The Invoice Arrives in 2034
The carbon border levy is binding in Europe since January. Few, if any, people outside Europe have ever known the full price, or when
The European Union’s Carbon Border Adjustment Mechanism (CBAM) will no longer be a reporting obligation and become a financial commitment on 1 January 2026.[1] In the exporting world, the response was swift and vocal and significant, but at best misdirected. The same story was featured in newspapers across Ankara, Mumbai, Karachi and the Gulf, and rates for the carbon tariff will be this much.
Not one of those numbers was even close, and the mistake was not insignificant.
The reason for this is to be found in the regulation itself and not its accompanying commentary; and what one finds is a mechanism that is much more bizarre, much slower and much more impactful than the tariff it is often confused with.
What actually occurs and when
It is not the foreign producer, but the European importer that is legally responsible. An importer who imports covered products into the Union must be an authorised importer or CBAM declarant, report the covered emissions of the product imported and pay the CBAM certificates at the price prevailing in the EU ET.[1][2]
The dates are important, not as important as they seem. The Omnibus amendment in October 2025 says that the start of the certificate sales is postponed until 1 February 2027.[3] The first declaration for all 2026 importations is due on 30 September 2027. The importer is liable but does not make any payment until the end of 2026. The certificates required for declarants will be based on at least half of their accrued emissions at the end of each quarter, down from eighty per cent as originally proposed.[4]
The same amendment changed the €150 consignment limit to a mass-based exemption: those who import less than 50 tonnes of covered goods per year are not required to register or report. This results in the Commission’s own impact assessment removing about ninety per cent of importers with about ninety-nine per cent of the embedded emissions in scope.[3][5] It’s a very well-defined form of simplification, and it’s indicative of the shape of the trade: that a handful of big shipments is going to be absorbing a lot of the carbon.
The prices of the certificate are determined every quarter based on the average price of ETS certificate allowances for the compliance period 2026. The fixed values for the first and second quarters were set at €75.36/t CO₂e and €75.28/t CO₂e respectively.[6] The price since 2027 is calculated on a weekly average, based on the European carbon market and moves close to real time.
The number nobody mentioned
The provision that puts the whole debate in perspective.
CBAM does not charge the full carbon price on imports. It is actually levying the amount of carbon price actually paid by European producers, and most of the allowances are still being given away free to European producers. Free allocation will be eliminated over a predetermined period from 2026 to 2034, with the CBAM factor increasing in tandem.[7]
In 2026 that factor is 2.5 per cent. European steelmakers retain 97.5 per cent of their free allowances, so imported steel is charged 2.5 per cent of its embedded carbon cost. At a certificate price around €75 per tonne, blast-furnace-basic-oxygen-furnace steel carries an effective CBAM cost of roughly €2.50 per tonne this year.[6][7]
In 2026 that factor is 2.5 per cent. European steelmakers have 97.5 per cent free allowance, so imported steel carries a 2.5 per cent cost of embedded carbon. With the effective CBAM cost of steel being approximately €2.50 per tonne this year at a CBAM price of around €75 per tonne, the price of blast-furnace-basic-oxygen-furnace steel is not sufficiently high at present to justify its use of CBAM.
Two and a half Euros. On a tonne of hot-rolled coil which may be available for a six hundred pounds.
The factor reaches 48.5 per cent by 2030 and 100 per cent in 2034.[7] If exposed fully, the tonne of blast-furnace steel can be charged more than €100. The gross embedded carbon cost figures that are widely reported of €100, €150, or €254 per tonne are not incorrect as they are calculations of gross.[8] These are incorrect as hypothetical predictions of what any person would pay in 2026.
The one thing that an exporting government must understand, and it goes both ways. Fortunately, there’s time. But the thing is, that the time is being lost. The cost of a mechanism is almost negligible now, and the capital costs to make a plant more carbon intensive take 5-10 years to know, to fund and then to commission. The companies that have set 2026 as a target deadline have already missed the mark. The companies that see 2034 as the deadline have cruised to a victory in 2033.
