On January 1, 2026, the European Union’s Carbon Border Adjustment Mechanism (CBAM), a landmark carbon border tax, officially entered its definitive phase, requiring importers of carbon-intensive goods such as steel, cement, aluminium, fertilisers, hydrogen and electricity to pay for the greenhouse gas emissions embedded in those products. This policy replaces the earlier reporting-only transition period (2023–2025) and obliges importers to register as authorised CBAM declarants, calculate and report emissions from their imports, and purchase carbon certificates tied to the EU’s emissions trading system (ETS) to cover those emissions. The financial obligation to buy and surrender certificates for 2026 imports begins later, with the first payment/surrender deadline in 2027 (covering 2026 emissions). The mechanism aims to level the playing field between EU producers, who already incur carbon costs under the ETS, and foreign competitors that do not.

While the EU frames CBAM as a tool to prevent carbon leakage (when production shifts to countries with weaker climate rules) and to encourage global adoption of carbon pricing, the rollout has drawn criticism and sparked trade tensions. Major trading partners including the United States, China and India have voiced opposition, warning that the tax could act as protectionism and raise costs for exporters and consumers, particularly in developing countries. At the same time, some EU member states are seeking exemptions for sensitive goods like fertilisers to protect domestic sectors from steep price increases