The European Union’s Carbon Border Adjustment Mechanism (CBAM) has become fully operational since January 1 2026, marking a decisive shift in how carbon costs are applied to global trade. After a two-year transitional phase focused on emissions reporting, CBAM has begun enforcing financial obligations on imports of carbon-intensive goods entering the EU.
At its core, CBAM is designed to prevent “carbon leakage”, which is essentially the relocation of emissions-heavy production outside the EU. This aims to avoid climate regulation, while also encouraging cleaner industrial production globally.
One of the most consequential policies
But as the definitive phase approaches, CBAM is also emerging as one of the most consequential trade and climate policies affecting exporters in developing economies.
CBAM applies to six major product categories, including cement, iron and steel, aluminium, fertilisers, hydrogen, and electricity. These sectors (under Annex I) were selected because of their high emissions intensity and exposure to international trade. CBAM does not apply to finished goods (cars, appliances, machinery, etc.), downstream manufactured products using steel or aluminium, oil, gas, coal, or petrochemicals. However, the regulation explicitly allows for future expansion of Annex I once the system is fully operational.
For importers, CBAM compliance becomes mandatory when imports exceed 50 tonnes per calendar year. This has no minimum threshold for electricity and hydrogen. Without a valid CBAM authorisation or application reference number, goods will not be released for free circulation in the EU. This will effectively block market access.
During the transitional phase (2023-2025), companies were required only to report embedded emissions. From 2026 onwards, importers must purchase CBAM certificates reflecting the carbon price that would have been paid had the goods been produced under the EU Emissions Trading System (ETS).
Enforcement and compliance
National Competent Authorities (NCAs) across EU member states will oversee enforcement. They will verify CBAM account numbers through customs procedures, and apply penalties for non-compliance. For companies with fragmented supply chains or weak emissions data, this represents a material operational and financial risk.
The European Commission has acknowledged the administrative complexity of CBAM. And it has introduced a simplification package aimed at reducing reporting friction, particularly for smaller importers. Nevertheless, the core compliance requirements remain substantial. Registration through national authorities, use of the CBAM Registry, quarterly reporting, and verification of emissions data from non-EU producers.
A five-step checklist issued by the commission underscores the seriousness of the regime. Importers must confirm whether their goods fall under Annex I of the CBAM Regulation. They must also register with their national authority, ensure that non-EU suppliers understand EU emissions calculation rules, and stay up to date with evolving guidance and training modules.
Competitive test for Africa
For exporters in Africa, CBAM is not merely a compliance issue for European customers. It is also a competitiveness test. Producers with carbon-intensive processes, limited emissions monitoring, or coal-heavy electricity grids risk seeing their products become more expensive in EU markets.
Conversely, exporters that can demonstrate lower embedded emissions via renewable energy use, efficiency upgrades, or credible carbon data may gain a structural advantage. In this sense, CBAM acts as a de facto extension of EU climate policy beyond its borders.
CBAM represents a new model of climate governance. One that blends environmental ambition (decarbonisation, net zero, etc.) with hard trade enforcement. While critics warn of protectionism and unequal impacts on developing economies, the EU argues that CBAM simply levels the playing field. It does this by applying the same carbon price to domestic and imported goods.
What is clear is that from January 2026, carbon will no longer be an abstract ESG metric in EU trade. It will be a priced input, verified at the border. For companies trading with Europe, the time for preparation is rapidly running out.
