CBAM Explained: EU’s Carbon Border Plan Now Targets Just 10% of Importers

August 15, 2025

The Carbon Border Adjustment Mechanism (The CBAM) is a new regulation (and in effect a tax) that aims to address the problem of what’s known as carbon leakage, “the situation where companies move the production of goods to countries with less stringent emissions policies, primarily to save costs associated with carbon pricing.”1

While the existing EU Emissions Trading System (ETS) covers EU countries, the CBAM applies to carbon-intensive goods produced outside the EU (with the exception of Iceland, Norway, Liechtenstein and Switzerland). 2

Last week, Reuters reported that the European Parliament backed changes to the European Union’s carbon border tariff that would exempt companies that import less than 50 metric tons per year of relevant goods.

The proposed changes will exclude more than 90% of importers.3

Reducing bureaucratic burden has been referenced as a reason for the proposed reduction, but there are other reasons for limiting its reach. Ministers from Brazil, South Africa, India and China have previously warned that the CBAM would be “discriminatory” and unfair to developing nations.4

Charmi Mehta, a consultant with the Indian think tank Finance Research Group, said:

“Somebody who has been at the forefront of what caused climate change is not exactly the legitimate authority to hold others accountable today.”5

Others advocate expanding rather than limiting the scope of the CBAM, noting that it:

Levels the playing field for companies which are subject to the ETS,
Deters businesses from sourcing goods from countries with weaker environmental standards, and
Revenues from CBAM could potentially be used to assist developing countries with decarbonisation efforts. 6

Notably, the CBAM has already been successful in influencing domestic policies.

Türkiye, one of the countries most affected by the EU’s CBAM, has recently designed a national emissions trading system. Ankara claimed that the “big threat” of CBAM certainly played a role in its decision.7

It’s worth being reminded that the UK is due to introduce its own CBAM on carbon-intensive goods from 1 January 2027.8

The effectiveness of CBAM as a climate policy tool depends on the breadth of its application. It looks as if the new exemptions may undercut the policy’s intended climate benefits, however Reuters notes that:

“The scheme would not lose its impact as the remaining 10% of importers are responsible for more than 99% of the emissions associated with imports covered by the carbon border tariff.”

EU countries are due to approve their position on the changes next week, before negotiating the final rules with EU lawmakers. Reuters explains that the exemption is likely to be backed.9

(This blog was originally published by Private Goodness on the 26th of March 2025)

References:

CBAM Explained: EU’s Carbon Border Plan Now Targets Just 10% of Importers

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