The leisurely arithmetic is swamped by one exception; exporters should note this carefully. Those who can’t provide verified installation level data are given default values, which are deliberately punitive, higher than actual plant level data, plus an additional ten per cent adjustment in 2026, twenty per cent in 2027 and thirty per cent from 2028.[4][8] The penalty for bad data grows exponentially. It is the only component of the cost curve which an exporter can bend at the moment, and at a very small cost compared to retrofitting a smelter.
The Gulf: an advantage created by an accounting boundary
The prevailing opinion is that CBAM is a threat to the Gulf industry. The evidence leads to a more interesting direction.
The main exposure pathway for the GCC countries is via aluminium and it is concentrated. In March 2026, the Observer Research Foundation reported that Bahrain and the UAE are the worst hit countries in absolute terms as well as relative to the GDP, followed by Saudi Arabia and Oman, with Kuwait and Qatar not being so affected.[9] It’s a real scale, as the GCC region is responsible for around 8.7 per cent of global aluminium production.[10]
However, the direction of the impact is different than what regional commentary assumes. CBAM only applies to direct emissions of aluminium and steel, but the direct carbon intensity of the Gulf’s smelters is generally similar to that of European smelters, and significantly lower than the direct carbon intensity of aluminium and steel from China and India. In the Gulf there is no gap to pay for against its principal competitors, under a mechanism that prices the gap.[9][11] It has capacity to share a share.
This is why a lot of the local literature has been confused on such a discrepancy. Others put the two at parity. Both are defendable and it is only the direct-versus-indirect boundary which distinguishes the two. The indirect impact of gulf smelters is tremendous because the smelters are operated on gas fired grids.[9][11] They do not have direct process emissions. The second is the only one currently in CBAM’s collection.
Which is the most biting joke in the entire file? First of all, Emirates Global Aluminium started commercial production of solar aluminium in 2021, the first company in the world to do so, and Ma’aden has put its low-carbon strategy head-on to the new EU rules.[9][12] None of that counts for a euro of CBAM relief, as the emissions avoided are indirect and invisible to the CBAM mechanism under the accounting boundary. The instrument is blind to the investments that Gulf producers have made in the decarbonisation Europe wants.
The corollary is a strategic exposure that regional planners should be modelling now. For aluminium, if indirect emissions are included in scope, as they are for cement and fertilisers[11], then the Gulf’s role flips upside down as soon as it’s in your legislation. If a Brussels advantage is based on where it decides to draw a line in an annex, then that is not an advantage. It’s a job that relies on the discretion of someone else.
Turkey: the mechanism that exports itself
The Turkish steel industry is the largest in Europe and is most directly affected by the volume of exports to the EU, estimated at €6 to 8 billion per year.[13][14][15]
It’s a stronger position than it has been given credit for being in the headline. Electronic arc furnaces and recycled scrap are the main features in the Turkish steelmaking industry and makes it a true high-intensity producer compared to blast furnace producers in Asia. In early 2026, a modelling analysis determined the net macroeconomic effect on Turkey to be nearly neutral, with losses limited to a few energy intensive upstream sectors and not distributed across the economy as a whole.[15][16]
Institutional development is the more significant development. In July 2025, Turkey has implemented its first Climate Law, which outlines the legal basis of a national emissions trading system, and it will enter the pilot phase in 2026.[17]
This sequence should not be read as a coincidence, as it is a clue to the essence of CBAM.
The regulation allows for a deduction if the carbon prices have been paid in the country of production.[2] A tonne of carbon priced steel costs less when it arrives in Europe. Its application is always a decision that the exporting government will have to make: is the carbon price worth having here and keeping to itself, or not?
If we look at this as such, the roll out of carbon pricing since the CBAM came into force is no coincidence either. Turkey, India, Vietnam, Brazil and Indonesia have all relocated. China has quickly expanded the scope of its national system to include steel, cement and aluminium.[18] The UK has its own border mechanism which will be introduced in January 2027.[19] Norway was the most ambitious, having lawmakers approve a direct implementation of the European mechanism in Norwegian law in June 2026.[20]
CBAM’s creators called it a “leakage solution. It has had its greatest impact to date through putting carbon pricing as the price of continued access to the world’s largest single market, and doing so without negotiating a single treaty. It is working, and one might look on that as good climate policy, or as unilateralism in tariff schedules.
