CBAM could trigger global market resegmentation, CarbonChain report finds

The European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM) could translate into significant cost differentials across markets, outweighing freight advantages or marginal price discounts, according to a CarbonChain report released in March 2026. 

The report’s findings come ahead of the UK’s own CBAM policy, set to start in January 2027, the draft mechanisms for which were published this week. 

The EU designed the carbon border policy to ensure carbon-intensive goods face a fair carbon price relative to goods manufactured in the EU under the EU Emissions Trading System (ETS), which came into force in January 2026. Designed to prevent carbon leakage, stop production shifting to countries with laxer carbon regulations, and incentivise global industry decarbonisation, the policy seeks to even the playing field for EU manufacturers.

Rising costs of importing to Europe

The EU’s system sets out a range of default values designed to determine specific embedded emissions when no actual emissions values are available. These values are unique to the country of manufacture and the material involved. To avoid companies reporting default values and emitting at higher rates, these default values are intentionally punitive. 

In 2026, the EU marked up default values by 10%, a figure that will rise to 30% in 2028. However, this creates commercially unviable exposure for many origins, up to €694 per ton for Indonesian steel, the report finds. 

The total cost of CBAM across just iron and steel will hit €29 billion in 2035, with Chinese products footing up to €5.3 billion of the tab. 

For importers, the cost of CBAM could reach €12 billion in 2026. According to a Fastmarkets study, Indonesia, Egypt, Russia, India, and Ukraine are the nations likely to face the highest effective CBAM tariff rate by 2035. The discrepancies are striking. Canada will face just a 14% effective tariff while Indonesia grapples with 154%.

Jack Laing, Senior Carbon Specialist at CarbonChain, told Trade Finance Global (TFG) that “default values are highest for China, Russia, India, and Malaysia, reflecting the carbon intensity of their industrial production”. However, he explained that for nations with insufficiently reliable data, default values were based on the average emissions intensity of the 10 highest-emitting nations. 

The European Commission’s method of assigning default values could severely penalise emerging and vulnerable markets, effectively taxing them as the highest emitters, regardless of absolute production levels, where data is scarce. 

92% of the projected demand for CBAM certificates by 2035 is projected to come from Asia, with each certificate corresponding to one ton of CO₂ emitted during the production/transformation of the CBAM good. 

Nick Ogilvie, CBAM lead at CarbonChain, explained: “Carbon intensity is no longer a peripheral sustainability metric but a direct input into landed cost. Yet the financial implications are not yet appreciated. Many producers continue to treat CBAM as an administrative request rather than a structural commercial variable”. 

The challenges of carbon-bookkeeping

Reporting actual emissions values is key for exporters to get ahead of CBAM, particularly ahead of the UK’s introduction of the policy in January 2027. But that process is not simple. 

Tracking carbon data across supply chains is difficult. Manually maintaining multiple-spreadsheet outputs, checking for user errors and data discrepancies, missing cells, and transposed figures, using the EU’s 12-page document for every installation report, and reformatting and resending when production data changes is harder. 

The problem is that each supplier requires a unique report, leaving little room for scalability and creating a significant administrative burden.

In December 2025, the European Commission published a proposal to expand CBAM’s scope from January 2028 to include CO₂ and PFC emissions, bringing in 7,500 additional importers into scope across 180 new categories, the report found. This could significantly complicate reporting. 

The report contains a case study of a non-EU flat steel producer, supplying EU importers, that was applying CBAM default values to all non-EU sourcing. Their products were priced in the same bracket as those of some of the region’s highest-carbon mills, despite their actual emissions falling well below that threshold. After a partnership with CarbonChain, which sought to define the installation boundary and calculate actual embedded values across the supply chain, the supplier’s reported carbon intensity fell 45%, significantly lowering CBAM cost exposure.

The case study shows businesses, particularly small and medium-sized enterprises (SMEs), are unable to shoulder the larger administrative burdens and are facing unfair penalties under CBAM.  

“In practice, how costs get passed back to the source producer increasingly factors into procurement negotiations,” said Laing. “High-emission suppliers are being looked at differently, and in some cases, orders are already being redirected.”

But the administrative burden is only part of the problem. Reporting actual emissions values is conditional on verification by an accredited EU supplier, which, in practice, imposes several operational constraints, the report finds. 

Capacity is limited, meaning not all countries and industries will be able to verify emission values immediately. Site visits cannot occur until post-2026 production, meaning companies must pre-empt the numbers in contract and supplier negotiations, which could have significant supply-chain ramifications. 

Laing explained that the problem is that ‘upstream’ producers, those who produce ‘raw’ goods such as pig iron, crude steel, aluminium, need to be verified before ‘downstream’ producers, companies that use those resources in manufacturing, can use their emissions data. 

“If upstream verification is delayed – which is likely given the scale of the task and the compressed timelines – downstream importers could find themselves forced onto default values even where they’ve made genuine efforts to collect actual data,” Laing explained. 

The global decarbonisation gap 

The EU has outlined a plan for a Temporary Decarbonization Fund (TDF) to provide targeted support to energy-intensive industries, exposed to carbon leakage. For 2028-2029, 25% of the revenues collected from the CBAM import tax will be allocated to the fund, covering production in 2026 and 2027. The TDF will affect EU manufacturers facing high CBAM costs, the report explains. 

The goal is to help EU industries remain competitive with non-EU industries that face lower or non-existent carbon taxes. However, that money is coming from non-EU businesses, which often cannot afford to decarbonise themselves.

“There has been significant pushback from China, raised at Conference of the Parties (COP) and World Trade Organisation (WTO) summits, on grounds that the legislation violates the WTO rules and is discriminatory. They were met with fierce resistance from the EU,” said Laing.

South-East Asia, a region particularly exposed to CBAM tariffs, requires around $210 billion in annual investment in climate-related infrastructure to transition to a lower-carbon economy. That level of investment cannot be funded solely by public money, with private capital accounting for more than half of that sum. The majority of the businesses exposed, the backbone of South Asia’s economy, are SMEs. 

These SMEs lack the infrastructure and administrative capacity to report on their carbon supply chains, leaving them exposed to the high-tariff rates and default values under CBAM. Yet that same lack of administrative capacity, combined with the high-risk premiums associated with their geographical location and size, leaves those businesses unable to access the financing needed to decarbonise. 

SMEs are facing a double-edged sword, unable to afford decarbonisation, and unable to pay the price not to. 

All the while, the profits of the CBAM policy, an estimated £1.8 billion annually by 2030, will be used to support EU manufacturers with high-emission supply chains. 

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Adam Hearne, Co-founder and CEO of CarbonChain, said, “The result (of CBAM) is not administrative friction. It is a gradual re-segmentation of markets.”

Sourcing greener material is a direct hedge against CBAM liability. Some producers in high-intensity locations are offsetting product costs by lowering prices. “Other producers who can provide timely, verified emissions data gain a structural commercial advantage,” Hearne added.

CarbonChain’s report illuminates the structural challenges facing exporters under CBAM. It raises questions about the impact of CBAM on global supply chains, including whether we will see a trade shutdown or a reorientation of supply lines away from European manufacturers.

“Supply chain realignment is already happening. We are seeing orders being cancelled and redirected away from high-carbon-intensity origins”, Laing told TFG.  

“The longer-term picture is varied. Some producers able to invest in decarbonisation will remain competitive. Others won’t. They will see difficulty in reaching the EU and emerging carbon markets”.