The European Union's Carbon Border Adjustment Mechanism moved into its definitive, fee-paying phase on 1 January 2026, requiring EU-based importers of steel, aluminium, cement, fertiliser, hydrogen and electricity to hold "authorised CBAM declarant" status and begin buying certificates priced against the bloc's own carbon market. The shift closes a two-year reporting-only transition period that ran from October 2023, and it lands hardest on the Asian economies that supply a large share of the EU's steel and aluminium imports, among them China, India, South Korea, Taiwan and Vietnam.
Certificates Priced Against the EU's Own Carbon Market
Under Regulation (EU) 2023/956, importers must now purchase CBAM certificates matching the embedded emissions of each shipment, with the certificate price set weekly against the average auction price of European Union Emissions Trading System allowances, a market that has traded broadly in the €60-to-90-per-tonne range over the past two years. The obligation phases in gradually rather than all at once: importers cover only 2.5 percent of a shipment's embedded emissions in 2026, a share the European Commission has scheduled to rise annually through full coverage by 2034, tracking the parallel phase-out of free allowances given to EU domestic producers under the bloc's own trading scheme.
Exporters that cannot document a carbon footprint below the EU's default benchmark values pay the full certificate cost at the point of import. That default-versus-actual gap is what has turned carbon accounting, once a compliance afterthought for many Asian mills, into a line item that can decide whether a shipment clears the European market at a profit.
China and India Bet on Hydrogen-Based Steel
China's Baowu Group, the world's largest steelmaker, is among several Chinese producers piloting hydrogen-based direct reduced iron production, with demonstration lines increasingly sited in the country's resource-rich north-west to draw on low-cost wind and solar power for hydrogen electrolysis. Beijing has also been expanding its national emissions trading scheme beyond the power sector toward steel, cement and aluminium, a move that would eventually give Chinese exporters a domestic carbon price to set against their CBAM bill rather than facing it as a pure export tax.
India has taken a parallel route. New Delhi has been rolling out its Carbon Credit Trading Scheme, built through amendments to the country's Energy Conservation Act, to establish a compliance carbon price for high-emitting sectors including steel, a mechanism Indian trade officials have pushed the European Commission to recognise so exporters can offset domestic carbon costs against CBAM certificates rather than paying twice. Tata Steel and JSW Steel, the country's two largest producers, have each begun hydrogen-injection and direct reduced iron trials aimed at lowering the carbon intensity of output bound for Europe, though neither has moved past demonstration scale.
Korea and Taiwan Lean on Domestic Carbon Markets, Vietnam Falls Behind
South Korea has run its own emissions trading scheme, the K-ETS, since 2015, and Seoul has raised the prospect of a linkage arrangement with Brussels that would let Korean exporters credit K-ETS allowances against a CBAM certificate bill instead of paying both. POSCO, the country's dominant steelmaker, is separately developing hydrogen-based ironmaking under its HyREX programme, targeting commercial-scale output by the early 2030s. Taiwan introduced its own carbon fee under the 2023 Climate Change Response Act, a levy officials have described as designed to keep carbon revenue on the island rather than hand an equivalent sum to EU importers through CBAM certificates instead.
Vietnam has no operating domestic carbon price yet, even as its fabricated steel exports to the EU have grown over the past three years. The country's planned emissions trading scheme is not due to launch in full until 2028, leaving Vietnamese exporters more exposed to the mechanism's uncushioned certificate cost than competitors that already price carbon at home.
India, China, South Africa and Brazil have jointly raised objections to CBAM at the World Trade Organization, arguing the mechanism conflicts with the Paris Agreement's principle of common but differentiated responsibilities and functions as a disguised barrier against developing-economy exporters. The European Commission has rejected that framing, maintaining that CBAM applies the same carbon cost to domestic and imported goods alike. The first annual reconciliation, when importers must surrender certificates matching their declared 2026 emissions, falls due in 2027.