I recently worked on Europe’s carbon shield, the CBAM policy. Will a flaw in the CBAM rules accidentally subsidize foreign polluters?
✅ CBAM is the EU’s new carbon-pricing shield for imports in cement, steel, aluminium, fertilisers, electricity and hydrogen. It replaces free ETS allowances, which start declining in 2026 and reach zero by 2034, while CBAM becomes fully operational in January 2026.
➡️ What importers must do
• Importers must declare the embedded CO2 emissions of covered products.
• From the definitive phase (2026 onward), they will purchase CBAM certificates at the weekly ETS price to cover these emissions.
• Deduction of any explicit carbon price paid abroad is foreseen.
➡️ Where default values enter
• If verified data is unavailable, importers may use EU-set default values.
• These values are intended to be conservative and discourage non-disclosure.
➡️ A potential problem arises as reported in provisional reporting / analyses
• Different analyses indicate that many cement and steel imports may still be reported using defaults during the transitional phase.
• Some defaults seem to sit close to global averages.
• In coal-based routes, certain defaults may underestimate emissions.
With ETS at €80–85/tCO₂, even small underestimations can affect competitiveness if declaring unverified data becomes cheaper than reporting real emissions…
➡️ Where concerns concentrate
• Clinker, frequently discussed in default-value debates
• Flat and semi-finished steel, where verified data appears limited
• Exporting regions with uneven MRV systems
➡️ Verification & methodology challenges
• Uneven MRV frameworks outside the EU
• Limited verifier capacity
• Need for more checks and site visits
There are also potential methodological issues: variations in steel routes (BF-BOF, DRI, EAF), differing clinker-to-cement ratios, and incomplete emissions datasets… all increasing the risk that defaults do not fully reflect real emissions.
➡️ Industry signals: In Nov 2025, industry representatives Cembureau + Eurofer warned that weak default-value calibration could distort competition as ETS free allowances decline.
➡ Member State Position: After the CBAM Omnibus Package (Oct), MS backed changes to simplify administration and clarify enforcement for 2026, including de minimis relief for small import volumes in particular.
✅ My take
• CBAM’s credibility depends on appropriate default values.
• A verification system capable of capturing real emissions at scale is essential.
• If these elements lag in early 2026, Europe risks weaker carbon signals at the border, misaligned competitiveness for key industrial sectors, and slower progress on deep decarbonisation during a critical investment cycle.
Sources: EC CBAM (Nov 2025) | ICAP | IISD | Fastmarkets | S&P Global
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