The EU’s Carbon Border Adjustment Mechanism (CBAM) comes into effect from 2026. It is a regulatory tool that applies a levy at the EU border on the greenhouse gas content of imported cement, iron and steel, aluminium, fertilisers, electricity and hydrogen.

This charge on the imported wares will match the carbon price paid for similar products produced in the EU. This will help ensure that there is no competitive disadvantage for EU producers compared to non-EU producers that do not pay a carbon price at home, thereby allowing an alternative to ineffective carbon leakage prevention measures under the EU’s Emissions Trading System (such as free emission allowances, and state aid subsidies).

Beyond its desire to ensure fairness for EU producers, CBAM also seeks to incentivise countries outside of the EU to introduce their own carbon pricing system or to decarbonise their production. 

One major flaw of CBAM is that the revenue raised will go to the EU budget, when it should be used for climate action in the least-developed countries most affected by CBAM.

For a full introduction to the EU’s CBAM click here.