The EU has taken a big step to ensure that its environmental ambitions are not affected by global market imbalances. This step is called the Carbon Border Adjustment Mechanism (CBAM) — a mechanism that could reform international trade and the way we measure the true environmental cost of production. Here Chris Gerber, advisory board member for leading electrical engineering exhibition, CWIEME Berlin, explores the impact of CBAM on global trade. 

With the transition to CBAM already underway and full roll-out planned for January 1, 2026, CBAM is much more than another EU regulation. It is a way to enforce climate responsibility beyond Europe and level the playing field for domestic industries already subject to strict carbon emission standards.

What is CBAM?

CBAM is the EU’s response to carbon leakage, which happens when companies move their production to countries with less stringent climate regulations, effectively exporting their carbon emissions. CBAM introduces a carbon tax on certain imported goods, based on their carbon footprint during production, regardless of where they were manufactured. 

Initially, CBAM will target sectors with high levels of emissions, such as cement, steel, aluminium, electricity and hydrogen. However, this is expected to expand in the next few years, possibly incorporating a broader range of goods currently covered under the EU Emissions Trading System (ETS), which CBAM will gradually replace.

How will it work?

Under CBAM, EU importers must declare the carbon emissions of their imported products and purchase a corresponding number of CBAM certificates. If an exporter can’t provide verified emissions data, through an approved authority in their own country, the EU will assign a default value, which will probably be higher, resulting in a higher tax.

Implementation will be equal across all 27 EU member states. To ensure fairness, the EU is building a list of approved organisations that can carry out carbon audits in exporting countries. The framework will also cover disputes, which could occur if the level of emissions isn’t agreed upon, though these details are still being adjusted during the transitional period, which runs until the end of 2025.

Why it matters

CBAM is rooted in the European Climate Law and aligned with the broader ambitions of the European Green Deal — to reach climate neutrality by 2050. These policies, in turn, are linked to the goals of the Paris Agreement and the wider UN COP framework, which advocates for global temperature rise to be limited to well below two degrees Celsius.

Climate change is a global challenge, but economic and industrial development is far from equal across the world. The EU recognises that without mechanisms like CBAM, domestic industries would be penalised for compliance while overseas competitors with weaker environmental laws would benefit. CBAM aims to restore balance by holding all parties accountable.

The cost of carbon neutrality

There’s no denying that the transition to net-zero comes with a price tag. Retrofitting production lines, sourcing cleaner energy and changing raw materials all require substantial investment. In Europe, part of this burden is being eased through subsidies, grants and regulatory incentives designed to support manufacturers in changing to cleaner methods.

But the cost doesn’t stop at EU borders. CBAM ensures that imported goods reflect their true environmental impact, meaning higher prices for carbon-intensive imports. Ultimately, European consumers may bear some of these costs, but the EU argues this is a fair trade-off for environmental protection and industrial fairness.

Global challenges ahead

CBAM is ambitious and its success hinges on overcoming several global challenges. Climate regulation remains largely voluntary and politically vulnerable. For instance, the US decision under the Trump administration to withdraw from international climate agreements, albeit temporarily, highlights the fragility of global consensus.

Moreover, developing countries face their own challenges. For many, industrial growth is essential to economic development. Imposing strict carbon taxes without support could exacerbate global inequalities. Thus, CBAM must evolve as part of a broader diplomatic and developmental strategy, offering support rather than punishment.

So, what does all of this mean for the electrical engineering and manufacturing sectors?

CBAM is a wake-up call. Companies that design and produce electrical components, from transformers to motors and beyond, will soon face increased scrutiny of their carbon footprints, even if their operations lie outside the EU. 

However, this also presents an opportunity to lead. Those who invest early in low-carbon technologies and lifecycle impact assessments will find themselves ahead of the curve, making them preferred suppliers in a climate-conscious market.

CBAM is just one example of how climate policy is transforming the global industrial landscape. At CWIEME Berlin, Europe’s leading exhibition for coil winding, transformers, electric motor manufacturing and e-mobility supply chains, these topics are front and centre.

Register your interest in CWIEME Berlin 2026, taking place from 19-21 May, connecting the leading coil winding and electrical manufacturing experts.