Next year the world’s largest single market is poised to begin pricing products based on CO2 emissions. The UK will follow suit in 2027. Here’s what your organisation needs to know.
2026 is a significant year as it’s when the world’s first integrated carbon tax and tariff (CBAM) scheme will be put into place. Not only that, it is also the year scientists expect average global temperatures to cross the 1.5°C threshold. These two significant events will likely change global trade in ways that the market may not fully appreciate or understand yet. What is clear is they will decide which countries lead in low-carbon manufacturing and which ones will pay the price for inaction.
CBAM is shaping up to be more significant and impactful from a climate point of view than the Corporate Sustainability Reporting Directive (CSRD), which has been a major topic in boardrooms over the past year. Yet CBAM hasn’t received the same attention, and that needs to change now.
Understanding CBAM’s mechanics
Starting in 2026, goods entering the European Union will face a carbon price based on their production emissions. This includes steel, aluminium, fertiliser and cement – key materials for European industry and global supply chains.
When you import these items into the EU, you must account for the carbon released during their production. If these goods come from countries without similar carbon pricing systems, exporters will pay the difference between what was paid at the source and the current EU carbon price. The UK will follow suit with its own CBAM from 2027.
The mechanism follows the EU’s ETS, which is important for knowing which goods are taxed. Steel and aluminum, despite having indirect emissions from electricity use, are only taxed on direct emissions – those from burning fossil fuels. This aligns with how local EU industry is treated under the ETS, however, cement and fertilisers are taxed on both direct and indirect emissions.
The financial stakes are high and companies importing these goods could see product prices increase up to 40% by 2026 once CBAM is fully implemented.
Sectors in the firing line
CBAM will first hit Europe’s most carbon-intensive imports: steel, cement, fertilisers and aluminium. According to the European Commission, CBAM will soon be extended to downstream metal products as well as other sectors like ceramics and glass.
For importers and traders, the impact will be immediate. A European metal distributor, for instance, will face carbon costs on every ton of imported steel. But the disruption extends beyond these core industries – automotive manufacturers reliant on imported steel, chemical producers using fertilisers, construction companies purchasing cement. Anyone whose materials cross an EU border will be affected.
What makes this particularly challenging is the question of default values. When suppliers cannot prove their actual emissions – which today is common among non-EU producers – importers must use EU default values for calculating CBAM costs. These defaults are intentionally strict, creating powerful incentives for suppliers to either invest in cleaner production or provide third-party verified emission data. For now, many suppliers will have little choice but to accept these defaults, which could greatly increase their CBAM costs.
How should businesses respond?
Some companies may see this as a distant problem to deal with when the time comes, but it’s coming faster than they think. First, companies should audit their supply chains as soon as possible, identifying which imported products are subject to CBAM. If you’re importing steel, aluminum, cement or fertilisers or products containing these, CBAM will affect them.
Second, engage with suppliers immediately and start talking about their emissions with non-EU suppliers. This is key to lowering CBAM costs, replacing default values with actual, verified supplier emissions can save businesses up to 30% on CBAM costs. Suppliers need time to calculate and verify their data and many lack the resources to do so.
Modeling your cost exposure is another step to take. The financial impact of CBAM is measurable and big enough to affect your pricing, profits and investment decisions. Many importers are unsure about their carbon liability because they haven’t matched their purchase orders with CBAM costs. To grasp the financial effects of different carbon pricing levels on your business, analyse scenarios by looking at future carbon price trends and the availability of supplier data on emissions, this is vital for assessing carbon costs and handling risks.
CBAM gives a competitive edge to suppliers in regions with strong carbon pricing or using lower-emission production methods. Some companies may need to find suppliers that are more environmentally friendly. Others might invest in helping non-EU partners lower their emissions. Some companies may see this as a chance to become climate-conscious suppliers in a market where carbon costs are now a competitive factor.
Finally, to prepare for regulatory complexity, CBAM reporting is now annual, with the first full year of mandatory reporting and payment obligations beginning in 2026. Businesses will need systems to track emissions throughout the year, calculate their annual liability and submit reports to EU customs authorities along with purchasing the required CBAM certificates.
The bigger picture
CBAM is much more than a compliance issue – it’s when carbon becomes a cost on every international transaction. Industry models suggest that some products could see cost increases of up to 48% when CBAM is combined with the end of free EU allowances. This is fundamentally changing how competitiveness is defined in global markets.
For many companies, this serves as a warning that the ones who get ahead will be those already building transparency into their supply chains, helping their suppliers calculate and cut emissions, and treating carbon data as seriously as financial data. The rest will have to catch up at a greater cost. With CBAM certificates expected to match the EU carbon price – currently around €80 per ton of CO₂ – unprepared importers could face millions in extra annual costs once full pricing is in place.
With only months to prepare, the price of carbon won’t just be an environmental measure; it will show how well businesses understood the future and acted on it.
Nicolas Endress is CEO of ClimEase, an all-in-one CBAM platform for international exporters, commodity traders, freight forwarders, consultancies, your entire supply chain, EU importers.
Image: Wolfgang Weiser / Unsplash
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