CBAM is now fully operational
On January 1, 2026, the European Union officially entered the definitive phase of its Carbon Border Adjustment Mechanism (CBAM), marking a significant change in the interaction between climate policy and global trade, with the certificate purchase market opening in 2027. Following a two-year transitional period (2023–2025) focused solely on emissions reporting, importers of certain carbon-intensive goods must now pay for the greenhouse gas (GHG) emissions contained on their products. This makes the EU the first major economy to fully implement a functioning border carbon adjustment policy.
CBAM applies to six high-emission sectors that are particularly prone to carbon leakage: cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. Importers bringing in more than 50 tons of these goods into the EU each year must register as authorized CBAM declarants and purchase certificates reflecting the emissions generated during production. These certificates are priced according to the EU Emissions Trading System (ETS), which recently traded at prices ranging from EUR 70 to EUR 100 per ton of CO₂.
The policy wants to address carbon leakage that occurs when production shifts to countries with weaker climate regulations, thereby undermining domestic emissions reductions. According to Organisation for Economic Co-operation and Development (OECD) research, carbon leakage can offset climate policy gains by up to 13% in sectors such as steel, cement, and aluminum. The EU intends to level the playing field between domestic producers, who already pay under the ETS, and foreign competitors by applying a comparable carbon cost to imported goods.
It is important to note that CBAM allows for deductions when exporters can demonstrate that a carbon price has already been paid in their country of origin and that this price is recognized by the EU. This feature is designed to encourage the adoption of carbon pricing systems worldwide instead of simply penalizing trade partners.
Economic and commerce implications
The financial and geopolitical implications of the CBAM are significant. The European Commission estimates that the mechanism could generate approximately €2.1 billion per year by 2030. Some of this revenue will support EU industry through a Temporary Decarbonization Fund. This fund would mitigate competitiveness risks during the transition period and reward companies that demonstrate real decarbonization efforts.
Although CBAM is intended to shield EU manufacturers from less expensive, high-emission imports, the measure has received criticism from both European and non-European stakeholders. Several major trading partners, including China, India, Russia and South Africa, have described the measure as protectionist and questioned its compatibility with World Trade Organization rules. Trade tensions are already arising, with CBAM being implemented at the same time as existing tariff disputes, particularly in the steel and aluminum industries.
Some countries are responding more strategically. For example, Egypt has become the first nation to seek an exemption while looking for a domestic carbon tax to protect its iron and steel sector, as this sector could face most of the costs related to CBAM. Additionally, CBAM has accelerated discussions on carbon pricing in countries such as Canada, the United Kingdom, Australia, Turkey, and the United States, suggesting that its influence extends far beyond the EU.
However, European industry itself remains divided. While CBAM mitigates the disadvantage faced by companies operating under the ETS, concerns persist regarding administrative complexity and competitiveness. Measuring emission levels across global supply chains is technically challenging and industry leaders have warned that the compliance requirements could outweigh the climate benefits if not carefully managed. While small importers are largely exempt, around 90% fall below the 50-tonne limit, the system still captures over half of the emissions covered by the ETS.
CBAM’s role in Global Carbon Pricing
Looking ahead in 2028, the European Commission is proposing to expand this mechanism to about 180 products that use a lot of steel and aluminum. This includes machinery, industrial equipment, and some household goods. This expansion addresses concerns that emissions could shift further down the value chain, leaving EU manufacturers to face higher input costs while imported finished goods avoid carbon pricing.
To strengthen the mechanism, the Commission has proposed new anti-circumvention measures. These include enhanced reporting requirements, stricter verification of emissions data, and including pre-consumer steel and aluminum waste in emissions calculations. The Commission will have greater authority to intervene in cases of suspected misreporting and will use default country values where reliable data is unavailable. CBAM's financial implementation will be phased in gradually.
Although border carbon adjustments could fragment trade and increase compliance costs, they could also encourage countries to align their policies. Recent discussions at COP30 paved the way for new trade dialogues to align climate and trade policy and several major economies agreed to explore ways to make their carbon markets interoperable. CBAM marks a new reality in which carbon costs are becoming a factor in market access. Companies with strong emissions data and long-term decarbonization strategies will be better positioned as carbon pricing increasingly shapes global trade flows. Whether CBAM ultimately leads to cooperation or conflict remains uncertain, but its role in reshaping the global carbon and trade landscape is undeniable.
Learn more about ClearBlue's CBAM Market Insights offering here, or contact us to discuss our full range of services in support of companies impacted by these rules.