As the European Union’s Carbon Border Adjustment Mechanism (CBAM) moves toward its definitive phase on 1 January 2026, the world’s trading community stands at the intersection of climate ambition and regulatory uncertainty. Designed under Regulation (EU) 2023/956, CBAM represents a historic shift in global trade governance — a framework that places carbon pricing at the border to prevent “carbon leakage” and promote fair competition between EU and non-EU producers.
The principle behind CBAM is clear: imported goods should bear a carbon cost equivalent to that imposed on domestic EU producers under the EU Emissions Trading System (ETS). Yet, with just months before full enforcement, many of the mechanism’s technical and operational pillars remain incomplete, raising pressing concerns for businesses, policymakers, and compliance professionals alike.
A New Era for Carbon Accountability — and Compliance Complexity
Under the definitive regime, importers of carbon-intensive goods — including cement, steel, aluminium, fertilisers, electricity, and hydrogen — will be required to purchase and surrender CBAM certificates corresponding to the embedded greenhouse gas emissions of their imports. This effectively extends the EU’s carbon pricing framework beyond its borders, aligning trade with climate objectives.
While CBAM marks a historic shift in how carbon is priced at borders, its initial coverage remains relatively narrow. Current data from the OECD indicate that CBAM-covered goods account for less than 0.5% of global trade and approximately 0.3% of global emissions — a small fraction of the world economy. Yet, its symbolic impact is far greater, as it sets a precedent for future border carbon measures.
Figure 1. CBAM-Covered Trade & Emissions Share vs Global Totals.
Figure 1 above underscores CBAM’s modest quantitative reach today but also highlights the mechanism’s potential scalability as other jurisdictions consider similar frameworks.
However, while the environmental rationale is well established, the implementation architecture remains underdeveloped. Businesses still lack clear and comprehensive guidance on several critical issues:
✓ Calculation methodologies for determining embedded emissions in complex products, particularly where intermediate goods are used;
✓ Verification standards and recognition of third-country verifiers;
✓ Benchmark and default values, which define financial liability and risk management models; and
✓ Treatment of equivalent carbon pricing mechanisms outside the EU, to prevent double regulation and ensure non-discrimination.
As regulatory frameworks evolve, companies are not merely adapting — they are finding strategic value in decarbonization itself. Our research shows that many firms can achieve up to 40% emissions reductions while simultaneously improving margins by up to 15% through integrated “carbon and cost” initiatives.
Figure 2. Potential Emissions Reductions vs Cost Savings.
This alignment of environmental and financial performance reinforces a broader truth: when compliance transforms into operational innovation, CBAM can catalyze competitiveness rather than constrain it.
These uncertainties not only complicate compliance but also impede investment and supply chain decision-making. As the European Commission’s CBAM Transitional Registry Guidance (2024) indicates, many reporting obligations introduced during the transitional phase were intended to test data collection systems — yet the definitive phase demands far more precision and enforceability. Without technical clarity, the administrative burden on importers and exporters could become disproportionate, especially for SMEs and developing economies with limited compliance resources.
Aligning Climate Integrity with Trade Law Principles
CBAM’s success will depend on whether it can balance environmental integrity with trade predictability. The European Union has emphasised that CBAM will operate in conformity with World Trade Organization (WTO) principles — particularly non-discrimination, transparency, and fairness — ensuring that it serves as a climate instrument rather than a protectionist tool.
Nevertheless, effective alignment with the EU ETS and the phase-out of free allowances remains a delicate policy challenge. If misaligned, overlapping carbon costs could generate competitive distortions or carbon price discrepancies between domestic and imported goods. The European Commission must ensure that CBAM evolves into a coherent extension of the EU’s climate architecture — not an administrative maze that hinders trade.
The International Chamber of Commerce (ICC), through its Global Policy Principles for Effective Border Carbon Adjustments, has long advocated for BCAs that are predictable, transparent, and compatible with global trade rules. This guidance underscores the need for simple and standardised reporting procedures, consistent emissions accounting rules, and mutual recognition of equivalent carbon pricing systems worldwide. Such harmonisation is crucial if CBAM is to serve as a model for global climate cooperation rather than a source of trade friction.
Building Confidence Through Predictability
Predictability is the foundation of compliance. For CBAM to deliver its intended climate impact without undermining economic stability, the European Commission must publish definitive calculation methodologies, verification criteria, and benchmark values well in advance of 2026.
Clarity on these points would not only reduce administrative risks but also enable global businesses to allocate capital efficiently, design low-carbon supply chains, and plan carbon cost strategies with confidence. Transparency and early guidance are essential for preserving the legitimacy of CBAM and sustaining support among international partners.
A Call for Collaborative Implementation
The CBAM’s definitive phase is more than a regulatory milestone — it is a litmus test for the future of climate-aligned trade. The mechanism’s credibility will depend on whether it can drive global decarbonisation through cooperation rather than coercion.
For the EU, the task ahead is to transform CBAM from an ambitious policy framework into a practical, workable, and globally interoperable system. For businesses, the path forward requires proactive engagement: understanding the evolving rules, preparing internal carbon accounting frameworks, and anticipating compliance obligations.
If implemented with transparency, proportionality, and inclusivity, CBAM could become a blueprint for a fair and effective global carbon pricing architecture — one that aligns environmental responsibility with economic resilience.
The same principle applies across value chains. A significant portion of emissions reductions — particularly Scope 3 — can be achieved through practical measures already available today, from low-carbon procurement to logistics optimization.
Figure 3. Scope 3 Emissions Reduction Potential via Near-Term Levers.
As our research illustrates, near-term actions can deliver around 30% of total Scope 3 abatement, with advanced technologies and innovation enabling up to 50%. Embedding such strategies into CBAM-compliant supply chains can ensure that businesses remain both resilient and responsible in a carbon-constrained world.
References
✓ International Chamber of Commerce (ICC). Draft Open Letter to Commissioner Valdis Dombrovskis on CBAM Implementation. 7 October 2025.
✓ European Commission. Regulation (EU) 2023/956 establishing a carbon border adjustment mechanism. Official Journal of the European Union, 16 May 2023.
✓ ICC. Global Policy Principles for Effective Border Carbon Adjustments.
✓ European Commission. CBAM Transitional Registry Guidance Documents. 2024.