By Nicolas Endress, CEO, Climease
The EU Carbon Border Adjustment Mechanism (CBAM) is a tariff on carbon intensive products like cement, electricity and steel that are imported into the European Union. The tariffs have been introduced with the purpose of meeting climate targets of reaching carbon zero by 2035, encouraging producers, manufacturers and those involved in the supply chain to take action to reduce their omissions and operate more sustainably.
While boardrooms across the EU have focussed much of their attention on ESG (CSRD) compliance in the past year, CBAM is emerging as far more consequential for climate impact than other sustainability reporting directives.
For context, global carbon pricing revenue crossed $100 billion for the first time in 2024, yet only 28% of worldwide emissions currently face any carbon price at all. There is an ambitious target set to limit global warming to 1.5°C which will require global carbon emissions to be reduced by approximately 43-45% from the levels they were at in 2010 by 2030. CBAM is a critical step in reaching this goal.
What do the changes look like
The materials that will see impacts are steel, cement, fertilisers, aluminium, hydrogen and electricity, while steel and aluminum, even with indirect emissions from electricity consumption, are only taxed on direct emissions. These are mostly caused by the direct combustion of fossil fuels inside the factory’s processes and are only taxed in this way because local EU producers under the Emissions Trading System (ETS) only pay for direct emissions, and CBAM must therefore reflect the same scope. Cement and fertilisers are different as they are taxed on their total emission scope.
That being said, changes are being made to tariffs as the EU seeks to keep pace with and limit the emssions being generated from producing goods, ensuring a sense of equality. For example, the EU has just recently added a wide range of goods to CBAM including screws, furniture fittings, machinery and industrial equipment, mosty due to the high steel or aluminium content.
How are the changes impacting supplier relationships
Suppliers are looking more closely at emissions data across the supply chain in order to forecast for rising costs and put plans in place to operate more efficiently, yet many are wary of the quality of the emission data received from their non-EU suppliers that aren’t subject to 3rd party verification. In response, importers are using EU’s default emission values for calculating their CBAM costs which aren’t accurate average emission values though as they reflect the 10% most carbon-intensive factories in the EU. For global suppliers that regularly sell to the EU, there is a clear threat of being taxed on higher default values, presenting a clear-cut decision to invest in cleaner production and verification infrastructure in order to compete in the European market.
What does this mean for exporters without carbon pricing?
Under CBAM, exporters will face significantly higher tariffs from January 2026, when companies bringing high-emission goods into the EU will need to buy CBAM certificates priced in line with the EU ETS at around €80 per tonne of CO₂. The EU importers responsible for the import declaration for those goods are taxed under CBAM on the difference between the products’ emissions and a benchmark where the difference is then multiplied by the quarterly (in 2026) and weekly (in 2027) average EU ETS price.
A further initiative to meet the targets set for 2035 is the phasing out of free allowances under the ETS, meaning local EU factories will be taxed on a larger chunk of their emissions. CBAM also reflects this by decreasing its benchmark each year, while also increasing the taxed product emissions. Over time, this will increase taxes as a clear message is sent to the local EU industry and global green players selling into the EU to make their production and processes more energy efficient.
The immediate steps that businesses can take
Within the next few years, carbon pricing is likely to cover 80% of global trade. CBAM is making this happen by penalising any countries without stronger systems in place and rewarding the ones with EU-aligned ETS frameworks.
To stay competitive, businesses should act now by measuring their full supply chain emissions rather than relying on inaccurate estimates, build transparent carbon reporting systems, and align operations with EU-style cap-and-trade standards where credible reduction plans and verified data will be key to compliance. Companies that invest early in carbon accounting, cleaner production, and traceable supply chains will not only meet CBAM requirements but also gain an advantage as carbon becomes a core factor in global trade.
