Scrap metals in an age of tariff war

With fresh tariffs on metals set to shake up global trade, manufacturers working with scrap metals would be wise to pay attention. The time is now to be thinking about how to secure reliable, cost-effective, and low-carbon supply chains. While trade disputes may focus on primary metals, the role of scrap is becoming increasingly strategic — not just for emissions reduction, but also for supply chain resilience.

There is an increasing amount of pressure on manufacturers to produce low-carbon products. This is largely due to an increase in emissions-based regulations such as the European Union’s Carbon Border Adjustment Mechanism (CBAM) and Corporate Sustainability Reporting Directive (CSRD), in parallel to an increase of consumer interest in “sustainable” and “green” products.

Beyond investing in renewable energy sources and more efficient processes to reduce emissions, manufacturers are also using scrap as input materials to produce lower-carbon commodities.

The term “scrap” can be ambiguous. There are three main types of scrap, each with varying impact on a product’s emissions:

1) post-consumer 

2) pre-consumer

3) internal 

How does the use of each type of scrap reduce emissions? 

Post-, pre-, and internal scrap each have different life cycles. There is currently no consensus for how emissions from those life cycles should be allocated to each scrap.

This is due to a lack of common reporting standards. Where standards do exist there is either no clear consensus, or no guidance on how emissions should be allocated — making it difficult for customers to compare products based on product carbon footprints.

Let’s explore the different types of scrap and their life cycles.

Post-consumer scrap

Post-consumer scrap originates from the disposal of products after they’ve been used by consumers and can no longer fulfill the role of its intended purpose. ISO 14021: "Environmental labels and declarations” defines post-consumer scrap as material generated by households or by commercial, industrial and institutional facilities in their role as end-users of the product which can no longer be used for its intended purpose- this includes returns of material from the distribution chain. Another term for post-consumer scrap is “old scrap.”

Post-consumer scrap produced at industrial facilities can include old machinery and tools that have completed their intended life cycle uses, for example. However, offcuts from production processes at the facility would not be considered post-consumer, but rather pre-consumer scrap.

In the life cycle of an aluminum can, post-consumer scrap is indicated in the figure below.

Pre-consumer scrap

Pre-consumer scrap is created during manufacturing processes. ISO 14021: "Environmental labels and declarations” defines pre-consumer scrap as material diverted from waste streams, excluding rework, regrind, or scrap capable of being reclaimed into the same process that generated it. Pre-consumer scrap is typically re-melted and used again in other processes. This scrap is sometimes referred to as “traded scrap” or “industrial scrap”. Many times pre-consumer scrap maintains the same properties as the primary material.

In the life cycle of an aluminum can, pre-consumer scrap is indicated in the figure below.

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Internal scrap

Internal scrap does not circulate on the market — it remains within the boundaries of a reporting company or installation. Internal scrap is material recycled in the same process which generates it. Other terms for internal scrap include “turn-around scrap,” “in-house scrap,” “run-around scrap,” or “home scrap.”

In the life cycle of an aluminum can, internal scrap is indicated in the figure below.

How do carbon emissions vary by scrap type?

Post-consumer

There is general consensus that because post-consumer scrap has completed a useful lifecycle, it should be allocated zero embedded emissions. This means that the only emissions associated with post-consumer scrap are those related to transporting, cleaning, sorting, and re-melting. Therefore, emission factors for post-consumer scrap materials are generally close to zero. 

Internal

Internal scrap is normally excluded from greenhouse gas inventories because this scrap doesn’t leave the system boundaries, meaning there is no net difference in material flowing either in or out of the system. Embedded emissions are accounted for when material enters the gates of the factory or installation, and process emissions are allocated to material that leaves the gate. This prevents emissions from being double-counted.

Pre-consumer

Pre-consumer scrap emissions, on the other hand, are not accounted for consistently. There is currently no general consensus among manufactures, reporting standards, or carbon accounting agencies. 

Most standards in the commodities sector do not differentiate between the different types. Beyond utilising economic allocation, there are currently two methodologies used to account for pre-consumer scrap. One route assumes pre-consumer material to be a co-product, i.e. to have similar emissions as the final product. For example, co-products may carry the embedded emissions of input materials, but may not be assigned emissions from production (e.g. combustion of fuel). This is because the energy inputs are used with the purpose to produce the main or final product. 

The other route assumes pre-consumer scrap to be a waste and assigns zero embedded emissions to the material. Some industry standards advise reporting emissions via both routes for transparency, or may ask for the percent of pre-consumer scrap to be disclosed.

Table 1. Review of standards for pre-consumer material

Scrap emissions allocation: comparing different accounting methods

Let’s work through a hypothetical system using all three types of scrap and see how the emissions differ.

In this example, an aluminum manufacturer purchases pre-consumer scrap from their neighbours producing similar materials. They also purchase virgin material sourced across the country. The post-consumer scrap they use is sourced from their own products and has been collected, sorted, and cleaned by a different company. Finally, the company reuses offcuts in their process as internal scrap. The outputs of the process are the final aluminum product and pre-consumer scrap. This pre-consumer scrap is sold to scrap traders and the use is unknown.

