Reforming Carbon Border Adjustment Mechanisms: European Industry Perspectives on a Path Forward: An Effective Carbon Price with a ‘Climate Contribution’

Abstract

The EU and the UK have recently developed Carbon Border Adjustment Mechanisms (CBAM) to account for the carbon cost embedded in imported products. • There are three major drawbacks to the current design of the CBAM targeting process-specific emissions. Circumvention risks, a lack of export coverage and a scope limited to upstream producers create risks of leakage of emissions and industrial production. • DIW Berlin, CETEx and their research partners conducted a series of interviews on CBAM reform options with 27 industry stakeholders from multiple countries in the EU and the UK, across the following sectors: cement, steel, aluminium, organic chemicals and manufacturing industries. • Most of the interviewed industry stakeholders do not regard the extension of free allocation of emission allowances as a viable long-term option, as this would severely jeopardise the carbon price signal and the transition to climate neutrality. • The creation of lead markets is generally viewed as a positive way to complement carbon pricing to foster green demand. However, on their own, they are considered insufficient for financing decarbonisation. • A CBAM based on standardised values is generally viewed positively by several stakeholders in sectors with complex value chains: steel, aluminium and organic chemicals. An evolution of the CBAM towards a similar model to excise duties draws interest from these stakeholders as a way to extend the scope of downstream products covered. • When the interviews were held in late 2025, the interviewees had limited knowledge of this reform option and, accordingly, were cautious in its evaluation. They acknowledged the benefits of effective carbon leakage protection and clean investment incentives, while recognising that such an evolution would reduce the direct incentives for third-country decarbonisation that the current EU CBAM design provides.