By Irina Slav – Dec 08, 2025, 5:00 PM CST
The Carbon Border Adjustment Mechanism (CBAM) is a new EU tax on imports from countries with less strict emission standards, designed to create a “level playing field” for European industries hurt by the EU’s strict green mandates.
Major exporters like India are already seeking alternative markets for goods such as steel, the production of which is incompatible with the EU’s low-emission requirements.
The effectiveness of CBAM is at risk due to issues in its implementation, specifically inconsistencies in the default emission values assigned to exporting nations, which some industry executives warn could allow high-emission imports to enter the EU with insufficient carbon costs.
On January 1 next year, a new tax will come into effect in the European Union. Dubbed the carbon border adjustment mechanism, the tax will be imposed on imports from non-EU countries with less strict emission reduction standards. Those countries are already speaking out against the tax—and the EU is about to face some unforeseen consequences.
Last week, Reuters reported that Indian steel exporters were looking for new markets to replace the European Union, which currently absorbs as much as two-thirds of Indian steel exports. India’s steel manufacturing is done in blast furnaces fueled with coal, which is incompatible with the European Union’s emission reduction plans. Steel mills could switch to electric arc furnaces from coal-fired blast furnaces. The electric version has a lower emissions footprint, but such a switch would take time and money—quite a bit of it. Europe itself makes steel in electric arc furnaces, and this is still rather expensive.
It was in response to European industries that the carbon border adjustment mechanism, or CBAM, was drafted in the first place. The EU’s strict emission reduction targets and the mandatory requirements that go with them were making European goods uncompetitive on international markets, hurting steelmakers, cement producers, carmakers, and all other industries, really. So, these industries spoke up and got this sort of a concession, which fits in perfectly with the European Union’s ambition to become a standard-setter in climate policies.
“If you want to create a level playing field, if you are asking this [green standards] from companies in Europe, then it also makes sense to ask it from companies from outside of Europe [which are selling into the EU],” the EU’s climate commissioner, Wopke Hoekstra, told the Financial Times this month. Indeed, it makes sense to have one standard for all. Unfortunately, enforcement may not be as easy as Mr. Hoekstra made it sound in his interview with the Financial Times.
Set OilPrice.com as a preferred source in Google here.
“As people get used to it and it gets implemented, it will be less of a conversation,” Hoekstra claimed. That might be true for people in general, but for people running companies that depend on export revenues, things look a little bit differently. To comply with European standards in emission reduction, these specific people would need to spend a certain amount of money to transform their production process and make it more vulnerable to cost shocks because electric arc furnaces, as the name suggests , work with electricity rather than coal. This is arguably a big reason why European steelmakers are finding it difficult to compete: for each ton of carbon dioxide they emit, European industries have to pay some 80 euro, equal to over $93. Yet they do not really have a choice.
India, China, and other exporters to the European Union do have a choice. “Some of those making money out of [fossil fuels] are seeking to prolong that process. We have seen this quite explicitly,” Wopke Hoekstra told the FT. “Some of the petrostates are seeking to at least slow down rather than speed up [the energy transition].” Indeed, most countries that make good money out of export commodities that enjoy strong and stable demand have very little motivation to kill their cash cows, as it were, just to please the policymakers in Brussels. It appears that Brussels is aware of it—and of the fact that the European Union is heavily dependent on imports of essential goods.
Politico reported this month that while the CBAM was more or less done in terms of text, it still needed work in the emission measurement part. It was unclear as of yet how exactly the specific emissions of exporters to the EU from India, China, Saudi Arabia, and others “making money out of fossil fuels” were going to be measured. The publication said it had seen two documents on the emission measurement, one containing emission benchmarks and the other default value for the production of the goods that would be subject to the new tax from January. It also said there were signs of the EU circumventing its own rules to keep the imports flowing in.
Politico cited industrial executives as saying the default values for emissions for certain countries that export to the EU were set too low to be real, including some steel production in China that, according to these estimates, turned out to be lower-emission than steel production in the EU.
“Inconsistencies in the figures of default values and benchmarks would dilute the incentive for cleaner production processes and allow high-emission imports to enter the EU market with insufficient carbon costs,” an industry representative told Politico. “This could result in a CBAM that is not only significantly less effective but most likely counterproductive.”
One could, in fact, argue that the CBAM is counterproductive by definition because it seeks to make more products expensive for more people in pursuit of an elusive goal of arresting changes in global temperatures. Yet the EU is going ahead with it, although it will provide “additional flexibilities” in response to the United States’ unfavorable reaction to the new levy.
By Irina Slav for Oilprice.com
More Top Reads From Oilprice.com
OPEC+’s Strategic Pause Signals a Shifting Oil Power Balance A Supply Crisis is Looming for Metals With No Dedicated Mines Labor Shortages Threaten to Derail Europe’s Energy Security Pivot
Download The Free Oilprice App Today
Back to homepage
Irina Slav
Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.
More Info
Related posts
Leave a comment