The Upcoming EU Carbon Tariff will Reshape Global Trade

Marc Bernitt, Head of Customs EMEA & Asia, Kuehne+Nagel

In January 2026, the European Union will implement the world’s first carbon border tariff, officially known as the Carbon Border Adjustment Mechanism (CBAM). At its core, CBAM is the EU’s answer to carbon leakage; the risk that production and emissions shift to countries with looser climate rules. European manufacturers already pay for their emissions under the EU Emissions Trading System (ETS). CBAM levels the playing field by assigning a carbon cost to imported goods, ensuring that sustainability is embedded into the price of every tonne of steel or aluminium entering the EU.

With CBAM, EU companies need to factor in carbon emissions as an additional price tag into their sourcing decisions, potentially increasing landed costs and annual budgets. Not doing so could have an adverse effect on their competitiveness as price surcharges could lower competitiveness. For Indian exporters, CBAM means the carbon footprint of their products will soon carry a price tag at the EU border. India is one of the EU’s top five trading partners most impacted by CBAM. While the Indian government is making commendable progress in expanding its domestic carbon market, the current gap in carbon pricing compared to the EU could result in significant cost implications for exporters.

Steel and aluminium are important commodities that are exported from India to the EU. Based on EU default values and assuming they remain unchanged until 2034, the estimated cost increase for crude steel could reach 15% in 2026, rising to 51% by 2034. For aluminium, the increase is projected at 6% in 2026 and 17% by 2034.

But CBAM is not just about cost. It also introduces a new layer of complexity: emissions reporting. Importers must submit detailed, verified emissions data for each shipment. For Indian manufacturers, this means working closely with EU partners to provide accurate, product-level emissions data. Failure to do so could result in the application of default values which typically are higher than actual emissions and lead to inflated costs and potential loss of competitiveness.

We have seen firsthand how unprepared many companies still are for the definitive phase of CBAM, even those who already submitted several quarterly reports during the phase-in. For example, many importers still rely on default values rather than on accurate emissions data from their suppliers. In addition, several companies only realised in recent weeks that CBAM applies to them. Teams are also unsure whether CBAM should sit with Sustainability, Finance or Customs teams leading to unclear ownership. Last but not least, the majority of companies still collect data in Excel without traceability or links to ERP systems.

There has been progress, but many companies remain reactive, focusing on navigating the transitional period rather than building structured compliance processes for the 2026 certificate purchase phase. This lack of readiness is concerning given the administrative complexity and financial risks involved.

To address these challenges, Kuehne+Nagel has partnered with Swiss climate tech firm Climease to develop an all-in-one CBAM compliance solution. The software automates emissions reporting, tracks CBAM costs in real time, and supports procurement teams in identifying lower carbon suppliers. It also enables non-EU suppliers to compile the necessary documentation for their EU customers, helping to simplify the exchange of emissions data and reduce the risk of costly errors.

Looking ahead, CBAM will influence trade flows and reshape supply chain strategies across industries. In sectors such as automotive, construction, and manufacturing, where materials like steel and cement are foundational, companies will need to consider carbon intensity alongside cost and quality when selecting suppliers. We expect to see a shift toward more sustainable sourcing, greater investment in emissions tracking, and a reconfiguration of global supply chains to minimise CBAM exposure.

Ultimately, CBAM is a signal. It tells the world that carbon has a cost, and that sustainability is no longer a “nice to have” but a trade imperative. The good news? With the right tools and partnerships, compliance can be a competitive advantage. At Kuehne+Nagel, we’re committed to helping our clients navigate this new landscape.