Europe’s carbon border tax has come into force as of January 2026, marking a major shift in how the European Union links climate policy with global trade.
Under the Carbon Border Adjustment Mechanism (CBAM), the EU places a carbon tax on imports of certain high-emission goods, including steel, aluminium, cement, fertilisers and electricity.
The EU says the policy will help cut emissions and prevent companies from shifting production to countries with weaker climate rules.
But some poorer nations argue it risks pushing the cost of decarbonisation onto poorer exporters, raising concerns over fairness, trade rules and access to finance and clean technology.
Here’s a look at the CBAM’s potential to reduce emissions - and what it might mean for the EU’s trading partners.
What is the main goal of the EU carbon border tax?
The European Union has an Emissions Trading System (EU-ETS) based on a “cap-and-trade” approach, whereby it sets a cap on the emissions an industry can emit, and companies trade emissions allowance certificates to stay within those limits.
The system sets a price on carbon emissions in polluting industries, making investing in efficient production and clean power sources more attractive. The ETS helped the EU cut its industrial emissions by about 35 per cent between 2005 and 2021.
The EU is further tightening the system as part of its “Fit for 55” package, a series of laws designed to achieve its key climate goal of reducing emissions by at least 55 per cent from 1990 levels by 2030, including through the CBAM.
The CBAM aims to prevent emissions “leakage” from the EU-ETS, which could happen if production physically shifts to countries with lower - or no - carbon prices, or if EU importers source goods that are cheaper because they do not have to factor in the cost of their carbon emissions, experts said.
How much global emissions can CBAM cut?
Evidence to date suggests the CBAM and similar systems undertaken by other countries may have only limited effect in curbing emissions at the global level.
In 2015, carbon emissions from international trade accounted for about 27 per cent of global emissions, meaning goods and services consumed in the countries where they are produced are responsible for a far higher share, according to a 2021 report by the United Nations Conference on Trade and Development (UNCTAD).
Another 2021 UNCTAD report estimated that at a carbon price of US$44 per tonne, a CBAM tax on imports would reduce global emissions by only 0.1 per cent, while the EU’s emissions would decline by 0.9 per cent.
The EU’s own assessment projects that the CBAM would result in a 13.8 per cent reduction in the bloc’s emissions by 2030, compared with 1990 levels, and a cut of about 0.3 per cent for the rest of the world.
