Europe designed the CBAM so that the price of carbon does not stop at its borders. But the mechanism requires verification by accredited verifiers. Control falls to the Commission and competent national authorities, while verification is carried out by accredited verifiers. Compliance costs vary depending on the size and administrative capacity of exporters.
The essentials
- The CBAM, in force since October 2023, requires authorized declarants of affected CBAM goods to declare verified actual emissions or default values and to surrender the corresponding certificates, with possible deduction of carbon pricing actually paid.
- The CBAM requires verification by an accredited verifier; it does not restrict access to the European market to clients of large international firms.
- Compliance costs vary depending on the size and administrative capacity of exporters.
- Data availability and verification creates an administrative burden, but the CBAM amount is also linked to verified actual emissions or default values tied to emission intensity.
- Alternatives exist: shared carbon registries, bilateral recognition agreements, technical assistance funds. Their deployment remains slow against the CBAM timetable.
The principle is sound, but the mechanics create default winners
The Carbon Border Adjustment Mechanism rests on a simple idea. When a European company pays for its carbon allowances in the EU ETS system, its foreign competitor exporting to the EU without equivalent constraint is not exempt from it. The CBAM restores fairness by requiring the importer to purchase CBAM certificates at the average price of EU ETS allowances, minus any carbon pricing actually paid in the country of origin.
On the principle, UNCTAD and the World Bank recognize that this instrument is necessary to prevent carbon leakage—that is, the displacement of emissions to countries without constraints. The EU is not the first to think of it, but it is the first to operationalize it at this scale.
The problem emerges at the proof stage. To claim a reduction related to carbon pricing paid in a third country, the declarant must keep the required evidence, including documentation certified by an independent person and proof of actual payment. This certification requires accredited auditors, internal traceability systems; companies and regulators in developing economies may face data gaps, high costs, and limited technical capacity.
Mechanical result: when no verified real data is used, the declarant can resort to applicable default values, then surrender the corresponding certificates. Those that can prove actual emissions and carbon pricing actually paid in the third country benefit from a reduction in the number of certificates to be surrendered. Large companies integrated into European supply chains have often already conducted these audits for other reasons—ESG reporting requirements from their customers, access to financial markets, local obligations in some advanced Asian countries. For them, the marginal cost of CBAM compliance is low.
Four firms control access to the European market
The accreditation framework provides that verifiers, including those established outside the EU, can apply for accreditation with any competent national accreditation body in the EU, but exporters facing risks of recognition inadequacy incur additional administrative burden. An exporter engaging an audit with a not-yet-recognized regional firm risks discovering the inadequacy of this approach at the time of customs declaration, once costs are incurred. This exposure to risk can steer certain exporters toward firms whose accreditation is established.
Recourse to international firms can be explained in part by the uncertainty linked to recognition of regional auditors. This uncertainty has an indirect cost difficult to measure but real: companies doubting the validity of their audit options delay investments in internal traceability systems, which increases their exposure when financial obligations become effective.
The accreditation framework is formalized by the Commission, but the absence of a harmonized published list of verification bodies accepted for all product categories creates uncertainty that can steer exporters toward established international firms.
The concentration of the carbon audit market among international firms reinforces this advantage. International firms have an established market presence in carbon certification. They have established accreditations and standardized tools within the CBAM framework.
This situation stems from sectoral history: these firms invested heavily in climate expertise when demand from large listed companies took off, particularly after the Paris Agreement and the first European non-financial reporting directives. They have networks in seventy countries and master the language of institutions.
For an industrial ceramics manufacturer in Vietnam or a cement producer in Bangladesh, accessing these services comes at a price. Compliance costs vary depending on administrative capacity and exporter size.
Regional audit firms exist in India, Malaysia, and Thailand, but their accreditations are not always recognized within the CBAM framework. The EU has not yet published a harmonized list of verification bodies accepted for all product categories. This uncertainty can influence exporters’ choice between local auditors and international firms.
The timetable presses, capacities lag
The CBAM transition phase began in October 2023. During this period, importers are required to declare emissions embedded in their products, without yet paying. The definitive regime applies to imports from 1 January 2026 for covered sectors: steel, aluminium, cement, fertilizers, electricity, and hydrogen, but purchasing certificates for 2026 emissions begins in 2027.
