CARBON BORDER ADJUSTMENT MECHANISM (CBAM)

A Carbon Border Adjustment Mechanism (CBAM) is a trade policy tool that imposes a carbon cost on imported goods to equalise climate ambition between domestic and foreign producers. The EU’s CBAM entered a reporting phase in 2023 and will become operational in 2026. For CDR, CBAM introduces a critical intersection: it may allow certified removals to offset embedded emissions in imports, thereby incentivising investment in durable CDR as part of trade compliance.

CBAM requires importers to quantify embedded emissions and surrender certificates at a price pegged to the EU ETS. CDR intersects in two ways: (1) whether importers can subtract certified removals from reported emissions; and (2) whether foreign producers can claim removals embedded in their processes. To be accepted, removals must meet strict MRV criteria and permanence thresholds aligned with EU standards. Furthermore, alignment with EU-ETS rules is necessary to ensure policy coherence and climate integrity.

If CBAM recognises high-quality removals, it could trigger global demand for durable CDR in traded goods. For example, steel or concrete made using BECCS or mineralisation could benefit from a lower CBAM obligation, incentivising climate-positive production. This catalyses investment in removal-integrated supply chains. Additionally, CBAM revenue could be earmarked to support EU-based CDR deployment or international mitigation efforts. CBAM could serve as a pull mechanism for CDR innovation, particularly for sectors lacking easy emission abatement options.

If removals are accepted but poorly verified, this could enable greenwashing. Trade partners might contest the eligibility criteria for removals, especially if they differ from national approaches. There is also a risk of skewing incentives towards removals over reductions if not carefully calibrated, especially if non-permanent CDRs are accepted. This could also increase carbon leakage if EU companies relocate. Finally, lack of harmonised international standards for removal accounting could complicate CBAM’s integration of CDR credits.

Evaluation should examine how often importers use certified removals to meet CBAM obligations, whether the reported carbon intensity of covered imports falls, and whether credited removals meet EU certification requirements. Removals that are later invalidated or found to have happened without the incentive would signal weaknesses in eligibility or verification and should inform tighter rules or enforcement.

Importers, foreign producers and CDR developers can identify where proposed rules may be impractical or unfair. Civil society and scientific experts can test environmental integrity. Dialogue through the World Trade Organization and with trading partners can clarify how removals would be credited and address potential trade disputes before the rules take effect.

The instrument was born supranational in EU law, and the single market remains its natural scale. National governments matter twice over: adopters such as the UK are building their own mechanisms, and exporting countries must align MRV systems so their removal-integrated goods qualify. International convergence, through the WTO or climate clubs, decides whether border adjustment becomes shared architecture or serial dispute.