From 1 January 2026 the world's first carbon border tax, the EU’s Carbon Border Adjustment Mechanism (CBAM), entered into effect.

CBAM requires importers of carbon-intensive goods to pay for the carbon emissions generated during their production outside the EU, with the aims of stopping the ‘offshoring’ or carbon and keeping EU manufacturing under its climate rules competitive against other areas.

Importers must now purchase and surrender CBAM certificates. The price of these certificates is pegged to the weekly average price of the EU Emissions Trading System (ETS).

In its current form it is less onerous than originally designed, thanks to the 2025 Simplification Reform (or EU "Omnibus") that reduced the red tape to focus on large importers.

However, the tax has faced significant opposition from some big steel and cement producers, including China, India and Brazil, arguing that it is a form of protectionism. Which it is, it is just a question of what it is protecting.

China, in particular, has been vocal in its opposition, and there is already some history here over the levying of tariffs on Chinese EVs imported to the EU due to state subsidies. However, it may yet benefit given the country’s immense investment in clean energy. A lot will hinge on how the data is collected and interpreted.

The UK announced its own CBAM starting in 2027, with Australia, Canada, and Turkey considering their own versions too.

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