With tariffs looming, international trade is becoming more complex. In addition, the EU’s CBAM will put a carbon price on imports of carbon-intensive goods from 2026. Based on 2024 trade data, EU imports with a value of EUR 89 billion will be affected. In a fully phased-in CBAM, these imports will incur additional carbon costs of EUR 12 billion.
CBAM in international trade
Global supply chains are facing turbulent times. To maintain competitiveness, more and more countries are considering measures to protect their domestic industries. The EU’s Carbon Border Adjustment Mechanism (CBAM) is intended to avoid disadvantages in international competition caused by the Europe’s carbon pricing.
Traditional trade instruments are also gaining renewed attention. Under President Trump’s tariffs, imports into the U.S. are becoming more expensive. The Section 232 tariffs of 25% on steel and aluminum were reintroduced as early as March and extended in April to cover cars and auto parts.
Since April 5, a base tariff of 10% is applied to all other U.S. imports. Additional reciprocal tariffs, in response to trade barriers by other countries, have been temporarily suspended until July 9. In May the escalating tariffs on Chinese imports were postponed by 90 days.
Meanwhile, the EU is pushing back. In Regulation 2025/778, the EU Commission (EC) announced, among other measures, a 25% tariff on steel and aluminum from the U.S., which has been suspended until July 14. A second tariff package is currently in preparation. Recently, Trump threatened a 50% tariff on all EU imports.
At the same time, the EU’s safeguards will remain in place until June 2026, with recent adjustments for steel. Anti-dumping measures also apply, including those on Chinese steel – which could increasingly come to the EU due to Trump’s tariffs. An action plan has been drafted to protect the EU’s steel and metal industries.
A key instrument in this plan is CBAM. Starting in 2026, a carbon price on imports of carbon-intensive goods will be gradually introduced, aligned with the EU Emissions Trading System (ETS). Though originally designed as a climate policy tool, CBAM functions like a carbon-based trade instrument.
Lower value of CBAM imports
In 2024, CBAM covered EU imports with a value of EUR 89 billion, spanning over 500 goods from 6 sectors. Compared to 2023, CBAM imports declined by 6%—mainly due to lower values in the first two quarters. These CO2 IQ findings are based on the latest EUROSTAT trade data released in April.
The EC is currently reviewing a possible extension of CBAM. Currently, CBAM covers about 4% of all EU imports. In 2024, total imports declined by 3% compared to the previous year. 2023 already saw a decline after the post-COVID recovery and high energy prices had widened the trade deficit in 2022.
Despite falling prices, the volume of imported CBAM goods rose by 6%, reaching 105 million tons. Iron and steel account for the largest share with 69% of the total volume – followed by urea, ammonia, and other chemical fertilizers at 15%, cement at 11%, and aluminum at 5%. Hydrogen currently plays no significant role.
Electricity imports, totaling 30 TWh, are also included. Apart from Serbia, the United Kingdom (UK) is the EU’s most important trading partner for electricity. Larger import volumes from Switzerland and Norway, however, are not covered by CBAM.
Imports from third countries with equivalent carbon pricing systems are exempt. Currently, Norway, Iceland, and Liechtenstein participate in the EU ETS. Imports from Switzerland, which operates a linked ETS, are also excluded.
This list is expected to grow. Just last week, the EU and the UK agreed during trade talks to link their ETS systems. This announcement follows the UK’s move to introduce its own CBAM. Once the agreement is finalized, mutual trade flows between the two regions would be exempt from CBAM.
Emissions vary by CBAM sector
Emissions embedded in CBAM imports of 2024 total 260 Mt CO2e according to CO2 IQ analyses. This sum corresponds to around 9% of total emissions released within the EU. Over half of these CBAM-related emissions come from iron and steel imports, one-quarter from aluminum, and 10% from chemical fertilizers.
Total CBAM emissions in 2024 are about 1% higher than in 2023. Embedded emissions in imports of cement, iron and steel, and fertilizers have increased. At the same time emissions in electricity and aluminum imports have declined. These changes reflect shifts in import volumes across the respective sectors.
These estimates are based on average emissions intensities of the EU’s trading partners, which have been set by the EU as default values for CBAM reporting. Country-specific carbon intensities are calculated for electricity—based on fossil fuel power generation.
CBAM accounts for the embedded emissions in imported goods. This includes both direct emissions released during the production of these goods and indirect emissions from the electricity used in their manufacturing.
The EU (and UK) CBAM impose charge per unit of embedded emissions. A carbon-based tariff as proposed in the U.S. under the Foreign Pollution Fee Act, would require a value-based fee, which is set based on the emission intensity.
CBAM costs remain uncertain
In a fully phased-in CBAM, the added carbon costs for 2024 imports would amount to EUR 12 billion – ca. 31% of the revenues from EU ETS auctions in 2024. However, total CBAM costs remain below EUR 6 billion until 2028 – with adjustments for free ETS allowances. They will only be phased-out by 2034 through a CBAM factor.
These CO2 IQ calculations are based on prices in the primary EU ETS market, as determinant of prices for CBAM certificates. In 2024, the average price was EUR 65 per ton of CO2.
At 2023’s price of EUR 83.66 per ton CO2, 2023 imports of CBAM goods would have resulted in CBAM costs of EUR 15 billion. The 21% drop highlights the dependency of CBAM costs on EU ETS price developments. Prices rose to EUR 80 in January this year before falling to EUR 60 in April.
Due to the required tightening of emissions allowances to meet EU climate targets, many experts and market models forecast a long-term increase in prices. At a carbon price of EUR 100, CBAM costs would rise to over EUR 19 billion.
Two-thirds of these costs are borne by the metals industry. For imports of iron, steel, and aluminum, only direct emissions are currently priced in these calculations. If indirect emissions were also included, CBAM costs for 2024 imports would have reached EUR 17 billion.
These estimates do not factor in carbon prices in the exporting countries, which can be credited against the CBAM payments. However, the crediting does not alter the overall carbon costs, but where they are paid. In 2024, effective carbon prices in most non-EU countries remained low.
Adjustments for EU exports are currently explored. As free emission allowances are phased out, the global competitiveness of EU exporters is coming under pressure.
Increasing complexity in trade
Carbon-proofing global supply chains helps companies to prepare for increasing complexity in international trade transactions by:
- Monitoring relevant climate and trade regulations and their implementation requirements to identify affected goods early;
- Collecting carbon data and factoring it into purchasing decisions to reduce carbon exposure and risks in supply chains;
- Simulating the financial impact to optimize landed costs of imports (e.g., considering CBAM alongside import quotas) in order to minimize additional expenses.
In a dynamic trade environment, short-term adjustments may be necessary to ensure business competitiveness. Particularly in long-term contracts – both in purchasing and sales – it will be helpful to keep flexibility to respond to regulatory changes or to find new arrangements to keep cost risks down.
Sources and further information:
- European Commission: Carbon Border Adjustment Mechanism
- EUROSTAT: Trade data
- CO2 IQ Analysis: CBAM impact on EU trade (request here)
Photo by Kurt Cotoaga on Unsplash
