CBAM regulation and the EU’s border carbon adjustment mechanism
The European Union is considering expanding its carbon emissions tax on imports with a high emissions footprint. The European Commission’s CBAM proposal would extend the levy to certain assembled goods, such as car components and washing machines, in order to more effectively protect the bloc’s industries and support their efforts toward the green transition.
The Carbon Border Adjustment Mechanism of the European Union, known as CBAM, covers six emissions-intensive sectors: iron, steel, cement, aluminum, fertilizers, and electricity.
The CBAM regulation entered into force on October 1, 2023. From 2023 to 2025, during the pilot phase, importing companies are required to report the emissions associated with their products, without paying any tax. From January 1, 2026, the mechanism will become fully operational, and companies will be required to purchase CBAM certificates, priced in line with the EU emissions trading system, to cover their CO2 emissions. The levy will be introduced gradually based on the carbon footprint. Over time, the EU will phase out the free pollution allowances that some companies receive under the EU emissions trading system. Importers, however, will have until September 2027 to purchase and surrender CBAM certificates to the EU in order to comply with the rules.
The European Commission’s proposal to expand the CBAM
Despite criticism from major trading partners, including the United States and China, Brussels has continued to defend the mechanism. A draft proposal circulated on December 17 outlines plans to broaden the scope of the CBAM regulation to include selected downstream products, such as car components and washing machines.
The stated goal is to shield EU industries that comply with strict environmental standards from competition by producers operating under weaker climate rules. The proposal, which remains subject to revision, aims to strengthen the effectiveness of the CBAM, reduce greenhouse gas emissions, and support global climate action by extending the mechanism to specific assembled goods.
According to a report by the International Emissions Trading Association, by January 2025 dozens of emissions trading systems were operating worldwide, covering nearly one fifth of global emissions. Under EU rules, the CBAM levy could be partially reduced if a carbon price has already been paid in the country where the goods were produced.
Since Brussels first announced the border carbon tax in 2021, countries such as China, India, and Brazil have begun developing or expanding their own carbon pricing systems, despite publicly opposing the EU measure. “The CBAM is deeply unpopular among the EU’s largest exporters, but it has already proven effective in pushing reluctant countries to expand their carbon pricing efforts,” Henry Lush, an analyst at consultancy Veyt, told Bloomberg.
Other CBAM options under review by the Commission
Tariffs under the CBAM regulation would largely depend on so-called default values, used to set emission benchmarks when importers fail to provide verified, product-specific data. The measure is aimed at foreign companies that underestimate their emissions to avoid the levy. In such cases, the EU could impose higher default emission values on imports from specific countries, leading to increased CBAM charges.
For more details, see the European Commission’s proposal on CBAM.