The Carbon Border Adjustment Mechanism (CBAM) is an EU regulatory tool designed to prevent carbon leakage by leveling the playing field between domestic producers subject to carbon pricing and foreign producers in countries with less stringent climate policies. CBAM border pricing mechanisms impose a carbon cost on imported goods equivalent to the carbon price paid by EU producers under the Emissions Trading System (ETS). This ensures that imported products face a carbon price reflecting their embedded emissions, discouraging companies from relocating production to countries with laxer climate rules. In detail, CBAM requires importers to declare the carbon content of goods such as steel, cement, aluminum, fertilizers, and electricity. They must purchase CBAM certificates corresponding to the embedded emissions, priced according to the EU ETS allowance market price. If the exporting country has its own carbon pricing, a deduction applies to avoid double charging. The mechanism incentivizes cleaner production globally, supports EU climate goals, and protects competitiveness. It also includes reporting, verification, and compliance frameworks to ensure accuracy and transparency. CBAM is phased in gradually, starting with reporting obligations before full pricing enforcement, allowing stakeholders to adapt. Overall, CBAM’s border pricing mechanisms are a critical tool in the EU’s climate strategy to reduce global carbon emissions and encourage sustainable trade.

Published on: 2025-12-30 at 00:15:01