South Asia: exposed by production route, and by silence
India’s vulnerability is structural. It has a heavy reliance on blast-furnaces and coal in its steel industry, putting it at the wrong end of the benchmark table. So gross CBAM costs, according to the estimates published in early 2026, are estimated at around €254 per tonne of Indian blast furnace hot-rolled coil value, prior to applying the phase-in factor.[8][21] That amount can’t be paid today. It is due (in substance) by 2034. In fact, Indian exporters have already started to redirect volumes towards the Middle East and Africa, exactly as trade diversionists feared, and as the component makers had hoped.[22]
The situation in Pakistan is unique and in some ways more illustrative.
The exposure faced by the six sectors covered directly is small at about 1.2 per cent of total exports which is easily dismissed.[23] The decision to dismiss would be a wrong one for two reasons.
The first is scope. Last fiscal year, Pakistan exported $8.86 billion to the European Union, consisting mainly of textiles.[24] Textiles are not covered by CBAM today. The proposed expansion of 2028 extends to 180 steel and aluminium intensive downstream products; the Council’s general approach in June 2026 was more expansive than the Commission’s original proposal, and included a requirement for annual review of subsequent additions.[25][26] The mechanism is announced to be heading for manufactured goods, and has an institutional desire to broaden.
The second is Article 9, the sharper one. Fuel prices are highly taxed in Pakistan. The levies are not deemed to be a carbon price by the regulation, and therefore do not create any carbon deduction.[2][23] The nation consequently has to charge its domestic consumers with the same carbon-equivalent cost on their fuel bills, and also has to pay the carbon costs to the European treasury on its exports, but without getting any credit for that. If the domestic carbon price is designed correctly, and implemented in the exporting sector, one of those flows could be turned into national revenue without introducing additional carbon cost to the export sector as a whole. It is one of the last truly free ones in trade policy; it is not taken.
The 2028 extension and what it means
On 17 December 2025 the Commission suggested expanding the scope of CBAM to cover about 180 downstream products as of 1 January 2028: machinery, industrial equipment, vehicle parts, domestic appliances, fabricated metal products.[26] About 94 per cent are industrial supply-chain products with an average steel or aluminium content around eighty per cent; around six per cent are household items.[27] On 12 June 2026, the Council adopted its overall approach. Some 7,500 new importers would come into scope.[28]
There are two design aspects that deserve the attention of export industry. Attribution is based on precursor material only, and does not account for the energy consumed during fabrication or assembly of the steel or aluminium. Despite intense lobbying, the European industries, the Commission did not put forward a proposal for export rebates, but rather a temporary decarbonisation fund, to be funded with a quarter of CBAM revenues in 2028 and 2029.[27]
The refusal of an export rebate is significant. It has made it very clear that Europe is not willing to cover the carbon costs for its own exporters that their competitors abroad are paying. It also helps the Union maintain the defensiveness of CBAM in trade-law terms, something that would be significant if challenged.
The fertiliser episode
Then, there’s the episode every exporting ministry should learn from, as it brings the politics of the mechanism into sharp relief.
CBAM had a problem at home within one week of the opening of the definitive phase. Farmers in Europe, whose price for fertilisers had risen as much as sixty per cent from 2020, were very persistent in asking through their French and Italian representatives for a suspension.[29] On 7 January 2026 the Trade Commissioner had agreed that suspension for fertilisers would be permissible, which could be backdated to 1 January, under a new Article 27a allowing to take a good out of scope under extreme and unforeseen circumstances.[30]
No, it wasn’t like that. The Agriculture Commissioner was saying in late March that the Commission had no immediate intention of granting fertilisers a free pass, as there is a system in place to keep importers accountable for what they do to Europe’s own products.[31] Bruegel analysis shows that the European fertiliser price is determined by domestic producers, not importers, so European ammonia prices would have been affected by about four per cent, if suspension had taken place.[32]
Two lessons follow. CBAM is politically contentious within Europe and the purview can shift due to domestic pressures. The idea of placing a wager on its demise, however, is a bad one, since the pressure was kept within the mechanism without its being altered.
What should be done and by whom?
