The Carbon Border Adjustment Mechanism (CBAM) is a policy initiative introduced by the European Union to address the issue of “carbon leakage,” where companies might move their carbon-intensive production to countries with less stringent climate regulations. CBAM aims to equalize the carbon costs between domestic and imported products by imposing a charge on imports based on their carbon emissions. Initially covering high-emission sectors like steel, cement, aluminium, fertilisers, electricity, and hydrogen, the mechanism ensures that imported goods are subject to the same carbon pricing as products manufactured within the EU. The goal is to protect EU industries from unfair competition, support global climate action, and encourage cleaner production practices worldwide. The system began with a reporting phase in 2023 and will transition to full implementation, including the purchase of carbon certificates by importers, by 2026. While some countries view it as a potential trade barrier, the EU maintains that CBAM is a necessary tool to maintain the integrity and effectiveness of its climate goals.

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