CBAM’s First Month: Early Signals From Europe’s Carbon Border Tax

The EU’s Carbon Border Adjustment Mechanism (CBAM) officially entered its definitive phase on January 1, 2026, and the rollout has been operationally smooth. All 27 EU member states synchronised their customs systems with the new CBAM Registry, enabling real-time data exchange and automated compliance checks at the borders. This technical readiness meant that imports of covered goods continued without disruption, as customs authorities seamlessly verified CBAM authorisations before clearing shipments.

In the first week alone, over 12,000 companies applied for CBAM importer status, with more than 4,100 obtaining authorisation by early January. Crucially, between January 1 and 7, customs processed 10,483 import declarations containing CBAM goods in real time via the integrated system, which is an early sign that industry was prepared to comply at scale. National authorities have reported stable processing times and no major bottlenecks, suggesting that this complex climate policy instrument can be deployed “without hindering trade” if managed well. The first days of CBAM have thus demonstrated a technically sound start, laying a foundation for the more profound market impacts now beginning to unfold.

💡In the first week of CBAM’s implementation (Jan 1-6, 2026), roughly 1.66 million tonnes of imports were declared under the mechanism, with iron and steel products accounting for 98% of the volume. Other covered goods like aluminium, fertilisers, and cement made up only about 2% combined, foreshadowing CBAM’s initially narrow focus on metals.

 

Iron and Steel Dominate the CBAM Landscape

 

Early data from January confirm that CBAM’s impact is highly concentrated in a few sectors. Iron and steel overwhelmingly dominate the CBAM trade pool, comprising 98% of all reported CBAM-covered import volumes in the first reporting window. This reflects Europe’s heavy reliance on imported steel and the sector’s large carbon footprint, which CBAM is directly targeting. By contrast, aluminium accounted for just 0.3% of the initial CBAM import volumes, fertilisers 1.2%, and cement 0.5%. The negligible share of cement and aluminium imports in early CBAM reports suggests that many of these materials are either produced domestically or sourced from trading partners (such as EEA countries) whose carbon costs are already aligned with the EU’s. It’s also notable that no electricity or hydrogen imports were recorded in the first days. This is partly a data timing issue as those figures are expected to appear as reporting catches up, but it also underlines that cross-border trade in electricity and hydrogen remains limited at this stage.

The geography of CBAM trade in January provides further insight into global supply chains. Turkey, China, and India emerged as the top countries of origin for CBAM-covered imports, with Canada, Taiwan, and Vietnam also among the leading sources. In other words, Europe’s initial CBAM payments will largely flow toward emerging market exporters (and a few advanced economies) that ship carbon-intensive goods to the EU.

On the EU side, the largest volumes of CBAM declarations were in Belgium and Spain, followed by Romania, the Netherlands, France and Germany. Belgium’s prominence likely reflects its role as a major entry point (e.g. the port of Antwerp), while Spain and others are significant steel importers. The concentration of CBAM activity in certain member states hints at regional disparities: countries with big steel-processing industries or key ports are immediately more exposed to the new levy, whereas others will feel it more gradually.

 

Shifting Trade Flows and Market Reactions

 

Beneath the smooth administrative start, CBAM is already prompting shifts in commercial behaviour. One early trend is a pullback in EU steel imports. Reports from the steel market in mid-January indicate that import volumes for products like hot-rolled coil have begun to shrink, with buyers growing cautious about ordering from abroad under the new carbon costs. A European steel distributor noted that many customers who “were very much import-oriented are now saying that they do not want to take risks,” instead refocusing on domestic EU suppliers.

In effect, the perception of future carbon fees is curbing appetite for foreign steel, especially when importers must shoulder uncertain CBAM costs on top of existing duties and logistics. This hesitancy is already supporting higher domestic steel prices in Europe, as local mills face less import competition. By mid-January, European steel producers were reportedly sold out for first-quarter deliveries, and prices for certain steel products had ticked up week-on-week. Market participants attribute this partly to CBAM: the mechanism “is already affecting import volumes,” creating an environment where European mills have greater pricing power. In short, CBAM is starting to tilt the playing field just as intended by levelling a carbon charge on imports and thereby favouring lower-carbon or local production.

