Carbon markets as a response to the EU CBAM

The report examines how the European Union's Carbon Border Adjustment Mechanism (CBAM) is incentivising exporting countries to establish domestic carbon pricing systems to retain revenues and reduce trade costs.

• The EU's Carbon Border Adjustment Mechanism (CBAM) is designed to prevent carbon leakage and encourage global decarbonisation by imposing a levy on imports from high-emitting sectors, including cement, aluminium, fertilisers, iron and steel, hydrogen and electricity. Starting in 2026, EU importers must purchase CBAM certificates based on the embodied carbon of these goods, with prices linked to the EU Emissions Trading Scheme (ETS).
• CBAM provides a financial incentive for exporting countries to implement their own carbon pricing because any carbon price already paid in the country of production is deducted from the total CBAM certificates required. This allows countries to keep carbon pricing revenues domestically rather than paying them to the EU. For example, if domestic prices reach 50% of the EU's, India could retain EUR 676 million, China EUR 506 million, and Brazil EUR 143 million annually.
• Several countries, including some vocal critics of CBAM within the BRICS bloc, are developing domestic carbon markets specifically to mitigate CBAM's impact. Notable examples include Vietnam, which expanded emissions trading in August 2025 to thermal power, iron, steel, and cement to address CBAM costs, and Taiwan, which plans an emissions trading scheme by the end of 2026 as a direct response to CBAM.
• Other nations are taking strategic steps to align with or counter CBAM. Brazil's Emissions Trading Scheme (SBCE), law as of late 2024 and operational by 2030, aims to mitigate trade barriers. Brazil also proposed the Open Coalition for Carbon Market Integration to link international schemes. India established its Carbon Credit Trading Scheme in 2024, and a September 2025 EU-India strategic agenda includes cooperation on carbon pricing to help Indian exporters.

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} }