By Abbas Nazil
The European Union has brought into force its most significant overhaul of green trade rules in decades, requiring companies exporting high-carbon goods into the bloc to comply with strict emissions standards or face financial penalties.
From today, firms selling products such as steel, cement and aluminium into the EU must prove the carbon footprint of their production or purchase certificates to cover the associated emissions.
The new system, known as the carbon border adjustment mechanism, is designed to prevent unfair competition and discourage companies from shifting production to countries with weaker environmental regulations.
EU officials say the policy will protect European industries that are already subject to carbon pricing while accelerating decarbonisation across global supply chains.
Stéphane Séjourné, the European Commission’s executive vice-president for industrial strategy, said the rules were intended to encourage European producers rather than penalise them for cutting emissions.
He argued that strengthening the CBAM would support industrial competitiveness while ensuring overseas producers do not undercut EU firms by ignoring climate costs.
Despite expectations that the EU might dilute the policy under international pressure, the bloc has pressed ahead even as countries such as China, the United States and Australia voiced objections.
Analysts say the rules could erode the price advantage of high-carbon imports, particularly Chinese steel, by forcing exporters to internalise emissions costs.
However, some experts warn this could lead to excess steel and other carbon-intensive products being diverted into markets outside the EU, including the UK.
The UK is expected to introduce its own version of the CBAM next year, though no agreement has yet been reached with Brussels to exempt British exporters from the EU scheme.
Under the mechanism, exporters must buy certificates reflecting the emissions generated during production, mirroring the carbon costs EU companies face under the bloc’s emissions trading system.
Initially, the rules apply to iron and steel, aluminium, cement, fertilisers, hydrogen and electricity.
UK industry groups have welcomed the principle, arguing that carbon border measures are essential to protect domestic manufacturers from cheaper imports produced with higher emissions.
Diana Casey of the Mineral Products Association said cement imports into the UK had risen sharply over the past decade due to lower production costs abroad.
She said CBAMs in both the EU and UK were vital to securing the future of domestic cement production.
Some EU industries have raised concerns about higher prices, as free emissions allowances within the EU system are phased out.
However, analysts from the Sandbag thinktank believe price impacts will be limited in the early years because the volume of emissions covered is relatively small.
British exporters remain uncertain about how the rules will apply to them, particularly as the UK and EU have yet to link their carbon trading systems.
EU climate commissioner Wopke Hoekstra has played down concerns, saying any cost to UK firms would be minimal once markets are aligned.
Energy groups have also warned against penalising clean electricity exports from the UK to the EU, calling such an outcome counterproductive.
Looking ahead, the EU plans to expand the CBAM from 2028 to include manufactured goods that rely on steel and aluminium, such as machinery and appliances.
The move aims to prevent companies from bypassing carbon rules by relocating production outside Europe.
The UK government says it remains committed to reaching a carbon-linking agreement with the EU to protect exporters and support global decarbonisation efforts.
