Carbon Borders and Global Signals: Assessing the EU Carbon Border Adjustment Mechanism
January 2026 saw the full launch of the European Union Carbon Border Adjustment Mechanism (EU CBAM). This policy will extend carbon prices, which are imposed through the EU Emissions Trading System, to certain imported goods. “Full launch” in this case means that importers of the covered goods will need to start buying “CBAM certificates” to cover the greenhouse gas emissions associated with the production of these goods (i.e., the carbon intensity of those goods). The EU CBAM already had a “soft launch” in late 2023, so the European Union could start collecting data and prepare the many implementation rules that will be required to operationalize this complex policy that combines climate and trade.
Political uncertainty may continue (some EU countries wanted to exempt the fertilizer industry, fearing an increase in agricultural prices), and questions around scope may remain. Applying CBAM rules to certain products may incentivize the trade of different products in the same value chain. The use of “default values” to determine a product’s carbon intensity will affect perceptions of fairness and the ways that other countries may respond to the EU CBAM.
A policy such as the EU CBAM can impact the environment in multiple ways: first (and primarily), by increasing the effectiveness of domestic climate policy such as the EU Emissions Trading System; second, by creating a carbon price signal for importers, who may respond with cleaner production to become more competitive in certain markets; and third, by incentivizing the adoption of new climate policies in other countries that target domestic emissions. With this article, Paola Rocchi examines the potential of the direct environmental impact of the EU CBAM itself. While emissions reductions that result from the EU CBAM are modest at –0.2 percent, Rocchi finds that global emissions will be lower with the CBAM than without it, while trade patterns show a shift toward more domestic production and imports from comparatively lower-carbon countries at the expense of more carbon-intensive countries such as China and India. These results echo a 2025 analysis from Resources for the Future that shows how proposed policies, such as the Foreign Pollution Fee Act and Clean Competition Act, would reshuffle international trade to favor cleaner production, even if the greatest environmental gains tend to be made by incentivizing cleaner domestic production. The article also examines how these effects change when major trading partners, such as China and India, adopt comparable carbon pricing, revealing how the CBAM reshapes trade and competitiveness under different policy configurations.
