As Europe’s carbon border mechanism shifted into action starting this year, climate policy turned into business strategy overnight across global value chains. The price of less carbon leakage and faster decarbonization is big—but it can only succeed if policymakers keep timelines and close key loopholes.
Europe’s Carbon Border Adjustment Mechanism (CBAM) is a quiet revolution with global reach. Since October 2023, importers of cement, iron and steel, aluminum, fertilizers, electricity, hydrogen and key precursors must report embedded emissions each quarter; in 2026, those disclosures turn into a fair carbon cost as CBAM certificates are required and the phase-out for free allowances is set in force.
The design is straightforward: align the carbon cost of imports with the EU Emissions Trading System (ETS) while phasing out free allowances for EU producers in the same sectors between 2026 and 2034. The goal is climate integrity—stop “carbon leakage,” where production (and emissions) shift to jurisdictions with weaker constraints, and keep decarbonization from being undercut at the dock.
CBAM as a key driver for decarbonization
The World Bank reports carbon pricing instruments cover roughly a quarter of global greenhouse gas emissions as of 2024. CBAM strengthens that signal in traded goods by making carbon costs visible—and soon payable—in global supply chains. While it’s too early to tally realized tonnage reductions, the policy logic is clear: less leakage into the EU, and stronger incentives for exporters to cut process emissions, clean up electricity, and raise recycled content to shrink their payable footprint.
The market consequence is practical and immediate. Procurement becomes intertwined climate strategy. One change—specifying materials with verifiably lower embedded emissions—can reduce future CBAM liabilities and accelerate real‑world decarbonization.
Stainless steel illustrates the point: product footprints vary widely by producer and route. Outokumpu stainless steel has up to 75% lower carbon footprint than the global industry average (1.6 kg CO₂e/kg vs. ~7 kg CO₂e/kg), driven by circular inputs and low‑emission energy. In a CBAM world, those differences show up directly in the bill.
At COP30 in Belém, carbon pricing stepped out of the side room and into the main plenary. Ministers compared schemes, trade officials debated border adjustments, and alliances converged around making carbon costs visible and interoperable.
Major economies used the COP30 spotlight to signal momentum. China outlined its path to expand the national ETS beyond power, while India advanced the Indian Carbon Market under its Carbon Credit Trading Scheme. Brazil’s government reaffirmed its plan to enact a regulated emissions trading system as the country’s Congress moved the emissions trading system bill forward. This underscores a global drift toward pricing carbon with greater coverage and credibility.
Closing the gaps
CBAM’s promise depends on execution. Three pressure points stand out.
First, scope of CBAM. CBAM currently covers basic materials and selected precursors. If downstream goods remain out of scope, production can shift to lightly processed products to slip past the border price (or be rerouted via transshipment). CBAM must be expanded swiftly to cover steel-intensive downstream sectors at risk of carbon leakage.
Second, circumvention risks are real. Anti circumvention rules need teeth, and the Commission’s planned scope review must keep pace with market behavior. The steel industry strongly advocates for Melted and Poured principle.
Third, the policy mix must stay coherent. The environmental integrity of CBAM relies on the parallel phase out of free allowances under the EU ETS for the same sectors. Any backsliding—delays, carve outs, or removing of sectors from CBAM—would dilute the carbon price signal and the leakage shield.
Policy still has a way to go
CBAM’s potential is real, but delivery will decide its legacy. Policymakers have work to do to keep up with strict timelines, closing loopholes, and building the data backbone—all of which help keep the carbon price signal strong, fair, and WTO‑consistent.
Political leaders should lock in the 2026 start of payments and the 2026–2034 phaseout of free ETS allowances, mandate consistent Measurement, Reporting, and Verification (MRV) with third-party verification, and give anticircumvention rules real measures. A timebound roadmap to include selected steel-intensive downstream goods at risk of carbon leakage will keep pace with market behavior, while clear enforcement timelines, penalties, and digital reporting infrastructure will sustain confidence and reduce administrative friction.
Equally important is how CBAM connects to the wider policy mix. Keeping steel safeguards in place during this transition is absolutely vital for the steel industry: it helps reduce the amount of high-emission imports and accelerates decarbonization.
Earmarking revenues to scale industrial electrification, circularity, and clean power (including through the Innovation Fund) ensures the mechanism drives real cuts, not just compliance. Aligning public procurement to reward low-emissions materials, and keep coherence across ETS, state aid, and industrial policy.
With these steps, CBAM becomes a reliable lever of climate integrity and industrial competitiveness—one that industry is ready to meet.
Give us a strong, predictable carbon signal at the border, and we’ll do the rest—bringing lower‑emission materials to market at scale and turning compliance into concrete climate gains.