EU launches carbon border tax on 1 January

The European Union’s carbon border adjustment mechanism (CBAM) is a key element of the EU Green Deal and its Fit for 55 climate package. Introduced in 2021, the system is finally set to launch on 1 January 2026.

The European Commission announced the launch of the carbon border levy. The system operated in a transitional phase for a period and was changed frequently. In practice, from the new year the system will apply to EU importers bringing in more than 50 tonnes of cement, iron and steel, aluminium or fertilisers, as well as to all importers of electricity or hydrogen.

CBAM aims to prevent so-called carbon leakage, which typically occurs when EU companies move production to countries with less stringent climate regulations. The system seeks to address this problem by imposing a carbon tax on certain products, thereby reflecting the costs faced by EU producers under the EU Emissions Trading System (EU ETS).

The legislation was first proposed by the European Commission in July 2021 and formally adopted in 2023, following intensive negotiations between EU institutions and member states. The same year, the transitional phase began, during which importers were required to report emissions embodied in the products concerned, without making any financial payments.

From 1 January 2026, CBAM will enter its definitive phase, meaning importers must obtain CBAM authorisations and, depending on the carbon intensity of the product they import, purchase CBAM certificates.

Countries exporting to Europe often criticise the legislation. These are primarily emerging and developing economies, which describe the mechanism as a form of “green protectionism” and argue that it could unfairly penalise exporters with limited capacity to decarbonise or accurately measure emissions from production.

Within the EU, industries have expressed more mixed reactions. While many energy-intensive sectors broadly support CBAM as a way to level the playing field, businesses warn of administrative complexity, difficulties accessing data and the risk of supply-chain disruption, particularly for smaller importers.

Environmental groups have meanwhile welcomed CBAM but criticised the gradual phase-out of free ETS allowances, arguing that stronger and faster measures are needed to achieve genuine emissions reductions.

Once CBAM is fully operational in 2026, its success will depend, analysts say, on effective implementation, functioning international cooperation with trading partners, and the EU’s ability to balance its climate ambitions with trade relations and competitiveness.