The European Union (EU) has introduced the first phase of the world’s first carbon border adjustment mechanism (CBAM), a system designed to impose CO2 emissions tariffs on imported steel, cement, and other goods. The aim is to prevent more polluting foreign products from undercutting the EU’s efforts to transition to a greener economy. The plan has raised concerns among trading partners, with China’s top climate envoy urging countries not to use unilateral measures such as the EU levy. However, the EU will not start collecting CO2 emission charges at the border until 2026.

During the initial phase, starting now, EU importers will be required to report the greenhouse gas emissions produced during the production of imported iron and steel, aluminum, cement, electricity, fertilizers, and hydrogen. From 2026 onwards, importers will need to purchase certificates to cover these CO2 emissions, leveling the playing field between EU industries that purchase permits from the EU carbon market and foreign producers. The goal is to encourage global adoption of greener production methods and prevent European manufacturers from shifting production to countries with lower environmental standards. The CBAM is also intended to ensure that EU industries do not lose out to international competitors while they invest in meeting the EU’s target of cutting net emissions by 55% by 2030 from 1990 levels.

According to the European Commission, the border levy complies with World Trade Organization rules by treating foreign and domestic firms equally and allowing deductions from the border fees for any carbon prices already paid abroad. The EU insists that the CBAM is not about trade protection but rather about protecting the EU’s climate ambition and raising global climate ambition overall. The initial phase will serve as a test to determine the effectiveness of the CBAM in preventing the relocation of industrial production to countries with less ambitious climate policies. While European companies and trade partners such as China, Turkey, and the US have refrained from commenting on the launch, they anticipate minimal impact during the trial phase.

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