The European Union has introduced the Carbon Border Adjustment Mechanism (CBAM), adding a secondary emissions charge specifically for imports. The resulting costs are directly borne by companies, with expenses influenced by a variety of significant, interlinked factors rather than a straightforward CO₂ emissions tax.
Emission Load Dependency
For each ton of embedded CO₂ emissions in imported products, a corresponding certificate must be purchased. Starting in 2026, unlimited reporting of standard default values will be allowed again, but with a proportional surcharge, making them more costly than actual emission values. As these values will be country-specific, strategic sourcing can reduce costs, especially by selecting suppliers with environmentally friendly practices.
Direct Emissions Accounting
Currently, CBAM only covers direct emissions in heavily impacted sectors, such as iron, steel, and aluminum, with hydrogen also being an exception. For instance, in aluminum imports, where indirect emissions constitute about three-quarters of the emission load, this approach excludes most emissions from initial cost implications. However, the EU may eventually incorporate indirect emissions for a fuller impact assessment.
Dependency on EU ETS Prices
CBAM certificate pricing aligns with the EU Emissions Trading System (EU ETS) certificate prices, calculated based on the average EU ETS price. While EU ETS limits the number of certificates, creating a price-influencing scarcity, CBAM does not cap certificate quantities. EU ETS price shifts, such as drops from industrial production changes, directly affect CBAM certificate costs.
Price Development
EU ETS prices are expected to increase progressively as the EU limits annual certificate issuance, reflecting commitments to carbon neutrality. This trend will likely drive up CBAM prices as well, supporting the shift toward a low-carbon economy.
Other Key Influences
Beyond emission levels and EU ETS price ties, additional critical cost factors include the interaction with free EU ETS allowances and any CO₂-related costs in the product’s origin country. A full analysis of these elements is beyond this summary.
Support for Analyzing Cost Impacts
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