Provisional CBAM benchmarks announced: how will this restructure global trade? 

The EU’s provisional CBAM benchmarks and default factors point to a far costlier regime than earlier leaks or estimates suggested. Across iron and steel, aluminium, fertiliser and cement, total CBAM costs could exceed €12 billion in added costs from next year (around 15% of the value of these imports), setting the stage for a significant reshaping of trade flows. 

A key step in calculating CBAM costs 

Two years after the beginning of its transitional phase, the EU Commission has released the provisional benchmarks for the EU Carbon Border Adjustment Mechanism (CBAM) – benchmarks that will determine who will face liabilities and how much they will pay. With the release of these numbers, EU importers and manufacturers can start to quantify the costs CBAM will impose and begin to manage the impacts on their business. However, with final benchmarks still to be announced in Q1 2026, and the complexity of the provisional benchmarks and national default values, traders will continue to face considerable challenges and risks over the coming months.

The purpose of CBAM is to correct for the absence of carbon pricing in major exporting countries by applying a charge equivalent to that faced under the EU Emissions Trading System (ETS). In theory, this levels the playing field for EU-based producers who would otherwise risk losing market share to cheaper, higher-emission imports. The benchmarks are a key component of this system and represent the emissions intensity of an efficient producer. Importers are required to cover embedded emissions above the benchmark, adjusted by the CBAM factor (97.5% in 2026), with CBAM certificates. These certificates will be priced to align with average EU ETS auction prices, around €73/tCO₂ on average in 2025.

A multi-billion-Euro shock to import costs 

The costs of CBAM will be significant and have the potential to dramatically shift trade flows. If the published default emissions intensity factors for each country are used, over 90 percent of imports from CBAM covered sectors will receive a levy exceeding 10 percent of product value by 2035; indeed CBAM costs will represent over 50 percent of product value for fully 31 percent of affected imports – a significant increase from Fastmarkets’ previous estimates¹. Firms may be able to reduce their liabilities by submitting actual emissions data, but doing so requires navigating a complex and uncertain verification process.

These rising costs begin almost immediately – the greatest annual increase in CBAM costs (€12 billion) comes in the first year, despite only 2.5% of free allocations being removed in 2026. This sharp jump reflects the fact that all embedded emissions above the benchmark become liable for CBAM charges from the outset. Costs then escalate year-by-year as free allowances decline to zero by 2034 and EUA prices continue to climb.

However, these aggregate figures mask wide variation across products and countries, with clear winners and losers emerging across both dimensions.

Diverging impacts across sectors 

The impact of CBAM is not distributed evenly across sectors. For certain products, CBAM costs could exceed 400 percent of import value in a high EUA price scenario, with significant implications for profit margins. The cement sector is very exposed due to low value added compared to emissions content, and relatively small existing profit margins. Similarly, high-emissions producers and importers, in more competitive markets that are less able to pass costs on, will face greater impacts. These cost increases will also cascade downstream, affecting industries such as agriculture, automotives, and construction.

The metals industry is expected to be the largest purchaser of CBAM certificates, totalling 88 percent of liabilities between 2026 to 2035, with 81 percent of total CBAM costs contributed by the iron and steel sector. Iron and steel products currently represent the majority of CBAM goods at over 70 percent of total CBAM exposed trade value. Steel production based on the blast furnace-basic oxygen furnace (BF-BOF) process is highly carbon intensive – when combined with the sector’s high import value, this results in CBAM costs of over €30 billion each year by 2035.

Aluminium production faces lower costs – around 7 percent of total 2035 CBAM liabilities – due to lower direct emissions intensity, and the EC’s decision not to include electricity emissions associated with aluminium production. However, aluminium producers face significant competitiveness and carbon leakage risks related to downstream goods with high aluminium content.

CBAM costs will also coincide with higher carbon costs for EU producers as free allocations diminish and EUA prices climb. These combined pressures are expected to push EU market prices upward. In sectors where the impact is particularly pronounced, such as cement, the resulting price increases could lead to demand destruction, with downstream users reducing usage or turning to lower-cost alternatives. 