💡European buyers are already retreating from imported steel. Within weeks of CBAM’s launch, industry reports noted that import volumes are shrinking as many former import-reliant buyers “do not want to take risks” and have shifted focus to domestic suppliers. The carbon cost of foreign steel is effectively bolstering EU mills’ order books and driving a noticeable uptick in local steel prices.

This early market reaction underscores the broader cost implications of CBAM. Importers are now actively pricing in the carbon content of goods. However, many are finding that in practice they must use default emissions values (set by the EU) rather than precise data from their suppliers. In December, just two weeks before CBAM’s start, the European Commission released detailed benchmark emissions values and formulas, a last-minute clarity that left many firms scrambling. Because obtaining verified emissions data from every foreign supplier is challenging on short notice, most traders are defaulting to the EU’s preset carbon intensity values, which are deliberately conservative. As a result, importers face “large price premiums on imports” when calculating CBAM costs with these default values.

In effect, the cost of carbon is being assumed at the high end unless proven otherwise. This dynamic is driving up the implied price of some imported commodities and may be deterring trade or redirecting it to cleaner sources. It also puts a premium on better emissions data: companies that can document a lower carbon footprint for their imports will eventually pay less, but in 2026, few have that capability in place. Notably, EU carbon allowance prices have been rising, which raises the stakes further. In December 2025, anticipating CBAM and a tighter supply of allowances, EU carbon prices surged to multi-year highs, averaging about €84.95 per ton (up 25% from a year earlier). This rally means the notional cost per ton of emissions for CBAM in 2026 is significant. (However, only a small fraction of that cost is due in the first year as CBAM is phased in at 2.5% of full carbon pricing in 2026, ramping up to 100% by 2034.)

 

International Pushback and Diplomatic Tensions

 

Unsurprisingly, the launch of the world’s first carbon border tax has ruffled feathers abroad. Major trading partners have been vocal in their opposition to CBAM, seeing it as a threat to their export industries and a possible precedent for global trade. China, in particular, reacted sharply as soon as CBAM took effect. On January 1, a spokesperson for China’s Ministry of Commerce condemned the EU’s carbon levy, stating that CBAM “seriously damages international trust” and creates a conflict between climate goals and trade rules. Beijing warned it would “take all necessary measures” to defend China’s interests if faced with what it considers unfair trade restrictions. Chinese officials have also indicated an intention to challenge CBAM through the World Trade Organisation, calling the mechanism “unfair” and “discriminatory”. This sets the stage for a potential WTO dispute, as China argues that the EU is unilaterally imposing its climate standards on others. European officials maintain that CBAM is fully WTO-compliant and non-discriminatory, emphasising it as an environmental measure applied equally to any importer. Nonetheless, the diplomatic temperature is rising. By mid-January, China’s Ministry of Commerce went further, criticising the specific design of CBAM’s default values, which will increase annuall,y as “disregarding the significant progress” China has made in greening its industry.

China is not alone. India has also expressed deep concerns about CBAM, albeit taking a slightly different tack. While negotiating a broader trade agreement with the EU in January, Indian officials pressed for concessions or an exemption from CBAM for their exporters. The EU, however, held firm. In a landmark trade deal concluded on January 27, Brussels refused to carve out any special treatment for India under CBAM. EU negotiators pledged that no country, not even close allies like the U.S., will get favourable treatment, in order to allay India’s fears of unequal application. Instead, the EU agreed to set up technical dialogues to address India’s questions and offered a €500 million climate finance package to help India decarbonise, alongside a modest increase in India’s duty-free steel export quota. But fundamentally, India will face CBAM charges on its steel, cement, and fertiliser exports just like any other country. Indian industry observers predict the carbon tariff will likely curb India’s steel exports to Europe, pushing Indian mills to seek other markets for their products. Other emerging economies, such as South Africa and Brazil, have similarly blasted CBAM as green protectionism, arguing it imposes costs on developing countries that lack equivalent resources to decarbonise.

💡China has been the most vocal critic of CBAM’s debut. On Jan 1, China’s Ministry of Commerce lambasted the new EU carbon levy as “unfair and discriminatory,” warning it will “resolutely take all necessary measures” to safeguard its interests. Chinese officials signalled plans to challenge CBAM at the WTO, heightening the risk of a trade conflict over climate policy.

