CBAM Country Intelligence Algeria 2026: Route Misattribution, Double Divergence, and Data-Gated Compliance Bifurcation

Executive Summary

Algeria's entire export-oriented steel industry is built on direct-reduced-iron and electric-arc-furnace (DRI/EAF) technology, with actual Scope 1 emissions near 0.70 tCO₂ per tonne. Under the EU's definitive Carbon Border Adjustment Mechanism, however, all Algerian CN 7206 and CN 7207 steel is assigned a default production route of (C) BF/BOF in Implementing Regulation (EU) 2025/2621. This report documents the consequences of that classification for Algerian exporters over the 2026–2034 phase-in and sets out what can be done about it.

The central finding. The route (C) assignment misstates two parameters in the CBAM cost formula at the same time: it inflates the assumed emission intensity from about 0.70 to a default of 3.000 tCO₂/t (rising with mark-ups to 3.300 in 2026 and 3.900 from 2028), and it binds the benchmark deduction to the BF/BOF value of 1.364 rather than the dedicated DRI value of 0.475. The report terms this simultaneous, compounding deviation "Double Divergence." Its effect is large and immediate: in 2026 an importer relying on default values pays €157.60 per tonne, while one submitting verified actual data pays €18.96, a gap of €138.64 per tonne present from the first year of the definitive period. As free allocation phases out, the gap widens to €256 per tonne by 2034. For a representative 200,000 tonnes of annual exports, the differential runs from €27.7 million in 2026 to €51.2 million in 2034, exceeding €340 million cumulatively over the phase-in.

The gap is a data problem, not an emissions problem. The entire differential is bridgeable by monitoring, reporting, and verification (MRV) capability: a producer that can document its actual emissions moves from the default pathway to the verified pathway and captures the full saving. First-tier producers (Tosyali, AQS) are close to this capability; state-owned and dispute-frozen producers are years away. The financial return on MRV investment is therefore extreme for steel—on the order of 50:1 or higher in the early years—which makes the institutional capacity to act on it, rather than the economics, the binding constraint.

Fertilisers behave differently, which confirms the diagnosis. Algeria's ammonia sector faces no route misattribution: the CBAM benchmark for ammonia is route-independent and the default value closely tracks actual steam-methane-reforming emissions. The resulting pathway gap is a constant €16 per tonne, an order of magnitude below steel. The contrast confirms that Double Divergence is specific to classification error, not a general feature of the CBAM. For fertilisers the real threats are absolute cost and input economics rather than pathway choice.

Compounding pressures. Three further forces overlap with the CBAM phase-in. The EU steel safeguard (COM(2025)726, adopted as Regulation (EU) 2026/1384 and in force from 1 July 2026) imposes an 18.3 million tonne quota with a 50 percent out-of-quota duty. Algeria's domestic gas pricing reform, enacted in October 2024, progressively removes subsidised industrial gas and raises ammonia operating costs materially; Fertiglobe has already booked provisions of $37 million (Q3 2024) and $48 million (nine-month) against its Sorfert plant. And the current exemption of steel from indirect (Scope 2) emissions in the CBAM financial calculation is under review, with inclusion plausible from around 2028.

The exposure is regional, and correctable. Applying the report's diagnostic to other Middle Eastern DRI producers shows the same route (C) assignment for the UAE, Saudi Arabia, Bahrain, and Qatar (2026 pathway gaps of €78–157 per tonne, with Qatar's exceeding Algeria's). Oman is the exception: it is classified under route (E) at a near-actual default of 0.740, which demonstrates that accurate classification of gas-based DRI is achievable within the existing regulation. The misattribution is thus a correctable classification decision rather than a technical necessity.

Recommended actions. Three priorities follow for Algeria. First, engage the Commission's 2027 mandatory revision of Regulation 2025/2621 with facility-level production data and engineering documentation supporting reclassification from route (C) to route (D). Second, accelerate MRV deployment at Tosyali and AQS so that verified-data reporting captures the full Double Divergence saving during the pre-revision window and preserves the advantage afterward. Third, begin investment in solar power-purchase capacity for EAF electricity now, given multi-year lead times and the prospect of Scope 2 inclusion later in the decade. For the European Commission, the Algeria case identifies a design vulnerability: default route classifications that lag technological reality can penalise the low-carbon production the mechanism was intended to reward, and the 2027 revision is the opportunity to correct it.