimes (CBAM + ESPR + IAA)
- Clause-by-clause analysis of key gaps in the ESPR Steel Delegated Act consultation document
- Five actions every exporter should complete before Q4 2026
"ESPR Steel Delegated Act × CBAM Data Conversion Risk Report" — now available to paid subscribers.
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About The Regulatory Gap
This analysis was written by the founder of The Regulatory Gap, an independent research publication tracking regulatory discrepancies in global trade. Our methodology is one sentence: Document A says P. Document B says not-P. We cross-file public documents from different regulatory systems, quantify the gap, and report what we find. Every analysis includes original source links and page references for direct verification.
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This article is based on official European Commission documents, JRC technical reports, and the public consultation file. Specific regulatory content is subject to the final adopted Delegated Act.
References
[1] European Commission, CBAM Implementing Regulation, Official Journal of the European Union, 2025.
[2] European Commission, "ESPR Steel Delegated Act – Call for Evidence," May 20, 2026.
[3] European Commission, ESPR 2025–2030 Working Plan, April 16, 2025.
[4] Regulation (EU) 2024/1781 (ESPR), Chapter III, Digital Product Passport provisions.
[5] European Commission, ESPR Implementation Timeline, 2026.
[6] JRC, "Environmental Performance Classes: Five Representative Steel Intermediate Products," April 1, 2026.
[7] JRC, ibid., Product Scope and Classification, Chapter 2.
[8] JRC, ibid., Class Thresholds and Methodology, Chapter 4.
[9] Regulation (EU) 2023/956 (CBAM), Articles 6–8.
[10] JRC, Stakeholder Meeting Minutes, April 14, 2026.
[11] ESPR, Articles 4–7, Ecodesign requirements.
[12] European Commission, CBAM Transitional Phase Report, 2026.
[13] JRC, "Environmental Performance Classes," April 1, 2026.
[14] JRC, Stakeholder Meeting Minutes, April 14, 2026.
[15] European Commission, ESPR Steel Delegated Act Consultation, May 20, 2026.
[16] European Commission, DPP Implementation Roadmap, 2026.
Published: July 2, 2026. Specific regulatory content is subject to the final adopted Delegated Act.
