BlogCarbon Pricing

Global carbon pricing in CBAM sectors

Written by

Ulf Narloch

Published on

Accounting for carbon prices is becoming increasingly important for EU companies. With the EU’s carbon border adjustment, a carbon levy will be paid on imports from 2026. Carbon prices already paid in countries of origin can be deducted. In total 18 non-EU countries have a CBAM-relevant carbon price covering 42% of CBAM emissions.

The carbon pricing imperative under CBAM

EU companies have an increasing financial interest in carbon prices beyond the EU’s Emissions Trading System (ETS). The EU Carbon Border Adjustment Mechanism (CBAM) is introducing a carbon levy on imports.

Initially, CBAM covers goods in 6 carbon-intensive sectors: iron & steel, aluminum, fertilizers, cement, electricity, and hydrogen. Based on our analysis, EU imports of CBAM goods brought embedded emissions of about 258 Mt CO2e in 2023.

From 2026, CBAM certificates would have to be purchased and surrendered for embedded emissions. Since October 2023 EU importers of CBAM goods already face reporting obligations.  

Article 9 of the CBAM regulation defines that CBAM certificates to be surrendered are deductible by carbon price effectively paid in the country of origin. As per article 9(2), CBAM declarants would have to provide evidence of carbon price paid in third countries to claim reduction.

The specific rules on the accrediting of carbon prices and their calculation are in development. Yet explicit carbon prices in the form of ETS allowances and direct carbon taxes are clear cases to be accounted for, as argued by ERCST.

Such carbon pricing schemes are on the rise. According to the latest World Bank’s 2024 report on carbon pricing, 75 carbon taxes and ETS are already in operation globally, covering almost 24% of global emissions.

Global carbon pricing already CBAM-relevant

Analyses based on our CO2 Price Radar reveal that there are 18 non-EU countries worldwide with a carbon pricing of relevance for EU CBAM. These countries make up to 42% of embedded emissions in CBAM imports based on their share of imported CBAM goods in each sector.

Analyzing both national and subnational carbon policies, we count all those of relevance for CBAM goods in each sector. These polices are already in force or scheduled with set rules and sectors. Countries that have not yet defined the sectoral scope for their carbon pricing, such and Brazil and Türkiye, are not included.  

In addition to the 27 EU countries, Norway, Lichtenstein, and Iceland take part in the EU-ETS, while Switzerland has an aligned system. These non-EU countries do not fall under CBAM and are not counted here. So, overall, the number of countries with carbon prices in at least one CBAM sector is already at 49.

Iron & Steel

16 countries have implemented or scheduled CBAM-relevant carbon pricing in the iron & steel industry. Altogether, they cover 54% of embedded CBAM emissions in this sector. China, Japan and the USA, however, only price these emissions at subnational level.

Most of these countries charge carbon prices on raw materials like sintered ore, pig iron or crude steel. Countries such as Australia, Canada, and China also price emissions from the manufacturing of iron or steel products.

Aluminum

There are 13 non-EU countries with carbon pricing implemented or scheduled in the aluminum sector. Embedded emissions in CBAM imports from these countries make 35% of all embedded CBAM emissions in this sector.

Most of these carbon pricing systems cover the production of unwrought aluminum. Emissions from manufacturing of products from aluminum are not yet commonly priced.

Fertilizer

12 countries have carbon pricing in place or scheduled for some or all CBAM-relevant fertilizers. They make 13% of embedded emissions from the EU’s fertilizer imports under CBAM.

Most of these countries price emissions on chemical products such as nitric acid and ammonia.

Cement

Emissions related to cement are priced by 16 non-EU countries. Most of these countries have put a price on clinker which is an intermediate product in cement production.

Out of the EU’s cement imports under CBAM, only 5% come from a country with a carbon price – mostly from the UK. Türkiye as one of the most relevant trading partners for cement, is still to implement a carbon price. Yet its cement sector has already been under obligation to monitor and report emissions since 2015.

Electricity

Electricity is the most widely covered sector with 18 countries already implementing or planning a carbon pricing. As a key decarbonization enabler, many countries start their carbon pricing efforts in the energy sector.

Yet, only a few of these schemes are of direct relevance for CBAM, as imported electricity is coming from neighboring countries. For EU importers, mainly the schemes in the UK and Montenegro are of relevance accounting for 37% of embedded CBAM emissions in electricity imports.

Hydrogen

Given its early stage, currently only 5 non-EU countries price emissions from hydrogen production with 2 of them at the subnational level. These countries cover around 20% of embedded CBAM emissions in this sector.

Hydrogen imports are still very limited but are gaining relevance due to their role in replacing fossil fuels. In the absence of sufficient supply of green hydrogen, also grey and blue hydrogen may be in-demand by EU industry. By 2030, the imports of hydrogen that fall under CBAM and some carbon pricing may hence expand.

Watching further carbon pricing developments

Carbon pricing systems are expected to gain momentum worldwide. To support such efforts, the EU has recently established a diplomacy taskforce for carbon pricing and markets. CBAM is also likely to contribute to this development.

With CBAM, non-EU governments now have an incentive to capture carbon revenues in their country instead of having them be rendered at EU borders. Emerging economies like Brazil, India, and Türkiye are already in preparation to implement carbon pricing schemes in alignment with EU’s CBAM.

The EU is still working on the rules for recognizing third countries’ carbon pricing and deduction calculations. An implementing regulation is expected in Q2 2025. The rules herein will describe how to convert carbon prices effectively paid into CBAM certificate reductions, evidence required for such deductions and relevant rebates.

A recent report by UBA distinguishes 2 approaches to account for carbon price paid in third countries: (i) the average price approach, which uses country-wide averages and simplifies reporting, and (ii) the actual payment approach, which requires detailed reporting of actual prices paid.

Also, carbon prices paid in the country from where precursors have originated can be recorded in current CBAM reporting. For some steel and aluminum products, these take the greater share of the carbon prices already paid.

Hence, reliable carbon price data from across the whole supply chain is needed to reduce the CBAM cost burden. EU companies need to capture such data in addition to building systems to compile emissions data. Carbon pricing data is becoming a critical factor in business planning and purchasing decisions.


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Photo by Weichao Deng on Unsplash