Europe Introduces Carbon Tax On Imports With Far Reaching Implications For Global Trade

The carbon border adjustment mechanism (CBAM) puts a carbon price on many imported goods – meaning that EU-based importers will pay for the greenhouse gases emitted during the production of certain carbon-intensive materials.

If goods come from countries with weaker climate rules, then the charge will be higher. To sell to the EU, producers will effectively need to show their goods aren’t too carbon-intensive.

The goal is to prevent companies from relocating their production to places with looser regulations, ensuring fair competition between EU and non-EU companies, while incentivising global decarbonisation.

After a trial phase, full payment obligations begin on January 1 2026, when importers will need to buy CBAM certificates to cover the embedded emissions in goods such as iron and steel, aluminium, cement, fertilisers, hydrogen and (eventually) electricity

Although it is an EU climate policy, CBAM looks set to be a game-changer for global trade. Countries that rely on EU exports may need to make costly investments in cleaner technologies and better emissions tracking, or risk losing market share. The UK government plans to introduce its own version of CBAM in 2027 – although how this links to the EU’s is yet to be decided.

A positive shift is already underway: more and more companies are now measuring and reporting their emissions accurately, responding to the growing demand for reliable carbon data. At the same time, an increasing number of countries are introducing their own carbon pricing systems to stay aligned with the EU and protect the competitiveness of their exports.

Morocco is a prominent example: its 2025 finance law gradually introduces a carbon tax from January 2026. As Moroccan firms will already pay a carbon price domestically, their exports are likely to avoid additional CBAM charges at the EU border, helping them remain competitive.

In many countries, CBAM is also accelerating interest in renewable energy and greener industrial processes. Some see it not as a threat, but an opportunity to attract investment and position themselves as low-carbon manufacturing hubs.

However, this mechanism is still controversial. For businesses, CBAM is complex and administratively heavy. Firms need robust systems to measure embedded emissions, collect data from suppliers and produce environmental product declarations. Many will also need new renewable energy contracts to cut their carbon footprint.

Around the world, CBAM has faced strong criticism. India and China describe it as “green protectionism”, arguing that it puts unfair pressure on developing economies. At the same time, the EU has not yet created dedicated funding to help exporters in lower-income countries adapt. Without this support, the mechanism may not achieve the desired results.

What about consumers?

Although CBAM is mainly aimed at industry, its ripple effects will reach consumers in the EU. Importers are unlikely to absorb the full additional cost, meaning prices are likely to rise – particularly for goods that rely heavily on steel, aluminium or cement. This could mean Europe sees higher costs for cars, home appliances, electronics, building materials and, indirectly, food production (through fertilisers).

At the same time, CBAM may bring more transparency. Because importers must report the emissions embedded in their goods, consumers may eventually have clearer information about the climate impact of what they buy.

The mechanism will also generate EU revenues from certificate sales. These are expected to support vulnerable households in many European countries, as well as funding clean technologies and improving energy efficiency. How the funds are used will be crucial to public acceptance of Europe’s new carbon tax.

Even before full implementation, CBAM is already reshaping supply chains and influencing government policies far beyond Europe’s borders. It may trigger trade disputes, push exporters to adopt carbon pricing, and highlight the need for more climate finance to support developing countries undergoing green industrial transitions.

For many European consumers, it’s likely to mean gradual price increases – and potentially, more climate-conscious purchasing decisions. Behind the scenes, it marks a significant shift in how global trade accounts for carbon – and how climate policy reaches into people’s everyday lives.

This article is republished from The Conversation under a Creative Commons license. Read the original article.