The geographical fallout of CBAM 

Demand for CBAM certificates is highly concentrated geographically, with 92 percent of total demand in 2035 projected to come from Asia, the rest of Europe, and MENA². China is expected to be the largest purchaser, with CBAM costs reaching €9.1 billion under the High EUA price scenario and €6.0 billion under the Base scenario. Türkiye, India, and Russia also face substantial liabilities, driven by both their large CBAM-exposed export volumes and their relatively high default emissions intensity values—particularly in the iron and steel sector, where most of the costs are concentrated. 

More important for countries’ competitiveness is their effective CBAM tariff rate – that is CBAM costs as a percentage of import value. Default values imply the highest CBAM tariff rates are faced by Indonesia and Egypt, at 154% and 86% respectively, whilst the lowest are faced by Canada and Bahrain³. A country can face a low average effective tariff rate for two reasons: a) they mainly export products to the EU which face lower CBAM costs – in which case they are somewhat shielded from the starkest impacts of CBAM, or b) they have a lower emissions intensity than their competitors – in which case they could stand to gain market share as a result of CBAM. 

League table of countries by overall effective CBAM tariff rate in 2035

Variation in emissions intensity between countries in a sector will create winners and losers; low-intensity producers will gain a competitive advantage over those who struggle or are unwilling to decarbonise as importers seek to minimise CBAM expenses. As costs ramp up, high-emitting producers may redirect exports away from the EU market. This could contribute to supply chain disruptions as companies adjust procurement and trading patterns in response. 

Strategic implications across the value chain 

The magnitude of CBAM liabilities will have a considerable impact on global trade, with effects comparable to those of Trump’s tariffs. This has substantial implications across supply chains: 

• EU importers will face higher procurement costs and are likely to respond by shifting their sourcing patterns towards producers with lower CBAM emissions intensities. 

• Non-EU exporters with emissions-intensive production could turn away from the EU market and towards countries without climate legislation. At the same time, new low-carbon producers could enter the EU market, recognising that their products will appear more attractive. 

• EU producers face complex competitive dynamics from CBAM. While the mechanism reduces direct competition from higher-emission imports, it can simultaneously raise input costs when those inputs are themselves subject to CBAM. Overall, EU producers are likely to increase their market share as they face a smaller cost shock than importers, having already absorbed some carbon costs through the EU ETS and generally operating at lower emissions intensity. This advantage, however, could be eroded if contracts or trade patterns shift toward exporters facing comparatively low CBAM tariffs. 

• Downstream EU industries, such as automotive manufacturers, could lose market share. CBAM can raise input costs for these sectors, but as they are outside the direct scope of CBAM, competing imports do not face such costs.  

Beyond the domestic EU market, CBAM could create issues for the competitiveness of EU industries abroad. EU-based exporters do not currently stand to receive rebates for ETS costs when products leave the jurisdiction. As such, EU goods could become uncompetitive in world markets as free allocations are phased out over the next decade.

Overall, CBAM’s impacts are large and varied enough to significantly shift world trade patterns. These shifts could moderate the impacts of CBAM on price rises in the EU, but they leave producers and manufacturers vulnerable to uncertainties regarding future demand. Ultimately, CBAM pushes companies across the value chain to reassess their supply networks and consider strategic shifts toward lower-carbon inputs and production routes.

The Fastmarkets CBAM Intelligence Suite turns this regulatory shift into measurable economics. It integrates verified emissions data, certificate price forecasts, and scenario modelling to help companies quantify exposure, forecast cost, and plan compliant trade strategies. Learn more.

1. 1. Note: all values assume constant import values across years, default factors rather than actual emissions intensity data are applied, and no carbon price paid in the country of origin. ↩︎
2. 2. UK CBAM exposure may diverge from these values once their ETS and CBAM systems are linked with those across the EU, and UK carbon prices are recognised. ↩︎
3. 3. Only countries with over 1% of total EU import value in covered sectors have been included. ↩︎