The European Union is determined to achieve its aim of reducing emissions by at least 55% by 2030 and 90% by 2040, compared to 1990 levels. As 2030 approaches, the EU has been keen to implement innovative approaches to achieve these goals. One such approach has been fully implemented starting in January 2026 and will now be assessed to determine its effectiveness and credibility in practice.
The Carbon Border Adjustment Mechanism, or CBAM, is an environmental policy introduced by the EU that aims to encourage global industries to decarbonise while protecting the competitiveness of European producers. The EU is not the largest source of global emissions, however, it is one of the largest importers of global emissions. CBAM functions as a carbon pricing mechanism that prevents carbon leakage, whereby companies circumvent emission costs by relocating production beyond the Union’s borders.
The mechanism targets imports of carbon-intensive goods that are particularly vulnerable to carbon leakage, such as cement, iron, steel, aluminium, fertilisers, electricity, and hydrogen. This scheme seeks to ensure fair competition for European producers, as importers must now pay a carbon price equivalent to that paid by EU producers under the EU Emissions Trading System (EU ETS). The European Commission is also planning to expand the sectors covered by 2030, to include all areas currently included under the EU ETS. After a transitional period between 2023 and 2025, which allowed importers to adapt to the policy, CBAM came into full effect in January 2026. With importers now required to pay for their carbon emissions, the mechanism’s credibility is put to the test. If successfully implemented, CBAM will not only increase the Union’s chances of meeting its climate goals and addressing competitiveness concerns within its emissions trading system, but it may also incentivise global decarbonisation throughout global supply chains, given the EU’s role as a major consumer of carbon-intensive goods.
A ripple effect can already be observed. The UK, for example, plans to implement its own CBAM in January 2027. Other countries such as China, Brazil, Turkey, Colombia, and Japan, are also expanding their domestic carbon pricing regulations to prevent heavy impacts on their exporters.
Despite the transitional period that allowed the EU and its trading partners to adjust to the CBAM regime, its full implementation this year has already faced pressures that could undermine the mechanism’s overall aim. Within the Union, proponents of agricultural protectionism have expressed discontent with the early effects of CBAM, particularly the rapid increase in fertiliser prices, which have risen by 91% since 2021 and are threatening farmer competitiveness. Agricultural lobbies warn that CBAM could raise fertiliser price levels by an additional 30%. EU member-states such as France and Italy have also supported the suspension of CBAM for fertilisers and have advocated for the introduction of Article 27a proposed by the Commission late last year. This provision would allow the Commission to exempt goods from CBAM if they are deemed to cause severe harm to the Union as a result of unforeseen circumstances.
Serious efforts by the Commission to introduce exemptions only a few months after the mechanism’s implementation may have significant repercussions for the Union’s climate goals. Succumbing to sectoral pressures for protection would signal an inconsistent commitment to decarbonisation and could encourage other industries to seek similar exemptions in order to preserve competitiveness. Allowing exemptions would also undermine the innovativeness of the mechanism, the precedent it has established, and the power to shape global markets. Manufacturers have already warned about Article 27a and the possibility of CBAM import exemptions. The Commission’s apparent hesitation to fully commit to the new regime creates uncertainty regarding the Union’s climate goals. It also signals a lack of confidence in the success of decarbonisation and weakens the EU’s authority as a leader in the green transition. The Commission’s response to these internal pressures on CBAM regulation will also have important international implications. CBAM’s influence on EU trade policy raises key considerations about the Union’s role in setting an example and creating momentum for global discussions on carbon leakage. While internal pressures to deregulate the mechanism undermine its aims, concerns about equitable CBAM implementation also raise important questions about the idea of a just green transition, which should not be overlooked.
CBAM may hit Global South exporters the hardest, as these countries often have fewer resources to decarbonise their industries and rely heavily on their exports.
These macroeconomic impacts raise broader questions about how a just green transformation should be implemented, and what other factors must be taken into account in the creation of responsible climate policies.
Concerns over CBAM’s effect on global supply chains may provoke geopolitical tension as many developing countries perceive the mechanism as protectionist. Although the EU has attempted through initiatives, such as the Samoa Agreement, to foster cooperation with African, Caribbean, and Pacific states in ways that acknowledge their economic realities, CBAM’s limited alignment with their developmental priorities may undermine the EU’s efforts to build genuine partnerships.
The debate surrounding CBAM’s implementation has made it clear that innovative approaches are necessary to achieve ambitious climate goals, but they must be designed responsibly. The lesson the European Commission has been propelled to learn once again is that internal economic pressures will undermine political support for important steps and that genuine commitment is necessary to carry them out. Nonetheless, the goal of major decarbonisation by 2030 remains in place. These climate targets will only produce a meaningful ripple effect across global supply chains if they are implemented equitably and with due consideration for the Global South.
Written by Ema Žagar, Edited by Valerie Schicke
Photo Credit: © Chris LeBoutillier (2021, January 22) on Unsplash.