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How are the greenhouse gas emissions embedded in input materials and released during the manufacturing process going to be allocated?

Method 1:

Let’s try allocating emissions treating pre-consumer scrap as a waste.

Table 1: Emissions allocation with pre-consumer scrap as waste

Method 2:

Now, let’s try allocating emissions treating pre-consumer scrap as a co-product.

Here, the environmental impacts from the manufacturing process are allocated to the pre-consumer scrap produced and the final product. The pre-consumer material purchased is also considered to have environmental impacts from its own production process and therefore carries embedded emissions. Internal scrap is still excluded from the allocation. Post-consumer scrap enters the process with zero embedded emissions as the first example. The pre-consumer co-product and final product have near the same emissions intensity, but different total emissions as more final product is made. 

Table 2: Emissions allocation with pre-consumer scrap as co-product

Pros and cons of each approach

Which methodology is better?

Each methodology comes with its advantages and disadvantages. For example, accounting for pre-consumer scrap as a co-product could discourage any form of circularity, though it may encourage emissions reductions through the adoption of more efficient processes and resource use. Many consumers are interested in purchasing products made with recycled content, but inconsistencies in what is considered “recycled” could put corporations at risk of greenwashing accusations. Creating emissions reductions through actual policy (i.e. incorporating renewable energy) instead of through allocation methodologies could reduce greenwashing instances.

However, accounting for pre-consumer scrap as waste aligns with the European Union’s Carbon Border Adjustment Mechanism. Both pre-consumer and post-consumer aluminum scrap are treated as raw materials in CBAM and are therefore assigned zero embedded emissions and excluded from reported volumes. The regulation does clarify that any emissions associated with the production of a CBAM good (e.g. from the combustion of fuels or electricity consumption) should be entirely allocated to that good — not allocated to waste or scrap.

“... all attributed emissions of the production process are accounted for on saleable goods, while scrap and waste have zero embedded emissions, i.e. double counting is effectively avoided. From an environmental point of view, this incentivises a decrease of material consumption, or the avoidance of scrap and waste, as a process producing little scrap will have lower embedded emissions.”

• CBAM Installation Guidance

The European Commission’s choice to account for all scrap uniformly has sparked debate. Some voices in the metal industry have applauded the Commission’s methodology and have suggested that the same be accepted in Product Carbon Footprint methodologies. Others have criticised the decision. The Commission's intentions may be to incentivise efficiency, but may in fact undermine the EU’s sustainability goals. Critics note the current emissions allocation creates loopholes for imported materials, resulting in much lower carbon costs than those paid by EU producers. Some even worry that exporters may artificially increase the amount of pre-consumer scrap in their aluminum products to advertise as “carbon-free.”

It should be noted, CBAM requires that crude steel be reported with the proportion of pre-consumer scrap. The EU recognizes that the percent of pre-consumer scrap is a critical data point and recommends that it be provided alongside CBAM data. But currently this disclosure remains voluntary for downstream iron and steel products as well as primary aluminum and aluminum products. However, it is possible that this proportion will become mandatory to disclose when the definitive period of CBAM begins in 2026. 

‍Why does scrap matter?

‍Recycling can reduce environmental degradation and create a greener, more circular economy. Understanding the differences between types of scrap can help consumers spot greenwashing and incentivise companies to increase the use of post-consumer scrap as well as minimize the production of internal scrap and create more efficient technologies.Beyond its environmental benefits, scrap metal could become a crucial lever in global trade. As tariffs on metals such as aluminum and steel increase costs for primary materials, manufacturers that integrate scrap may find themselves with a competitive edge — both in carbon intensity and cost efficiency.

Limitations

There are some limitations to the use of both pre-consumer and post-consumer scrap.

• Pre-consumer scrap, while not wasteful, still largely depends on virgin materials and originates from inefficiencies in production processes.

• Post-consumer scrap requires more care as it is collected, sorted, and treated to become fit for use again. Due to such costs and technological constraints, it is difficult to achieve 100% recycled material.

While post-consumer scrap has clear sustainability advantages, pre-consumer scrap presents a grey area. If manufacturers seek to bypass tariffs by increasing the share of scrap in their supply chains, will regulators respond by tightening emissions reporting rules?

‍Carbon reduction requires a full-scope approach

‍Understanding the opportunities, challenges, and limitations of recycling and scrap material can incentivize companies to make greener decisions. However, there’s more to reducing life cycle emissions than simply using scrap. While scrap is certainly a key factor in reducing carbon intensities of metal production, producers and manufacturers should look to decrease emissions in all parts of their supply chain — from technologies to transportation and power supply. The carbon intensity of a product is sensitive to the specific scopes, boundaries, and methodologies of its particular carbon footprint study. Activity data and emissions intensities should be interpreted within the context of the study. Though likely to promote transparency for consumers, product comparisons should be treated with caution. For consumers to make informed decisions, it’s useful to consider the proportions of pre- and post- consumer scrap in addition to the overall carbon intensity and climate impact of a metal product.

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For more information, explore our analyses on aluminum and steel life cycle emissions.

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