H1 2026: Key Developments
- The EU Carbon Border Adjustment Mechanism (CBAM) entered its definitive phase in January 2026, moving beyond reporting requirements to financial obligations for importers of carbon-intensive goods. CBAM currently covers products representing ~4.7% of total EU imports.
- CBAM remains the most advanced and fully operational example of an emerging set of carbon border mechanisms globally with particular implications for sectors such as steel, aluminum, cement, fertilizers, and chemicals (BloombergNEF).
- The EU proposed the first major expansion of CBAM. During H1 2026, the EU proposed extending the mechanism to an additional 180 downstream steel and aluminum products, with chemicals and refined oil products also under consideration (BloombergNEF).
- Implementation details remain under discussion. Debate continues around targeted exemptions and other flexibilities, including for fertilizers under Article 27a (BloombergNEF). While fertilizers represent a relatively small share of CBAM-covered imports, exemptions could influence confidence in the mechanism’s long-term trajectory (BloombergNEF).
- Major trading partners are responding in different ways. Approaches range from closer alignment through domestic carbon pricing and technical cooperation to concerns over administrative complexity and wider trade implications (E3G). Figure 3 illustrates the differing positions across key exporters supplying CBAM-covered sectors to the EU.
Figure 3: Trade partner positioning on CBAM (E3G)
AMERICAS
CBAM exposure is significant, but uneven across countries and sectors in the Americas.
- In Latin America, Brazil is among the most exposed countries in the region, with around 12.5% of its iron and steel exports destined for the EU, followed closely by Colombia and Venezuela.
- Limited carbon pricing across much of Latin America (i.e. Brazil’s emissions trading system not expected to be fully implemented until 2030), could increase exposure to EU carbon costs ahead of greater policy alignment.
- Under proposed CBAM expansion scenarios, the US share of CBAM-covered EU imports could rise from ~4% to ~13-14%, reflecting growing exposure across industrial supply chains.
APAC
China faces the greatest exposure under CBAM expansion scenarios.
- China remains the most exposed trading partner under both the current and expanded CBAM scope (see Figure 4). European Commission analysis estimates that the proposed downstream expansion would subject approximately €18 billion worth of existing Chinese exports to the EU annually to CBAM requirements - more than any other trading partner.
- Across APAC, exposure is concentrated in export-oriented industrial sectors, particularly steel and aluminum. More than 20% of Vietnam’s iron and steel exports and nearly 20% of Indonesia’s aluminum exports are destined for the EU, making these sectors especially exposed to evolving CBAM requirements and emissions reporting obligations.
Figure 4: Top CBAM-covered sector exporters into the EU and UK over 2015-2024, by market (BloombergNEF)
EMEA
CBAM is increasing the importance of emissions data transparency across global value chains.
- As CBAM moves into its definitive phase, importers of covered goods into the EU are moving from reporting to full compliance, including the verification of embedded emissions.
- Potential expansion of CBAM coverage to downstream steel- and aluminium-intensive products could extend emissions reporting requirements further along manufacturing value chains. For sectors such as automotive and industrial machinery, tracing embedded emissions may require data collection across multiple supplier tiers and countries.