For exporting companies the process does not involve complicated steps and is not costly. Install installation-level monitoring. Get third-party verification in line with the European approach. Don’t provide real values to the Europeans as a favour, but as a contract requirement. Each of those steps cuts costs right away since default costs are designed to be penalised and increase each year. The European compliance infrastructure will also be used for the United Kingdom’s mechanism from 2027, and they will be more valuable.[19]
Larger decision for exporting governments, it is being put off almost everywhere. A domestic carbon price on export-exposed activities is based on revenue that would otherwise be exported, can be deducted from the domestic price under the regulation and provides the basis for a negotiation on equivalence with Brussels. Or else they could pay and they can protest, and that is the policy of most of the countries concerned.
For all, the process of the phase-in should be redeemed in public. The more than estimate of its 2026 cost has created more concern than action. It’s a modest bill this year. The bill in 2034 is not. Now the question is who will still be trading into Europe at the time of its arrival.
The question of whether CBAM is equitable to developing economies is not only legitimate, but will be posed at each climate conference over the next decade. It is also irrelevant to the exporter who sends something on a ship on the water. The mechanism is the law. The sales of the certificates begin on 1st Feb 2027.[3][4] The only issue that needs to be sorted out is who will be in charge of collecting the money.
References
[1] European Commission, Taxation and Customs Union, “Carbon Border Adjustment Mechanism” (definitive regime applicable from 1 January 2026). https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en
[2] Regulation (EU) 2023/956 of the European Parliament and of the Council of 10 May 2023 establishing a carbon border adjustment mechanism, EUR-Lex. https://eur-lex.europa.eu/eli/reg/2023/956/oj
[3] Regulation (EU) 2025/2083 of 8 October 2025 amending Regulation (EU) 2023/956 as regards simplifying and strengthening the carbon border adjustment mechanism, EUR-Lex. https://eur-lex.europa.eu/eli/reg/2025/2083/oj
[4] CBAM Guide, “CBAM Omnibus Explained: 7 Key Changes from Regulation (EU) 2025/2083”. https://cbamguide.com/learn/omnibus/
[5] Slaughter and May, “EU CBAM amended to exclude 90% of importers but include 99% of emissions”. https://sustainability.slaughterandmay.com/post/102lr0h/eu-cbam-amended-to-exclude-90-of-importers-but-include-99-of-emissions
[6] European Commission, Taxation and Customs Union, “Price of CBAM certificates” (Q1 2026: €75.36; Q2 2026: €75.28). https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism/price-cbam-certificates_en
[7] CBAM Guide, “EU ETS Free Allocation Phase-Out: CBAM Factor by Year 2026–2034”. https://cbamguide.com/carbon/free-allocation/
[8] Fastmarkets, “Inside the default-benchmark spread reshaping EU steel trade”. https://www.fastmarkets.com/insights/inside-the-default-benchmark-spread-reshaping-eu-steel-trade/
[9] Observer Research Foundation, “The EU’s CBAM and Gulf Countries: An Analysis of Early Evidence”, 23 March 2026. https://www.orfonline.org/research/the-eu-s-cbam-and-gulf-countries-an-analysis-of-early-evidence
[10] AlCircle, “The Rise of Global Aluminium Hubs Outside China” (GCC output c. 6.45 Mt in 2024, roughly 8–9% of global supply). https://www.alcircle.com/news/the-rise-of-global-aluminium-hubs-outside-china-117923
[11] CBAM Guide, “CBAM Aluminium 2026: Direct Emissions, PFC Calculation, and the Indirect Emissions Gap”. https://cbamguide.com/sectors/aluminium/
[12] Gulf Business, “UAE becomes world’s first country to produce aluminium using solar power”, January 2021. https://gulfbusiness.com/en/2021/dubai/uae-becomes-worlds-first-country-to-produce-aluminium-using-solar-power/
[13] Anadolu Agency, “Türkiye becomes Europe’s top steel producer, ranks 7th globally”. https://www.aa.com.tr/en/economy/turkiye-becomes-europe-s-top-steel-producer-ranks-7th-globally/3724014
