Based on reporting by Qian Zhou.
The Carbon Border Adjustment Mechanism has now entered its definitive phase as of 1 January 2026, ending the transitional reporting period and introducing real financial exposure for importers of carbon-intensive goods into the European Union. The first certificate purchases are scheduled for 1 February 2027 and carbon costs are becoming a reality. Embedded emissions in sectors such as steel, aluminum, cement, fertilizers and electricity are critically reshaping trade economics for major exporters like China. The shift introduces stricter compliance requirements, including mandatory third-party verification of emissions, annual declarations, and a tighter regulatory framework where only authorized declarants can import covered goods.
Sectoral exposure is highly concentrated. For China, steel accounts for the majority of CBAM-affected trade, with carbon-intensive production methods placing exporters at a structural disadvantage. Aluminum introduces an additional layer of risk due to electricity intensity, particularly in coal-reliant grids, while cement and fertilizers face growing compliance complexity as methodologies evolve. The regulation also embeds strong enforcement mechanisms. Reliance on default emissions values can significantly increase cost exposure, while failure to comply may result in penalties of €100 per excess ton or even market exclusion.
FACS Perspective
At FACS, we view CBAM’s definitive phase as a structural turning point in global trade. Carbon is no longer an externality. It is a priced, regulated input that directly influences competitiveness, capital allocation, and supply chain design. The mechanism is already driving a reassessment of industrial strategy, particularly for exporters into the EU, where emissions intensity now translates directly into financial liability.
For companies and investors, this creates a multi-layered challenge. Carbon price exposure, verification requirements, regulatory alignment, and supply chain restructuring must all be managed simultaneously. The widening gap between regional carbon pricing systems, combined with the likely expansion of CBAM into downstream goods and additional sectors, reinforces the need for forward-looking carbon market strategy, scenario modeling, and regulatory advisory. As CBAM evolves and similar mechanisms emerge globally, competitive advantage will increasingly depend on the ability to measure, manage, and strategically position around carbon exposure, not just comply with it.
This article is based on publicly available reporting by China Briefing. All rights, including copyright, remain with the original source.