Carbon Border Adjustment Mechanism

Enactment and phases

CBAM was legislated as part of the European Green Deal. After a provisional Council-Parliament agreement in December 2022, the framework Regulation (EU) 2023/956 was adopted on 10 May 2023 and entered into force on 17 May 2023; Implementing Regulation (EU) 2023/1773 then set out transitional quarterly reporting.

During the transitional phase (1 October 2023 to 31 December 2025) importers in the six covered sectors reported emissions only and bought no certificates; the first report was due on 31 January 2024. From 1 January 2026 the definitive regime requires importers to report emissions and to buy and surrender certificates priced off the weighted average of auction clearing prices for EU ETS allowances, while non-EU exporters must supply verified embedded-emissions data to their EU customers. The EU plans to phase free allocation down to 0% by 2034 and to cover all ETS sectors by 2030.

In December 2025 the European Commission proposed extending CBAM from 2028 to around 180 downstream products with high steel or aluminium content, such as car doors, gearboxes and household appliances, and EU member states agreed to the expansion in June 2026. That would raise CBAM-covered goods from 3.16% to about 7.2% of extra-EU imports. The free allocation rate falls from 97.5% in 2026 to 39% in 2031 and 0% in 2034.

Certificate prices equal the weighted average of auction clearing prices for EU ETS allowances. Four quarterly prices are published in 2026, with Q1 at EUR 75.36 (published 7 April) and Q2 at EUR 75.28 (published 6 July); weekly prices follow from 2027, and all certificates are bought on the common central platform from February 2027.

The EU ETS and international relations

CBAM is tied to the EU ETS introduced in 2005. It is meant to stem carbon leakage to countries without a carbon price and to let the EU cut free allowances to carbon-intensive sectors, hastening decarbonisation; countries outside the EU with their own carbon-pricing policies can avoid the charge and keep the revenue for their own decarbonisation projects. The United Kingdom is pursuing a similar CBAM by 2027.

The import partners most affected are Russia, China, Turkey, Ukraine and the Balkans, along with Mozambique, Zimbabwe and Cameroon. China plans to expand its ETS and adopt an absolute emissions cap by 2027 partly because of CBAM, and India, Turkey, Brazil, Indonesia, Taiwan, Vietnam, Malaysia and Serbia are among the countries introducing or strengthening carbon pricing. In a 2024 CBAM Support Index, Japan, South Korea and Singapore ranked as the countries most likely to support the mechanism.

Korean case

Korea falls under the definitive regime from 1 January 2026: EU importers must report emissions and buy and surrender certificates, and Korean exporters must provide verified embedded-emissions and facility data to importers through EU-recognised verifiers. The domestic steel sector is expected to be hit hardest.

The Korea Chamber of Commerce and Industry estimates steel certificate costs at about KRW 85.1bn in 2026, rising above KRW 550bn per year from 2034, with a cumulative total above KRW 3tn over ten years. The increase follows the EU's cuts to free allocation from 2030 and a 100% paid allocation share by 2034. Korea International Trade Association research projects EU export volumes falling 7.7 to 17.9% in 2031-2034 (against 0.9 to 5.3% by 2030) and export price increases rising from 0.9% in 2028 to 18.2% in 2034, as the free allocation rate drops from 97.5% in 2026 to 39% in 2031 and 0% in 2034. Certificate costs are a modest burden at first and rise sharply after 2030.

Exemptions and disputes

CBAM does not apply to the four non-EU states included in the European Economic Area: Iceland, Liechtenstein, Norway and Switzerland. De minimis imports of up to EUR 150 are exempt, and the charge has not yet been proposed for automobiles, clothing, food, shipping or aviation.

CBAM has generated disputes over WTO compatibility and non-discrimination. Developing countries have raised the prospect of a discriminatory trade barrier, while the EU describes the measure as a climate and fair-competition instrument accompanied by technical and financial support. BRICS members have jointly opposed one-sided environmental trade measures such as CBAM as discriminatory barriers.