A report by environmental think tank Sandbag, published today, finds that the cost of the European Union’s (EU) Carbon Border Adjustment mechanism (CBAM) to US exporters would only be £307 million, or even less if benefits to US companies are accounted for – far less than the £3.5 billion the US had claimed during appeals to remove the measure.
The CBAM is an environmental trade measure imposed by the EU intended to stop “carbon leakage” – when industries avoid price rises caused by domestic legislation, like the EU’s Emissions Trading Scheme (ETS), by importing carbon-intensive goods from abroad. The mechanism, due to come into full effect in January 2026, mandates exporters to report their emissions and imposes an import tax according to their carbon footprint, intended to be equivalent to the tax the good would be subject to if it were produced in the EU.
The US has been critical of the CBAM for years, with John Kerry, President Biden’s envoy on climate, saying the EU should only use it as a “last resort” in 2021. The Trump administration has also been vocal against the mechanism, which the US trade representative has said would “undermine fair competition” practice and affect £3.5 billion worth of US exports.
Sandbag’s report, which modelled the impact of the CBAM on US imports in the EU in the short and long term, finds that the effect of the measure on US companies has been vastly overstated, and the measure is likely to help US importers at least as much as it penalises them. This is because the US has a competitive advantage over other importers to the EU in terms of carbon emissions: the products the US imports to the EU – mainly flat steel products, aluminium, and cement – are already relatively low in embedded emissions, giving US exporters a competitive edge.
“If we look at the CBAM charge, then it really is a mystery why the US is opposed to this scheme because, as matter of fact, the US stands to gain from CBAM relative to other competitors, third countries, but also EU producers,” said David Kleinmann, Senior Research Associate at ODI Europe, in an exclusive interview to TFG.
Even considering the regulatory burden of the CBAM – which the Opackage, passed by the European Commission in February, would only inflict on larger corporations – US exporters still stand to gain from the mechanism. This effect would be amplified by rising metals prices, which will come as a result of the full implementation of the CBAM and a decreasing number of free emissions allowances under the ETS, being reduced each year.
Concerns over a so-called resource shuffling, where the US would reroute its cleanest goods to the EU to comply with the CBAM instead of paying the fee, are, for the most part, unfounded due to the already low emission intensity of most US exports to the EU, finds the report. The US may be resistant to the CBAM for other reasons, Kleinmann: “The US has an interest in being a regulatory henchman and not having to sign up […] to monitoring, reporting, and verification methods that are not made in the US. [Therefore,] anything that is not made by US regulators would be opposed.”
Ultimately, US resistance to the CBAM as an unfair trade measure are unfounded, says the report: total fees for US imports would be between £261 and £347 million a year, which would only amount to under 0.2% of total trade volumes.
“The CBAM is often branded as a trade measure, but we very much see it as a climate measure – even a domestic measure – because it’s really about the internal EU carbon pricing system. The CBAM is just an adjustment based on the plan to remove free allowances from the domestic EU carbon trading system, so the CBAM is to protect against the side effects of that major step-up in ambition for the climate in Europe,” Adrien Assous, Sandbag’s Executive Director, told TFG.
