How do you decarbonise your industry without simply watching it move elsewhere? The European Union makes its factories pay a price for the carbon they emit. But if that price makes their products dearer than those imported from countries that do not tax carbon, production may flee beyond the borders, and emissions with it. The EU's answer is an unprecedented mechanism: making imports pay the same carbon price as European producers. On paper, a climate measure. In its form, a levy at the border: a customs duty.
1 The carbon price at the border
Preventing European decarbonisation from turning into offshoring.
Carbon leakage
A mirror held up to imports
Since 2005, European manufacturers have paid, through the European carbon market (the EU ETS), a price for every tonne of CO₂ they emit. The risk: that this cost pushes production to settle where carbon is free, or that European goods are replaced by more polluting imports. This is "carbon leakage": the emissions do not disappear, they relocate. The Carbon Border Adjustment Mechanism (CBAM) is the safeguard: it makes imports pay the same carbon price as European producers. A mirror held up on the other side of the border, so that decarbonising at home does not amount to exporting one's factories.
2 How it works, and since when
A precise mechanism, and a timeline often misunderstood.
The mechanics
Declare the emissions, buy certificates
The importer of a covered good declares the emissions "embedded" in the merchandise, then each year surrenders a corresponding number of "CBAM certificates". The price of these certificates is pegged to the auctions of allowances on the European carbon market: €75.36 per tonne in the first quarter of 2026. If a carbon price has already been paid in the country of production, it is deducted. Six sectors are targeted: steel, aluminium, cement, fertilisers, electricity and hydrogen, amounting in time to more than half of the emissions covered by the European carbon market.
The timeline nuance
A frequent confusion: the definitive regime is legally in force since 1 January 2026, but the first certificate purchases will not occur until 2027, with the first annual declaration due on 30 September 2027. In parallel, European industry is gradually losing its free allowances: from 2.5% removed in 2026 to 100% in 2034. The CBAM takes over as the internal safety net is withdrawn.
The 2025 simplification
To avoid crushing small importers under paperwork, a threshold was introduced: below 50 tonnes of goods per year, exemption. The result: around 90% of importers (some 182,000 companies, mostly SMEs) are exempt, while leaving more than 99% of the targeted emissions inside the net. Hydrogen and electricity, however, do not benefit from this exemption.
3 A customs duty that dares not speak its name
The heart of the paradox: the form of a customs duty, the garb of a climate policy.
Form and function
A levy at the border, varied by origin
Look at its structure: an amount paid on goods at the moment they cross the border, varying with the country of origin and the carbon content of the product. That is, feature for feature, the definition of a customs duty. Yet the EU is careful not to use the word "tax": it anchors the CBAM to its carbon market, leaning on the case law under which the EU ETS is not a tax but a market mechanism. The instrument thus advances in disguise: the form of a customs duty, the garb of an environmental measure. This ambiguity is no detail; it is the condition of its legal survival.
4 The WTO test
A trade measure must bend to the rules of world trade.
The legal test
Discriminating for the climate: is it allowed?
The CBAM collides head-on with two principles of the GATT: most-favoured-nation treatment (not treating trading partners differently) and national treatment (not disadvantaging the imported product against the local one). The EU pleads the environmental exception of Article XX, which allows barriers to trade to protect health or exhaustible resources, here the climate. But this exception is hemmed in by a "chapeau": the measure must constitute neither an "arbitrary or unjustifiable discrimination" nor a "disguised restriction on trade". The whole European defence hangs by that thread: the deductibility of carbon already paid elsewhere is precisely what must prove that the CBAM targets carbon, not the competitor.
5 The charge of "green protectionism"
Emerging countries see in it the cost of Europe's transition shifted onto them.
The contestation
A unilateral measure, denounced as discriminatory
For many countries of the South, the CBAM dresses a protectionist reflex in green. The BASIC group (Brazil, South Africa, India, China) calls it "discriminatory" and contrary to the principle of "common but differentiated responsibilities": rich countries, responsible for the bulk of historical emissions, would impose the same carbon price on economies that have neither the same climate debt nor the same means to decarbonise. India denounces a "unilateral and arbitrary" measure and brandishes the threat of a complaint before the WTO. At the WTO Ministerial Conference in Abu Dhabi, in February 2024, South Africa and Brazil warned against the risk of "entrenching a green protectionism".
6 Who really pays
Marginal for most, brutal for a few.
