The EU’s Carbon Border Adjustment Mechanism is a landmark effort to align climate policy with international trade. But as its transitional phase progresses, business and policymakers alike are confronting questions about data, pricing, and global coordination—raising concerns about whether the system is fully ready for implementation. 

As the European Union’s Carbon Border Adjustment Mechanism (CBAM) enters its transitional phase, optimism around its potential to curb carbon leakage is increasingly tempered by a crisis of implementation. Designed to create a level playing field between EU producers subject to carbon pricing under the Emissions Trading System (ETS) and foreign competitors, CBAM applies to imports of carbon-intensive goods—such as steel, aluminum, fertilizers, cement, hydrogen, and electricity—originating in countries without equivalent carbon regulation.

But while the policy is conceptually sound, its real-world rollout has exposed significant problems. From vague reporting standards to unpredictable pricing and regulatory scope, CBAM’s transitional period has proven vast uncertainty, particularly for neighboring non-EU economies like Ukraine.

An ambitious policy meets administrative chaos 

The transitional period requires importers to report the embedded emissions in covered goods quarterly, using either default values or supplier-provided data. Starting January 2025, only the EU’s standardized emissions calculation method will be accepted, and by 2026, importers will be required to purchase CBAM certificates reflecting the carbon cost of their goods.

But compliance is already proving difficult. Businesses are struggling to prepare due to:

  • A lack of clear emissions benchmarks 
  • Uncertainty around future pricing (which will mirror the volatile ETS market)
  • Ambiguity about how and when the EU might expand the list of CBAM-covered products
  • The general absence of guidance on how CBAM will interact with similar carbon pricing schemes emerging in the UK, U.S., and elsewhere.

For businesses trying to adapt, this uncertainty makes the idea of implementation daunting for most.

Legal and Economic Risks on the Horizon

Businesses across the globe are confronting potential compliance liability. Importers who fail to report emissions accurately—or rely heavily on “default values” after July 2024—face fines of up to 50 Euros per Tonne of CO2. Suppliers who can’t produce valid carbon data may be replaced by competitors who can.

At the same time, international questions about CBAM’s WTO compatibility are growing, especially as other nations explore retaliatory trade measures or their own carbon tariffs. Without coordinated standards, the world may face a patchwork of conflicting carbon border mechanisms, complicating global trade. 

What needs to change

To stabilize implementation, experts and business leaders are urging the EU to:

  • Publish final emissions benchmarks (by HS/CN code) and the CBAM pricing formula.
  • Fix the list of CBAM-covered products for a defined period
  • Allow transitional exemptions or assistance for vulnerable economies
  • Coordinate internationally with the U.S., UK, and other partners to align carbon reporting rules.

Certainty is needed, not only desired

CBAM could be a turning point in climate accountability. But without clarity and consistency, it risks becoming a deterrent to the very progress it was designed to support. The EU must ensure that CBAM’s implementation doesn’t punish those trying to comply—or worse, delay the global shift to low-carbon production.

For CBAM to be effective, it must be more than a policy—it must be a partnership. One built on transparency, predictability, and global cooperation.