Decarbonization of Rolling Mill Units Through Natural Gas Substitution with Biomethane: A Scenario Analysis Under CBAM and the European Union Emissions Trading System

This paper presents a scenario analysis of natural-gas substitution with biomethane in the reheating furnaces of a hot-rolling mill exporting steel to the European Union under the Carbon Border Adjustment Mechanism (CBAM) and the phase-out of free allocation in the EU Emissions Trading System over 2026–2034. The model follows the definitive CBAM methodology: embedded emissions of the exported hot-rolled product include the precursor slab, only direct emissions are priced, and certificates are calculated net of the free allocation adjustment. For the case-study mill the product carries 2.48 t CO2e/t, of which the reheating furnaces contribute 4.9%; replacing 20% of natural gas with certified biomethane lowers embedded emissions by about 1%. The resulting CBAM saving of €1.4–3.2 million per year does not depend on the benchmark and remains below the extra fuel cost of €6.9 million, giving a net present value of −€30.8 million over 2026–2034. Substitution breaks even at biomethane prices of €366–427 per thousand m3 for EUA prices of €65–150/t, lower when only part of the CBAM cost is passed through, and yields no saving under default values or without proof of sustainability compliance. For the exporter, verified emissions data are worth considerably more than fuel switching.