The measured impact
A light burden on average, concentrated on a few countries
The figures temper both camps. According to the World Bank (2025), macroeconomic exposure to the CBAM is low for almost every country: beyond a handful of cases, it stays below 0.1% of GDP. But for a small number of highly specialised countries, the shock is real. Mozambique is the most exposed: nearly 0.6% of its GDP, because 97% of its aluminium exports go to the EU, with a carbon intensity 7.4 times that of a European producer. Next come Ukraine (≈ 0.5%) and Egypt (≈ 0.2%). The IMF adds Lebanon and Tunisia (≈ 0.3% of GDP). Conversely, countries "cleaner" than the European average, such as Ghana or Jordan, could even gain in competitiveness.
Mozambique, the most exposed
≈ 0.6%
of its GDP; 97% of its aluminium goes to the EU, 7.4× more carbon-intensive than in Europe.
Most countries
< 0.1%
of GDP: overall exposure stays modest, barring extreme specialisation.
7 Shifting flows, or cutting emissions?
The real climate question, and an answer more modest than expected.
The real effect
The risk of redrawing trade without lowering emissions
A mechanism that taxes carbon at the border can be sidestepped without changing anything for the climate. This is "resource reshuffling": a country exports its cleanest products to the EU, to minimise the bill, and redirects its dirtiest production toward other markets. The flows change, not global emissions. Added to this is incomplete coverage: the CBAM taxes raw products, not finished ones. Steel sheet is covered, but not the car body made from it; hence an incentive to offshore downstream processing. UNCTAD estimates that the net effect of the CBAM on global emissions would be modest, on the order of 6% of the reduction achieved by the carbon price alone.
An honest counterpoint
It must be said: the carbon leakage actually observed so far has been small. Several studies, including from the IMF, find little evidence that the European carbon market has, in the past, driven industry out of Europe. The reason: the carbon price was low and allowances were largely handed out for free. But that is precisely what is changing: as the price rises and free allowances disappear, the risk of leakage grows, and that is exactly the window in which the CBAM takes over. The mechanism is justified, then, less by past leakage than by the leakage that the rising carbon price makes likely.
8 What it can, and what it cannot
Both camps, presented fairly.
The defence
Three arguments in favour of the mechanism
Its supporters put forward three things. First, without the CBAM, raising the carbon price in Europe would amount to organising its own deindustrialisation: the mechanism protects the coherence of climate policy. Next, the deductibility of carbon already paid creates an incentive for partners to set up their own carbon price, rather than leave it to Brussels: a diffusion effect that could be the most lasting benefit. Finally, part of the revenue could be recycled toward vulnerable countries, to finance their transition, provided these funds are genuinely new.
The acknowledged blind spots
But the mechanism has its limits, and its defenders admit them. It protects the internal market, not European exporters on third markets, who remain exposed. Its net climate effect is uncertain. Its burden concentrates on a few vulnerable economies. And the recycling of revenue toward the South remains, to this day, an intention, not a guarantee written into law. Acknowledging these blind spots does not invalidate the mechanism; it places the debate where it belongs.
9 The double face
Neither pure customs duty nor pure virtue: both at once.
The synthesis
A tool whose success will depend on what it spreads
The CBAM is, at the same time, a customs duty and a climate policy; the debate is not about what it is, but about what one weighs in the balance. On one side, a hoped-for future climate efficiency, a formal legality carefully constructed. On the other, a contested present fairness, a burden shifted toward poorer economies, under an environmental cover. Its success will not be judged by its customs form, but by its capacity to do what no border can do alone: spread, beyond Europe, a genuine carbon price. Failing that, it will be just one more customs duty, painted green.
The compass
①
A mirror at the border. The CBAM makes imports pay the European carbon price to prevent "carbon leakage" — the emissions that relocate instead of disappearing.
②
The form of a customs duty. A levy varied by origin and carbon content, presented as a climate measure to pass the WTO test. Hence the charge of "green protectionism".
③
A double-edged effect. Burden concentrated on a few vulnerable countries, uncertain net climate gain. This sheet sheds light on a debate; it offers neither legal nor investment advice.
The North and the burden of the South
The CBAM joins a question we have addressed elsewhere:
how rules set in the North weigh on the budgets of the South. Debt crowding out health and education, yesterday; the carbon price burdening exports, today. Each time, the same tension: a logic defensible in the North, a concrete cost in the South.
Read alongside: When debt crowds out the future, the other face of the burden borne by developing countries. Reference: abbreviations & acronyms (CBAM, EU ETS, WTO, GDP).