The timetable problem is real. The CBAM had a declaration phase from 1 October 2023 to 31 December 2025, then a definitive regime from 1 January 2026; companies with prior reporting obligations were able to build their measurement and certification capacities before this date. UNCTAD has noted that several developing countries have limited statistical infrastructure to produce reliable enterprise-level emission data.
This time constraint creates another perverse effect. SMEs like other importers can use default values; the regulation does not reserve this option for companies unable to finance verification. Absence of certification does not in itself prevent market access, but actual emissions require verification. In the textile sector, where comparable dynamics of upgrading among Asian exporters are already underway, supply chain reconfiguration in favor of administratively best-equipped actors is documented.
The CBAM does not yet cover textiles, but the logic is transposable to any sector where the EU extended the mechanism. The Commission was to present before 31 December 2025 a report examining in particular possible extension of the scope to other products.
Solutions exist, none matches the scale of the problem
The question of default values deserves particular examination, as it illustrates an internal contradiction in the mechanism. These values are meant to simplify compliance for exporters unable to produce verified individual data. In the absence of reliable data, the default value rests on the average of the ten exporting countries with the highest emission intensities for the type of good in question. An exporter not providing verified real data can be subject to an applicable default value. The mechanism accounts for actual reductions when established by required data and verifications; absent such data, default values apply.
The calibration of default values is an important but not sole factor in CBAM’s environmental coherence, which also depends on other parameters of the mechanism. Recalibrating these values on credible sectoral averages, differentiated by production region, would constitute an adjustment both limited in its institutional scope and significant in its effects on the most-constrained exporters.
The EU has not ignored these tensions. The regulation notably provides for account to be taken of carbon pricing actually paid in a third country, allowing a reduction in CBAM obligations. This path is open, but few countries have taken it. Setting up a credible ETS system takes years.
Capacity-building initiatives exist. The Commission finances technical assistance programs through neighbourhood and development instruments. The World Bank has programs supporting carbon accounting in around ten countries. But these programs are sized for several thousand companies in countries with hundreds of thousands of potentially affected exporters.
A third path is pursued by economists and specialized NGOs: creation of shared carbon registries at sectoral or national level, in which SMEs could register based on average sectoral data rather than individual audits. The EU already accepts default values for countries without reliable data, which can penalize companies that have reduced their emissions without having the means to prove it.
The tension between environmental efficiency and distributive equity is particularly acute on this point. An exporter without verified real data is subject to the applicable default value, which can differ depending on product, country, or region. Verified documentation allows actual performance to be taken into account; without it, the calculation relies on applicable default values.
The CBAM model will be replicated or rejected based on what these years show
Europe is not alone. The United Kingdom announced its own CBAM, applicable from 2027. Canada is examining a similar version. If this model is to become the standard of developed economies to prevent carbon leakage, its distributive effects on exporters from Global South countries will determine whether it gains international legitimacy or crystallizes resentment that weakens climate cooperation.
This question exceeds the technical. Global decarbonization requires that emerging economies, where emission growth concentrated in 2024 in emerging and developing economies but accelerated in 2025 in advanced economies, perceive rich countries’ climate instruments as tools for shared transition, not as disguised barriers. Asian textiles showed that value chains reconfigure when rules change. The CBAM could affect access to supply chains based on exporters’ ability to meet certification requirements.
Adjustments are within the Commission’s reach without calling the mechanism’s principle into question. Explicitly recognize accredited local auditors in partner countries. Massively finance shared sectoral registries in developing countries. Modulate default values so they correspond to sectoral averages rather than worst cases. Accelerate bilateral recognition agreements with countries that have instituted even partial carbon pricing.
These corrections would aim to improve alignment between the CBAM’s environmental objectives and its distributive effects on exporters from developing countries.
Sources
- Regulation (EU) 2023/956 of the European Parliament and of the Council establishing a Carbon Border Adjustment Mechanism, European Commission
- UNCTAD, The Carbon Border Adjustment Mechanism: Implications for Developing Countries, United Nations Conference on Trade and Development (no direct link: consult the UNCTAD portal)
- World Bank, State and Trends of Carbon Pricing, annual reports, available at carbonpricingdashboard.worldbank.org
- European Commission, CBAM Transitional Phase Guidance, implementing texts available at taxation-customs.ec.europa.eu
