The landscape for global heavy industry shifted fundamentally on January 1, 2026, as the European Union’s Carbon Border Adjustment Mechanism (CBAM) entered its definitive financial phase. This landmark policy effectively ends the era of “carbon-free” access to the European market for the world’s most energy-intensive sectors, requiring importers of steel, aluminium, cement, and fertilisers to account for the CO2 emitted during their production.
Designed to prevent “carbon leakage”—where industry flees Europe for regions with laxer environmental standards—the tax is being hailed by Brussels as a climate necessity but denounced by global trade partners as a new form of green protectionism.
The Financial Weight on Basic Materials
For the first time, the “polluter pays” principle extends beyond Europe’s borders to the foundational goods of the global economy. As of this week, the administrative “reporting only” period has expired, replaced by a system of mandatory financial liability.
- Steel and Iron: As the primary target, steel exporters—particularly those using carbon-heavy blast furnaces in India, China, and Turkey—face the steepest climb. Industry analysts estimate that the carbon levy could add significant costs to every tonne of imported primary steel, potentially squeezing margins to the breaking point.
- Aluminium and Cement: These sectors are now subject to rigorous lifecycle emissions accounting. For aluminium, indirect emissions from the electricity used in smelting are under intense scrutiny, directly impacting exporters in coal-reliant regions.
- The €75 Benchmark: Importers must eventually purchase CBAM certificates priced to match the EU’s Emissions Trading System (ETS), which is currently trading near €75 per tonne of CO2.
Trade Escalation: A “Standstill” in the Making?
The rollout has immediately strained diplomatic relations, with several major economies characterizing the move as a unilateral trade barrier that violates World Trade Organization (WTO) norms.
- Retaliatory Warnings: On January 1, China’s Ministry of Commerce expressed deep concern, noting that the “default values” the EU applies to Chinese heavy industry products are significantly higher than actual levels.
- The Turkish Response: Industry leaders in Turkey, Europe’s largest steel supplier, have warned that the combination of carbon taxes and new import quotas could bring free trade to a “near standstill.”
- The “Global South” Outcry: Developing nations argue the tax unfairly penalizes countries that lack the capital to instantly transition to “green” industrial technology, such as green hydrogen or carbon capture.
| Heavy Industry Sector | Primary 2026 Challenge |
| Iron & Steel | High direct emissions from coal-based smelting processes. |
| Aluminium | High indirect emissions from non-renewable power grids. |
| Cement | Process-based CO2 that is inherently difficult to “scrub.” |
| Fertilisers | Methane and nitrous oxide leakage during ammonia synthesis. |
Expansion on the Horizon: 2028 and Beyond
While the current focus is on raw “heavy” materials, the European Commission is already proposing an expansion. Reports released in late December 2025 suggest that by 2028, the tax could extend to 180 downstream products, including automobiles, industrial robots, and household appliances that are intensive in their use of steel and aluminium.
This trajectory suggests that the 2026 launch is merely the first wave of a broader effort to re-engineer global supply chains. For heavy industry, the message is clear: the price of entering the European market is no longer just a matter of currency, but of carbon.