 

Policy Adjustments: The Fertiliser Dilemma

 

One lesson from CBAM’s first month is that the policy will not operate in a vacuum as it intersects with other economic and political priorities, sometimes awkwardly. A case in point is the fertiliser sector, which has quickly emerged as a pressure point. Fertilisers (and their main input, ammonia) are covered by CBAM due to their carbon-intensive production, and that means imported fertiliser now incurs a CO2 fee. However, Europe is still reeling from a recent energy crisis that sharply raised fertiliser prices, hurting farmers. By January, several EU member states began voicing concerns that adding carbon costs to fertilisers could inflame food inflation and threaten agricultural livelihoods.

Bowing to this pressure, the European Commission announced it is ready to temporarily suspend CBAM obligations on fertilisers under certain conditions. The Commission said it would issue guidance on pausing the carbon levy for fertiliser imports if “unforeseen circumstances”, essentially a price or supply shock, justify it. This move came after France, Italy, and others lobbied for relief for farmers, and alongside a decision in early January to temporarily cut EU import tariffs on some fertilisers.

From an industry perspective, this uncertainty is problematic. European fertiliser producers and would-be green ammonia suppliers actually welcomed CBAM as a way to level the playing field against high-carbon imports. Now they fear their competitive boost might vanish. The CEO of Yara International, one of the world’s largest fertiliser makers, warned in January that if the EU suspends the carbon border levy on fertilisers, it could derail investment in clean ammonia projects. Yara had planned a major low-carbon ammonia venture in the United States (Louisiana) to supply European fertiliser markets; that project’s viability was predicated on CBAM applying steadily and rewarding lower-carbon imports.

“If there is a suspension or cancellation of CBAM, we would not be able to go ahead with what we intended to invest,” Yara’s CEO Svein Tore Holsether told Reuters.

This highlights a delicate balancing act: CBAM’s consistency is needed to drive long-term decarbonization investments, yet short-term economic pressures are already prompting calls for flexibility in its application. EU Climate Commissioner Wopke Hoekstra has acknowledged farmers’ challenges but insists that the “crystal-clear objective is to continue” with the CBAM design in the long run. Any suspension for fertilisers, if used at all, is meant to be temporary. Even so, the episode shows that sector-specific adjustments to CBAM are on the table, and stakeholder pressures (from food security to industrial policy) will shape how the mechanism evolves.

💡Under pressure from soaring fertiliser costs, the EU is considering a temporary suspension of CBAM fees on fertiliser imports to shield farmers. This policy tweak has alarmed industry players like Yara, whose CEO cautioned that dropping the levy would remove incentives for cleaner ammonia and could derail planned green investments in low-carbon fertiliser production. The CBAM must therefore balance climate goals with economic realities in sensitive sectors.

 

Early Trends and the Road Ahead

 

The first month of CBAM offers a preview of the transformative change this mechanism is set to drive as well as the challenges that accompany it. On one hand, we see CBAM working as intended: it is forcing companies to factor in carbon costs, tilting importers’ decisions, and prompting trading partners to consider their own climate competitiveness. On the other hand, we also see that CBAM is not unfolding in a frictionless environment. It is already testing Europe’s diplomatic relations and requiring policymakers to fine-tune the scheme in response to economic pressures. The EU has demonstrated a willingness to adjust, whether by extending CBAM’s scope to more products in the future, or by creating escape valves like the fertiliser suspension mechanism to ensure the policy remains effective and politically sustainable.

Looking ahead, sustainability professionals will be tracking a few key areas. First, will importers adapt by securing cleaner supply chains and better emissions data, or will they simply pivot away from foreign suppliers? The answer will determine how global decarbonization incentives play out. Second, how will the EU handle pushback from abroad? A cooperative outcome could involve more countries adopting carbon pricing or forging climate clubs, whereas a contentious path could see trade disputes. Third, as CBAM scales up (the percentage of emissions priced will rise each year), will the EU keep a steady course or make further concessions for vulnerable sectors? The balance between environmental integrity and economic pragmatism will be an ongoing debate.