We need urgent global talks on the EU’s carbon adjustment import charges
The idea was simple: To meet progressively higher carbon emission-reduction targets in line with its climate-action commitments under the Paris Agreement and the UN Framework Convention on Climate Change (UNFCCC), the EU needed to impose higher obligations on its own industrial activities in carbon-intensive sectors. As a result, it had to tackle two challenges.
One, it had to safeguard the competitiveness of its domestic industry amid cheaper imports from countries where emission reductions or the carbon price for emissions are lower because of differing reduction obligations; and two, it had to prevent carbon leakage through the relocation of its own industrial activity to countries with lower carbon prices or emission targets. Thus was born the EU’s Carbon Border Adjustment Mechanism (CBAM)—to equalize the carbon price of imported products with its carbon price.
From 1 January 2026, EU importers of products in five categories—iron and steel, aluminium, cement, fertilizers, electricity and hydrogen—will need to buy CBAM certificates priced at the price difference of embedded emissions between the EU and the exporter country. The CBAM’s thrust is on the quantum of emissions in production processes in each of the five sectors, as well as how these emissions are priced at home.
Even if the quantum of emissions is the same for making a tonne of steel, CBAM charges will apply based on the carbon price gap between the exporting country and the EU. For example, the trading price for a tonne of carbon dioxide emissions is about $100 in the EU, $34 in Australia and $7 in China.
So, Australian exporters will pay a CBAM charge of at least $66 per tonne, while the likely impact on Chinese imports will be $93. India has no direct
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