- An EU Carbon Border Adjustment Mechanism (CBAM) sets a carbon price on imports of selected products (initially cement, iron and steel, aluminium, fertilisers, electricity and hydrogen) to prevent “carbon leakage” and to encourage non-EU countries to adopt similar net zero plans. It requires EU importers to buy CBAM certificates from their national authorities (carbon prices already paid on production would be deducted from the certificate price, which is linked to the EU emissions trading system (ETS)). ETS2 will be extended to cover road transport and buildings.
- The CBAM will gradually replace the EU ETS free emissions allowances mechanism, by means of a 9-year phasing out of the free allowances under the EU ETS from 2026 to 2034, and a corresponding phasing-in of the CBAM. The EC proposed to allocate to the EU budget 75% of CBAM revenues, increasing its strategic importance for the EU.
- In December 2025, the EC proposed a package of measures aimed at strengthening the effectiveness of the CBAM. These include:
- expanding CBAM's scope to 180 steel and aluminium-intensive products as of 1 January 2028
- creating a temporary support fund for EU producers of CBAM-covered goods, aimed at mitigating carbon leakage risks and protecting export competitiveness
- introducing the concept of 'equivalence' and flexibility for international partners, and
- additional anti-circumvention measures.
- Alongside the new proposals, the EC has published a review report on the implementation of the CBAM during its transitional phase.
- Timing: the CBAM is being phased in from 2026 until 2034 at the same speed as the free allowances in the EU ETS are being phased out. The extension of CBAM's scope is proposed from 1 January 2028. The start date of ETS2 is 2027, but it can be postponed to 2028 if energy prices are exceptionally high.
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