Steel bars in a steel mill in Huai’an, Jiangsu Province (China), July 22, 2025. AFP Is the European Union about to equip itself with a major tool for its climate policy, or is it creating a new regulatory and financial headache? On Thursday, January 1, it is taking another step forward in taxing CO2 emissions.
The Carbon Border Adjustment Mechanism (CBAM), which is coming into force, will require a carbon tax on imports of the most polluting industrial products from outside the European Union. The stated goal is to protect the competitiveness of European industry by helping companies fight potential environmental dumping. But many have criticized the mechanism’s implementation details and the risks of fraud.
To understand how the system works, it is necessary to look back two decades. In 2005, the EU introduced its first tax on CO2 emissions, the European Union Emissions Trading System (ETS). Today, electricity producers and most heavy industries (steel, cement, aluminum, ceramics, oil refining and so on) are required to pay it. At first, to soften the impact, the EU distributed a large number of free pollution allowances, which kept ETS prices very low. Gradually, the rules became stricter and, for the past four years, the price per metric ton of CO2 has fluctuated between €80 and €100. The ETS now covers 40% of the EU’s greenhouse gas emissions.
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