[14] Turkish Steel Exporters’ Association (ÇİB), Statistics (EU took 7.9 Mt, 40.7% of Turkish steel exports in 2025). https://www.cib.org.tr/en/statistics.html
[15] Advantis Conseils, “CBAM & Turkey: a commercial constraint or an industrial opportunity?” https://www.advantisconseils.com/cbam-turkey-a-commercial-constraint-or-an-industrial-opportunity
[16] “Comparing the economic impact of carbon border adjustment mechanism: A cross-country analysis of Turkey, Ukraine, and Serbia”, Journal of Environmental Management (Elsevier). https://www.sciencedirect.com/science/article/abs/pii/S095965262501491X
[17] International Carbon Action Partnership, “Turkish Emission Trading System” (Climate Law No. 7552, July 2025; pilot phase from 2026). https://icapcarbonaction.com/en/ets/turkiye
[18] International Carbon Action Partnership, “China officially expands national ETS to cement, steel and aluminium sectors”. https://icapcarbonaction.com/en/news/china-officially-expands-national-ets-cement-steel-and-aluminum-sectors
[19] International Carbon Action Partnership, “UK outlines details for Carbon Border Adjustment Mechanism introduction from 2027”. https://icapcarbonaction.com/en/news/uk-outlines-details-carbon-border-adjustment-mechanism-introduction-2027
[20] IACBAM, Norway country update — Stortinget passed the national CBAM law on 19 June 2026. https://www.iacbam.org/updates/norway
[21] CO2 AI, “CBAM and Indian Steel: The Market Is Already Deciding Winners and Losers” (default values imply c. €250–300/t). https://co2ai.com/insights/cbam-and-indian-steel-the-market-is-already-deciding-winners-and-losers
[22] Iru-Miru / Reuters, “India Turns to Middle East and Asia to Mitigate Effects of EU Carbon Tax on Steel Exports”, 18 February 2026. https://www.iru-miru.com/en/article/81070
[23] Muhammad Ali Pasha context source — Dawn, “CBAM trade barriers” (Pakistan’s direct exposure c. 1.2% of exports; Article 9 deduction). https://www.dawn.com/news/2025860
[24] Profit by Pakistan Today, “Pakistan’s exports to Europe stagnate at $6.86 billion in 9MFY26 despite GSP+ status” (FY25 EU exports: $8.86bn). https://profit.pakistantoday.com.pk/2026/04/27/pakistans-exports-to-europe-stagnate-at-6-86-billion-in-9mfy26-despite-gsp-status/
[25] Council of the European Union, “Council moves to strengthen the EU’s carbon border adjustment mechanism”, press release, 12 June 2026. https://www.consilium.europa.eu/en/press/press-releases/2026/06/12/council-moves-to-strengthen-the-eu-s-carbon-border-adjustment-mechanism/
[26] PwC Netherlands, “EC proposes CBAM expansion to 180 downstream products”. https://www.pwc.nl/en/insights-and-publications/tax-news/other/ec-proposes-cbam-expansion-to-180-downstream-products.html
[27] Linklaters Sustainable Futures, “EU: Commission proposes to extend CBAM scope and adopts implementing legislation”, December 2025. https://sustainablefutures.linklaters.com/post/102me4c/eu-commission-proposes-to-extend-cbam-scope-and-adopts-implementing-legislation
[28] CMS, “CBAM implementation package published and proposals for future expansion” (c. 7,500 additional importers). https://cms.law/en/prt/legal-updates/cbam-implementation-package-published-and-proposals-for-future-expansion
[29] Irish Farmers Journal, “Brussels suspends tariffs on some fertilisers to offset CBAM costs”, 7–8 January 2026 (fertiliser prices 60% above 2020). https://www.farmersjournal.ie/tillage/news/brussels-suspends-tariffs-on-some-fertilisers-to-offset-cbam-costs-899842
[30] Paradigmes Avocats, “CBAM suspension for fertilisers”, 14 January 2026 (new Article 27a; possible retroactivity to 1 January 2026). https://paradigmes-avocats.com/en/2026/01/14/cbam-suspension-for-fertilisers/
[31] RTÉ, “No suspension of EU carbon taxes as fertiliser costs rise”, 30 March 2026. https://www.rte.ie/news/europe/2026/0330/1565867-fertiliser-eu-tax/
[32] Bruegel, “Holding the line on the EU carbon border adjustment mechanism”, 24 February 2026 (EU ammonia price c. 4% higher; price set by domestic producers). https://www.bruegel.org/first-glance/holding-line-eu-carbon-border-adjustment-mechanism
