CBAM Goes Live: Carbon Fees Begin in 2026, Commission Review Pushes Expansion to Downstream Products

The European Union’s Carbon Border Adjustment Mechanism (CBAM) entered its operational phase on 1 January 2026, beginning to charge financial fees on imports of carbon-intensive goods. After a two-year transition period during which only reporting was mandatory, importers must now purchase CBAM certificates that reflect the carbon price paid under the EU Emissions Trading System (ETS) — or pay an equivalent border adjustment. The Commission’s first comprehensive review, published in late April 2026, finds that the mechanism is already reshaping global carbon pricing.

How CBAM works

CBAM applies to imports of cement, iron and steel, aluminium, fertilisers, electricity and hydrogen — the six sectors covered in the initial scope. Importers must declare embedded greenhouse gas emissions and surrender CBAM certificates corresponding to the gap between the EU ETS price and any carbon price effectively paid in the country of origin. The CBAM certificate price tracks the weekly average ETS allowance price, which has fluctuated between €65 and €90 per tonne of CO2 through Q1 2026.

The review’s key findings

The Commission’s review reaches three main conclusions. First, CBAM has had minimal impact on the world’s poorest countries: 0.4% of African exports to the EU are affected, and most fall under transitional flexibility. Second, the mechanism has spurred carbon pricing adoption beyond Europe — Turkey, Brazil, India and Vietnam have all advanced national carbon pricing schemes since 2023, citing CBAM as a triggering factor. Third, current scope leaves significant carbon leakage risk in downstream products such as wind turbines, cars and construction equipment manufactured outside the EU using CBAM-covered inputs.

The downstream expansion proposal

The most consequential part of the review is the proposal to expand CBAM to downstream products from 2027. The expansion would cover finished steel products, aluminium-intensive components, fertiliser-derived chemicals, and selected machinery. The proposal addresses the central economic critique of CBAM as it stands: that EU manufacturers face carbon costs on raw materials but compete with imported finished goods made elsewhere using the same raw materials at lower carbon costs.

Industry reactions: split

European industrial federations are sharply divided. Eurofer (steel) and European Aluminium support expansion, citing competitive disruption from Chinese, Turkish and Indian downstream imports. Eurometaux (non-ferrous metals) and several automotive associations express concern about compliance complexity for products with hundreds of CBAM-relevant inputs. SMEs particularly fear administrative burden — the European Commission has promised a simplification package focused on supply-chain reporting.

Diplomatic friction

Major trading partners continue to challenge CBAM. India has filed objections at the WTO, arguing the mechanism violates the principle of common but differentiated responsibilities. South Africa has lobbied for full exemption for least developed countries. China has not formally challenged CBAM but is rapidly expanding its national ETS scheme — partially as a defensive measure to ensure Chinese exporters can credit domestic carbon prices against CBAM. The United States under the Trump administration has threatened retaliation; the Commission has responded by accelerating CBAM-aligned bilateral discussions with allies.

The revenue stream

CBAM is projected to generate €1.5-2.1 billion annually in 2026, scaling to €5-7 billion at full implementation in 2030 and beyond. Under the EU’s own resources reform, 75% of CBAM revenue flows directly to the EU budget, with the remainder retained by member states for administrative costs and climate finance for partner countries. The revenue is partly earmarked for the Just Transition Fund and the Social Climate Fund.

The development finance complement

To address concerns from developing economies, the Commission has confirmed expanded use of NDICI-Global Europe funds and EIB lending for decarbonisation in trading partners. The EU-Africa Global Gateway Investment Package includes specific carbon-pricing capacity-building, and a dedicated CBAM Partnership Facility is being designed with the World Bank to help least developed countries set up MRV (measurement, reporting, verification) systems compatible with the EU regime.

The longer-term policy logic

Beyond revenue and competitiveness, CBAM serves a deeper policy purpose: forcing the global trading system to internalise the cost of carbon emissions. Whether the mechanism succeeds will be measured not only by EU industrial competitiveness but by the global trajectory of carbon pricing schemes — currently covering roughly 24% of global emissions, projected to reach 35% by 2030 if CBAM-induced adoption continues at current pace.