Carbon markets as a response to the EU CBAM

The EU's Carbon Border Adjustment Mechanism (CBAM) is designed to prevent carbon leakage and encourage global decarbonisation by imposing levies on high-emitting imports. While facing criticism from BRICS nations as a protectionist barrier, the CBAM's design allows for the deduction of carbon prices already paid in the country of origin. This has led several countries, including India, China, Brazil, and Vietnam, to strategically develop or expand domestic carbon markets or taxes to ensure that carbon revenues are retained domestically rather than paid to the EU. Modelling indicates that if domestic prices reach 50% of the EU's price, countries like India could retain EUR 676 million annually.

• The CBAM encourages exporting countries to implement domestic carbon pricing to reduce EU import fees and keep carbon revenues within their own borders. If domestic carbon prices reach 50% of the EU's price, exporting countries retain that portion of the revenue; for example, modelling suggests annual retained incomes of EUR 676 million for India, EUR 506 million for China, and EUR 143 million for Brazil.
• Despite political opposition and claims that the CBAM is "unilateral and discriminatory", several countries have explicitly linked the development of their carbon markets to the mechanism. These include Vietnam, which expanded emissions trading to thermal power, iron, steel, and cement in August 2025, and Taiwan, which plans an emissions trading scheme by the end of 2026 as a "direct response" to the CBAM.
• The CBAM currently targets the highest-emitting industrial sectors: electricity, hydrogen, iron and steel, fertilisers, aluminium, and cement. The European Commission is considering expanding this scope to downstream manufacturing products and other sectors at risk of carbon leakage following the transitional phase, which ends before importers must buy certificates in 2026.
• Brazil has introduced the Brazilian Emissions Trading Scheme (SBCE), law as of late 2024 and operational by 2030, to mitigate trade barriers from border carbon adjustments. Additionally, Brazil proposed the Open Coalition for Carbon Market Integration to link international schemes and fund decarbonisation in resource-poor countries, a topic intended for COP30.

APA

Woodman, B. (2025). Carbon markets as a response to the EU CBAM. Zero Carbon Analytics. https://zerocarbon-analytics.org/finance/carbon-markets-as-a-response-to-the-eu-cbam/

Chicago

Woodman, Bridget. Carbon markets as a response to the EU CBAM. Zero Carbon Analytics, 2025. https://zerocarbon-analytics.org/finance/carbon-markets-as-a-response-to-the-eu-cbam/.

Wikipedia

{{cite report |last1=Woodman |first1=Bridget |title=Carbon markets as a response to the EU CBAM |publisher=Zero Carbon Analytics |date=16 October 2025 |url=https://zerocarbon-analytics.org/finance/carbon-markets-as-a-response-to-the-eu-cbam/ |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{woodman2025carbon, author = {Woodman, Bridget}, title = {{Carbon markets as a response to the EU CBAM}}, institution = {Zero Carbon Analytics}, year = {2025}, month = oct, url = {https://zerocarbon-analytics.org/finance/carbon-markets-as-a-response-to-the-eu-cbam/}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }