The EU Carbon Border Adjustment Mechanism (CBAM, pronounced /ˈsiːbæm/) is a tax on products that release a lot of carbon dioxide, such as steel, cement, and some electricity, when they are brought into the European Union. It was created as part of the European Green Deal and started in 2026. Companies began reporting information about their carbon emissions in 2023. The European Parliament approved CBAM with 450 votes in favor, 115 votes against, and 55 votes not cast. The Council of the EU supported it with 24 countries in favor. CBAM officially began on 17 May 2023.

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The cost of CBAM certificates is connected to the cost of EU allowances from the European Union Emissions Trading System (EU ETS), which started in 2005. CBAM aims to prevent carbon leakage by ensuring companies in countries without a carbon price do not gain unfair advantages. It also stops the EU from giving free carbon allowances to certain industries that produce a lot of emissions. These steps are meant to speed up efforts to reduce carbon emissions.

Once fully active, importers must buy CBAM certificates to cover the emissions from their imported goods. The cost of these certificates changes weekly based on EU ETS prices.

After a temporary agreement between the Council and the European Parliament in December 2022, CBAM began on October 1, 2023, and is being implemented in stages:

• October 2023 to end of 2025 (transitional phase): Importers of goods in six high-emission sectors—aluminum, cement, electricity, fertilizers, hydrogen, and iron and steel—reported their emissions. Regulators reviewed whether other products might also be included.
• 2026 onward: Importers of goods in these six sectors must pay a border carbon tax based on EU ETS allowance prices.
• By 2030: All sectors covered by the EU ETS will be included in CBAM.
• By 2034: Free carbon allowances in EU sectors will end, as CBAM ensures fair competition between EU producers and imported goods.

CBAM prevents carbon leakage, where EU industries lose competitiveness while climate goals are not met. Importers must buy enough CBAM certificates to cover the emissions in their products. This ensures imported goods face the same carbon costs as EU producers.

Under Article 6, importers must submit a "CBAM declaration" with details about the goods, their emissions, and certificates used to pay the carbon import tax.

Annex I lists goods subject to the import tax, including cement, electricity, fertilizers (like nitric acid, ammonia, potassium), iron and steel (such as tanks, drums, containers), and aluminum.

Annex II states that CBAM does not apply to four non-EU countries in the European Economic Area: Iceland, Liechtenstein, Norway, and Switzerland.

Annex III explains how to calculate emissions from goods.

Non-EU exporters must report their emissions to EU customers. Under Regulation (EU) 2023/956, EU importers (as CBAM declarants) buy and surrender certificates, though costs are often passed to exporters through business agreements.

A proposal suggests changing CBAM into a "CBAM-plus" system. This would use CBAM revenue to help developing countries reduce emissions and support their climate efforts. This approach could improve global cooperation on climate goals.

Debate

The European Union's Carbon Border Adjustment Mechanism (CBAM) is an important step to address carbon leakage and ensure fair competition for European businesses worldwide. This system applies to countries that do not meet the EU's environmental standards. Countries most affected include Russia, China, Turkey, Ukraine, the Balkans, Mozambique, Zimbabwe, and Cameroon. The EU can impose a fee on imports from these countries if they fail to meet environmental rules.

Starting in July 2024, the EU requires detailed information about how energy-intensive imported goods were produced. Only 20% of emissions can use estimated values. A representative from the Mechanical Engineering Industry Association (VDMA) noted in September 2024 that suppliers often lack the data or refuse to share it. Importers may be held responsible for collecting this data, but many lack the resources or influence to ensure compliance. Some national offices meant to help companies obtain accurate data were not yet operational. Imports valued at €150 or less are exempt from CBAM, but VDMA representatives want this limit raised to €5,000.

Legal experts from the University of Ottawa say the CBAM must align with the World Trade Organization (WTO) to avoid unfair treatment of countries or trade conflicts. The EU should work with trading partners, including major emitters like China and the United States, to ensure the CBAM supports global climate goals without causing disputes.

Countries most affected by CBAM in absolute terms are those near Europe, such as Russia, Turkey, and Ukraine. These nations are major exporters of goods covered by CBAM, including iron, steel, cement, aluminum, fertilizer, and electricity.

If countries outside the EU create their own carbon pricing systems, they may avoid the EU's carbon border tax and use the revenue for their own climate efforts. The United Kingdom plans to implement a similar CBAM by 2027.

The carbon import fee currently applies only to specific goods, such as iron, steel, and cement, not to products like cars, clothing, food, shipping, aviation, or fossil fuels.

Some experts suggest CBAM could encourage countries without carbon pricing, like the United States, to adopt similar systems. A simulation by "Sandbag" found Japan, China, and South Korea may face high CBAM fees. These countries have already improved their emissions trading systems. Ukraine, Moldova, and Uzbekistan may experience significant economic impacts.

Chinese steel may lose its price advantage in the EU by 2027 if emissions are not reduced. Indian steel prices could rise further. By 2026, Turkish steel may become cheaper than Chinese steel despite higher production costs, as Turkey uses electric arc furnaces.

China plans to expand its emissions trading system (ETS) to more sectors and set an absolute cap on emissions by 2027, partly due to CBAM. After expansion, the system will cover most major carbon-emitting sectors.

India and Turkey aim to keep carbon pricing revenue for their budgets. Other countries, including Brazil, Indonesia, Vietnam, and Serbia, are creating their own carbon pricing systems due to CBAM. Some nations, like Australia, Canada, and Norway, are considering their own carbon border adjustments. A global carbon market initiative, the Open Coalition on Compliance Carbon Markets, was formed at COP 30 partly because of CBAM.

A report by the Asian Development Bank suggests CBAM may reduce emissions only slightly, which could be offset by increased carbon-intensive production. The report recommends sharing emission reduction technology as a more effective solution.

In January 2026, India introduced new greenhouse gas emission intensity targets for 208 additional sectors, including petroleum refineries, petrochemicals, textiles, and secondary aluminum. This expansion covers 490 companies in India's most carbon-emitting sectors, aiming to build "CBAM Resilience."

Thailand, Singapore, and South Africa are also strengthening their carbon pricing systems due to CBAM.

A legal scholar from Amsterdam suggests the EU should support least developed countries (LDCs) to comply with CBAM. This could include technical help, training, or financial incentives for low-carbon investments. Supporting LDCs may also require technology transfer and green finance.

Countries like Côte d'Ivoire, Colombia, and Vietnam seek EU trade partnerships and development aid to manage transition costs.

While China, India, and the United States have criticized CBAM, other trade partners may support it. A 2024 study, the CBAM Support Index, found Japan, South Korea, and Singapore are most likely to support the mechanism due to their innovation and existing carbon policies.

Applying border adjustments only to imports, not exports, may reduce the competitiveness of EU carbon-intensive products globally.

The EU's carbon border tax is based on the "polluter pays" principle, but market reactions suggest it may burden European companies. A study found EU companies in CBAM sectors experienced greater share price declines than non-EU companies in the same sectors, especially those with low profit margins.