CBAM Shakes Up Global Trade

By Amy McLellan

As the EU’s new carbon rules move to full enforcement on Jan 1, the impact on trade and sourcing could be dramatic. Read on to learn what’s changing and who’s most exposed.

From Issue 6, 2025 of Breakbulk Magazine

(5-minute read)

The last 12 months have been another bumpy ride for supply chain operators. Disruptions from geopolitical hotspots, such as the Red Sea conflict zone, and climate-related bottlenecks like the drought-stricken Panama Canal, were compounded by abrupt policy shifts that added layers of complexity and cost to global trade.

Among these were the U.S. Trade Representative’s (USTR) Notice of Action penalizing China-related ships, and a global tariff row that sowed confusion and added costs. Regulators were not immune from these political shifts, with the IMO’s Net Zero Framework forced into a last-minute delay in October while the European Commission came under pressure to amend some of its rules to ease the burden on businesses.

One of those new rules is the EU Carbon Border Adjustment Mechanism (CBAM), which enters its second phase on Jan. 1, 2026. Before CBAM’s introduction in 2023, emissions generated during production of goods within the EU were already priced through the EU Emissions Trading System (EU ETS), now 20 years old. However, the ETS excluded imported goods, creating so-called “carbon leakage,” where emissions shifted abroad to avoid carbon costs.

CBAM closes that loophole, imposing a levy on the embedded carbon emissions of goods such as cement, steel, aluminum, fertilizers, hydrogen and electricity, ensuring that imported products face the same carbon price as those made within the EU.

“Europe was really a pioneer in putting a price on emissions,” says Jonathan Leclercq, senior manager, supply chain transparency, at DNV Business Assurance. “The ETS worked, delivering the reductions expected at industrial level. CBAM is the next logical step; it levels the playing field.”

From Pilot to Practice

Since 2023, CBAM has been in a transitional phase, allowing importers to report their emissions without paying the levy. That changes on Jan. 1, 2026, when financial obligations begin. Under the new regime, importers will need to be authorized CBAM declarants with their local authority, hold sufficient CBAM certificates for in-scope imports, and submit an annual CBAM declaration.

Supply chains will need to be closely monitored to make sure there are enough CBAM certificates for the imported goods, or risk delays. The new rule means imports under 50 tonnes (with exceptions for electricity and hydrogen) will no longer be in the scope of the CBAM, and this is a threshold importers will need to bear in mind.

Bigger companies may have more complexity to navigate, but they also have the resource to do so. Many have dedicated CBAM taskforces to ensure compliance. It is smaller firms that may find the costs of compliance hard to bear.

To help address this, in October the European Commission finalized a package of simplification measures, published in the Official Journal of the European Union. These adjustments streamline compliance and reduce burdens on smaller operators.

The new 50-tonne exemption will remove about 182,000 importers, mostly SMEs and individuals, from CBAM obligations, while still covering more than 99% of emissions in scope. For larger importers, however, compliance remains complex.

Sebastian Meyn from the ESG team at Linklaters in Berlin said the new simplification was “a significant relief for businesses importing smaller quantities of CBAM goods” but cautioned that obligations continue to be “complex and challenging” for larger importers.

Uncertainty also remains over whether further changes could arise under the US–EU Framework Agreement, signed in August, which commits the EU to explore “additional flexibilities” in CBAM implementation.

Exporters Feel the Pressure

While EU importers bear the direct cost, exporters in developing and high-emission economies face serious implications as iron, steel and aluminum exports risk becoming more expensive than their EU-produced counterparts.

According to the African Climate Foundation, CBAM could reduce African exports by 5.7%, cutting 0.91% off the continent’s GDP. Aluminum exports could fall by 14%, and iron and steel by 8.2%.

Some will be harder hit than others. A tenth of South Africa’s exports to the EU will be impacted, equivalent to roughly 0.8% of the coal-reliant country’s GDP, with iron, steel and aluminum exports at risk. Mozambique will also be hit hard, with 97% of all aluminum exports destined for the EU market with a carbon emissions intensity (0.68 kgCO2e/$ versus the EU average of 0.07 kgCO2e/$).

India, another coal-powered economy, also produces carbon-intense iron and steel, which will now be much more costly under CBAM, while iron ore from Brazil and Venezuela will also be at risk.

According to Reinhardt Arp, senior associate, corporate sustainability at the Carbon Trust, CBAM is a catalyst for change by creating “the world’s first marketplace for low carbon metals.”

Jonathan Leclercq at DNV said importers looking to minimize tax will seek to switch suppliers to source lower carbon products. “There’s now a competitive advantage for facilities with the lowest carbon footprint, and it’s a catalyst to invest in decarbonization,” he said, “but any disruption will be much less than the disruption of the tariff war.”

Enhanced Transparency

While the CBAM is not expected to be a major cause of supply chain disruption, it does add increased complexity and layers of compliance-checking.

“There will be an increase in supply chain transparency because you have to trace back to the installation where your import is coming from,” said Leclercq. “A specific carbon footprint must be linked to where and how it was made. This transparency will be quite important, and a challenge for today’s global supply chain.”

Companies will need to have comprehensive embedded emissions data to be able to fulfill CBAM duties — access to this is likely to impact supplier choices and international supply chains. Internal processes and systems will need to be fit-for-purpose, with companies undertaking reviews of internal data collection systems, assessing supply chain reporting capabilities and ensuring readiness for the first reporting cycle in 2027.

Companies also need to be mindful that Jan. 1, 2026 is a milestone, not an endpoint. The current CBAM legislation is mostly restricted to basic materials and products but in July 2025 the Commission launched a public consultation on extending the scope of CBAM to include certain downstream products. This means companies outside the current scope need to understand the mechanism and be ready to implement monitoring and reporting if the rules change.

A Transition With Momentum

While carbon pricing may have been pioneered in Europe, it is now spreading across the world in different guises, be it a carbon tax or some kind of ETS. The EU CBAM is the first where emissions are accounted for at the border, but others are following. The UK’s CBAM will come into force in 2027.

Indeed, regardless of current political headwinds, it seems the energy transition has a momentum of its own now.

“It’s about fostering an economic model that reduces our dependency on non-renewable energy and mitigating the anticipated impacts related to climate change,” Leclercq said. “CBAM is a way to address this. It’s not the only tool but it’s an addition to the toolkit.”

He noted that with the delay on the IMO’s Net Zero Framework means that the CBAM and ETS are now even more important when it comes to efforts to decarbonize. “Instead of having one common framework to support the global decarbonization of the maritime transport sector, regional (such as EU ETS) or local schemes are emerging in different locations to play this role,” he said.

This means the complexity of tracking, monitoring and reporting emissions across global supply chains is here to stay. For companies, the message is clear: carbon transparency and decarbonization are no longer optional but just another cost of doing business.

Award-winning freelance journalist Amy McLellan has been reporting on the highs and lows of the upstream oil and gas and maritime industries for 20 years.

Top photo: CBAM enters its second phase on Jan. 1, 2026. Credit: Shutterstock
Second: Jonathan Leclercq, DNV Business Assurance. Credit: Leclercq