All You Need to Know About CBAM, the New EU Carbon Tax

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The EU’s CBAM is transforming global trade by imposing carbon costs on imports as exporters must decarbonise to stay competitive in this emerging economy

According to the World Trade Organisation (WTO), 20-30% of all carbon emissions are associated with international trade. 

The WTO estimates that in 2015, roughly eight billion tonnes of CO₂ was emitted due to the production and transport of trade – this represents 25% of global emissions for that year.

In response to these statistics, the EU has rolled out its Carbon Border Adjustment Mechanism (CBAM), stating that EU businesses need to declare and pay for the emissions from the goods they import.

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About the EU’s CBAM

The CBAM is part of the EU’s efforts to reduce its GHG emissions by 55% by 2030 from its imported goods.

With this tax, the EU is imposing a carbon cost on emissions-intensive goods imported from outside the EU based on their quarterly carbon content.

Starting in 2026, a carbon levy will be imposed meaning that EU companies will have to purchase 'CBAM certificates' in response to the carbon content of imports. 

The Council is also foreseeing a minimum threshold which exempts from the CBAM obligations consignments with a value of less than €150 (US$155).

Bruno Le Maire, French Minister for Economic Affairs, Finance and Recovery, says: “The agreement in the Council on the Carbon Border Adjustment Mechanism is a victory for European climate policy. It will give us a tool to speed up the decarbonisation of our industry, while protecting it from companies from countries with less ambitious climate goals.

Bruno Le Maire, French Minister for Economic Affairs, Finance and Recovery.

“It will also incentivize other countries to become more sustainable and emit less. Finally, this mechanism responds to our European ambitious strategy that is to accelerate Europe’s energy independence.”

Steel, iron and aluminium imports are some of the first components that are subject to the EU’s CBAM.

The reasoning for these metals to be the first is because they are fundamental for the EU’s industries and energy transition – in 2023 the EU imported 37 million tonnes of steel from 137 countries.

Exporters will likely face knock-on effects as iron, steel and aluminium exports risk becoming more expensive than their EU-produced counterparts. 

Decreasing competitiveness could lower demand, sales, revenue and jobs, especially in emerging economies where the carbon intensity of iron, steel and aluminium production is often higher than in the EU. 

Who gets the bad end of the CBAM?

Looking beyond exports volume data, some countries rely more on the exports of these metals to the EU than others, including:

South Africa

A tenth of South Africa’s exports to the EU will be impacted by CBAM, roughly 0.8% of the country’s GDP. 

Steel Imports.

Iron, steel and aluminium sectors are particularly vulnerable with 16% of South Africa’s iron and steel exports and approximately 25% of aluminium exports at risk. 

The country’s reliance on coal power also means that the carbon intensity of these metals (0.91kg CO2e/$ for iron and steel and 0.32kg CO2e/$ for aluminium) far exceeds the carbon intensity of the EU (0.16kg CO2e/$ and 0.07kg CO2e/$ respectively) and other metal-exporting countries. 

Mozambique 

With nearly 97% of all aluminium exports destined for the EU market and a much larger carbon emissions intensity (0.68kg CO2e/$ versus the EU average of 0.07kg CO2e/$), aluminium exports are particularly vulnerable.

Brazil

One of the biggest iron ore producing countries in the world, Brazil’s exports were valued at US$30.6bn in 2023. 

Of all iron and steel exports, roughly 12% are set for the EU market with a carbon emissions intensity of 0.37kg CO2e/$, making Brazil more exposed than other Latin American countries.

Venezuela

In 2023, Venezuela exported €82m (US$83.8m) worth of iron and steel to the EU, accounting for roughly 50% of total iron and steel exports. 

With a carbon emissions intensity of 0.49kg CO2e/$ of iron and steel export, Venezuela is extremely vulnerable to CBAM.

India

Due to its reliance on coal power, India’s carbon emission intensity of its iron and steel (2kg CO2e/$) is significantly higher than the EU average, which is one of the lowest in the world (0.16kg CO2e/$).

India’s imports to the EU will be much more costly under CBAM.

CBAM regulations.

23% of all iron and steel exports goes to the EU, meaning India faces extreme risk from the EU’s carbon levy.

How can exporters benefit from the CBAM?

Although there are risks associated with CBAM, exporters of iron, steel and aluminium can find opportunities.

CBAM is creating the world's first marketplace for low carbon, more sustainable metals.

To turn CBAM into an opportunity for growth and sustainable economic development, there are multiple considerations to take on board.

Importers should measure the carbon footprints of the iron, steel and aluminium products they produce and share this with EU customers. 

This will not only meet customers’ demands for carbon data and build stronger customer relationships, but it will also provide valuable insights into where and how the business can reduce its emissions long-term to remain competitive.

The CBAM is likely to include: cement, iron, steel, aluminium, fertilisers, electricity and hydrogen.

Detailed strategies and plans to reduce emissions can help access sustainable finance to implement low carbon interventions, including renewable energy generation and alternative production processes to reduce emissions and energy use.

As an exporter, reducing Scope 1 and 2 emissions should also be aimed for, as well as more challenging areas within the value chain like the emissions tied to the mining and processing of metals.

Decarbonising iron, steel and aluminium is no easy task and largely beyond the scope of any individual company. 

The CBAM represents a shift towards a more sustainable global trade system, incentivising exporters to reduce their carbon footprints and align with greener production methods.

By investing in cleaner technologies, improving carbon transparency and fostering collaboration across supply chains, exporters can turn CBAM from a compliance burden into an opportunity for long-term resilience and growth.

As carbon pricing mechanisms expand worldwide, proactive adaptation will be key to ensuring a just and sustainable transition for all.


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