Why CBAM will reshape global carbon pricing

In 2024, global carbon pricing revenue crossed$100 billion for the first time. At the same time, only 28% of worldwide emissions currently face any carbon price at all. 

The speed at which we close this gap will determine whether we can effectively address the climate crisis. To limit global warming to 1.5°C, the IPCC finds that global emissions must be reduced by approximately 43-45% from 2010 levels by 2030 – yet less than a third of current emissions are being taxed. Without quicker expansion of carbon pricing mechanisms, we risk missing this critical window.

While boardrooms across the EU have spent the past year consumed by chatter about Corporate Sustainability Reporting Directive (CSRD) compliance, a quieter but far more significant mechanism has been developing in Brussels. The EU’s Carbon Border Adjustment Mechanism (CBAM) is proving far more consequential for climate impact than the sustainability reporting directives that have recently captured corporate attention.

Will CBAM and the rise of global carbon pricing finally put an end to greenwashing? As carbon emissions start to carry a real financial cost rather than just serving as a marketing tool, we could be finally moving away from empty commitments and towards concrete climate action. 

The EU now faces a defining choice in shaping the next phase of global carbon pricing, one that could determine the fate of nearly half of global emissions on the road to a 2°C-aligned pathway.

How default values are reshaping supplier relationships

The sectors faced with an almost immediate impact due to the CBAM are steel, cement, fertilisers, aluminium, hydrogen, and electricity. Steel and aluminium, which are responsible for significant indirect emissions from electricity consumption, are only taxed on direct emissions, caused by the direct combustion of fossil fuels inside the factory’s processes. 

This is because local EU producers under the Emissions Trading System (ETS) only pay for direct emissions, and CBAM must therefore mirror the same emission scope. Cement and fertilisers, however, are taxed on their total emission scope.

Many importers are wary of the quality of the emission data received from their non-EU suppliers, which are still not subject to 3rd party verification. In many cases, conservative importers are still using the EU’s default emission values for calculating their CBAM costs. However, these defaults aren’t average emission values; they’re set to reflect the 10% most carbon-intensive factories in the EU. 

For global suppliers that regularly sell to the EU, the threat of being taxed on higher default values presents a clear encouragement to invest in cleaner production and verification infrastructure in order to compete in the European market.

What exporters without carbon pricing face

From January 2026, exporters will face significantly higher tariffs under CBAM. Companies bringing high-emission goods into the EU will need to buy CBAM certificates priced in line with the EU ETS – currently around €80 per tonne of CO₂. 

From January, EU importers lodging the customs import declaration for affected goods will be taxed under CBAM on the difference between the products’ emissions and a set benchmark. This difference is then multiplied by the quarterly (in 2026) and weekly (in 2027) average EU ETS price.

As free allowances under the ETS are phased out a little more each year, local EU factories are taxed on an increasingly larger chunk of their emissions. CBAM reflects this system by decreasing its benchmark every year, which also increases the taxed emissions. Overall, this will increase total tax over time, providing a clear long-term signal to the EU industry and global green players selling into the EU to go green.

 Market modelling suggests that CBAM charges for most covered commodities will fall within a meaningful range that varies by production route and verification status. Importantly, those surcharges often converge across production routes; while blast furnace pathways emit more, they also have higher benchmarks, and electric arc routes, though cleaner, face lower benchmarks. For downstream manufacturers importing higher-value products, the effective price impact may be modest. But for traders working on tight margins and handling large-volume cargoes, even small miscalculations in emissions or precursor mixes can significantly affect the economics of an entire shipment.

The reality of CBAM is that it does not simply add a surcharge to the cost of steel or aluminium; it adds a tax based upon the difference between an installation’s measured emissions and the benchmark for the installation’s product and production method. The benchmark for this purpose is a multi-layered calculation of both the installation’s direct emissions and the emissions of the producers of the installation’s inputs, including the production of pig iron/DRI, scrap metal, aluminium alloy/alumina. When there is no verified data on any layer of this supply chain, the importer will be forced to use default benchmarks and emissions rates, which, when used together, will result in higher taxed emissions.

How major exporters are reacting to CBAM pressure

China is already responding decisively, with a recent policy signal suggesting Beijing is getting serious about turning its ETS from intensity-based to an absolute cap. In August 2025, China’s State Council announced pilots for absolute caps in some industries by 2027, with the aim of making caps the national foundation by 2030. 

Sectoral expansion to steel, cement and aluminium is already in progress; China has had a monitoring, reporting, and verification system (MRV) in place since 2024, which allows its exporters to report real emissions and ultimately avoid penalising EU default values.

India is also considering ETS plans of its own, while US industry groups have moved forward with deliberations on federal carbon pricing as exporters become aware of the growing danger of remaining outside credible carbon-cost programs. 

The maths is shifting for these three markets: entry into the EU for exports is increasingly dependent on certified carbon data as much as it is on price and quality. It’s near-certain that terms of trade in the future will increasingly be negotiated in carbon as well as in currency, and EU trading partners are taking steps to adapt.

Trade flows are already shifting

CBAM is already reshaping global trade flows. EU-based commodity traders, metal distributors, and industrials must now be held accountable for this additional carbon cost and are redirecting their attention toward greener suppliers located in countries that are likely to set up an EU-aligned carbon tax regime in the near future. 

Some importers are holding their shipments of carbon-intensive goods until benchmarks are finalised, while others, particularly in regions like Türkiye and the Middle East, are cutting emissions in a bid to gain ground in the EU market.

This creates a divide between those who are waiting for the certainty that comes with finalised benchmarks and those taking early action. Over time, the ones to succeed will be the companies that treat carbon reduction as a competitive advantage, not a compliance exercise. 

Supply chains that have remained unchanged for years are being remodelled based on carbon intensity, while procurement teams that once upgraded purely for cost and delivery time now add carbon metrics as a core variable.

The path forward

Within the next few years, carbon pricing won’t just be a European experiment, but may cover as much as 80% of global trade. The CBAM is making this happen by penalising any countries without strong systems in place while rewarding ones with EU-aligned ETS frameworks. Countries that evolve with the change and build credible carbon pricing will defend their industries, while those that pull away will watch their exporters face the consequences.

To further strengthen this transition, the EU will need to revisit a critical element of the CBAM: which foreign carbon pricing mechanisms should qualify for deduction. Should any form of flat carbon tax be accepted, or only robust cap-and-trade systems that demonstrate credible, long-term alignment with the 2°C target?

Unlike a simple carbon tax, the EU Emissions Trading System (ETS) is more than just a price on carbon -it provides a structural guarantee that, after 2040, no CO₂ emissions will be permitted from covered sectors. A flat carbon tax, by contrast, offers no such long-term certainty or enforceable trajectory toward deep decarbonisation.

It is therefore essential that the EU sets clear eligibility criteria, ensuring that only carbon pricing systems genuinely aligned with the 2°C pathway qualify for deduction. This would prevent symbolic or weak carbon taxes from undermining the credibility and effectiveness of the CBAM.

This move would be a big step toward stopping global warming. The discussion on whether carbon pricing mechanisms will converge or fragment across nations is more crucial and uncertain than ever. 

What’s clear is that CBAM has transformed carbon from an environmental metric into a competitive factor in global trade. The countries moving fastest to build credible carbon markets will be the ones whose industries flourish in this new landscape.