More companies will need to navigate carbon tariffs as governments around the world look to reconcile their security, industrial policy and climate goals. Businesses in several major economies – including the EU, UK and Canada - now have a narrow window of opportunity to engage in the design of these new regulations to protect their commercial interests.
A record number of countries are now considering introducing Carbon Border Adjustment Mechanisms (CBAMs) that put carbon taxes on imports of carbon-intensive goods such as steel, aluminium, cement, iron, fertilisers, hydrogen and electricity. While originally conceived as a climate tool, the political appeal of CBAMs is becoming stronger as countries seek to protect domestic manufacturing from global (read: Chinese) competition and rebuild heavy industry for defence – all while providing incentives for industrial decarbonisation.
We expect growing moves to link these different mechanisms as governments look to reboot both the international trading system and climate cooperation in response to recent action by the US government. The coming months are likely to see diplomatic discussions on how CBAMs in different jurisdictions could be made interoperable or linked to other carbon pricing mechanisms. CBAMs will also continue to encounter strong opposition from major economies in the Global South (e.g., India, Brazil, South Africa), leading to a dynamic and contentious debate with diverse perspectives, coalitions, and opportunities for influence.
The spread of CBAMs will translate into growing opportunities and risks for companies operating in carbon-intensive sectors and the businesses in their value chain. Smart CBAM design can benefit businesses with low carbon footprints, and those offering low-carbon solutions can gain a competitive advantage. Designed right, CBAMs can benefit domestic manufacturers of in-scope sectors, who stand to benefit from a more levelled playing field relative to third-country manufacturers. At the same time, CBAMs can increase direct costs, affecting future cash flows, asset valuations, and operations. The fragmented nature of carbon pricing mechanisms across different countries also complicates long-term investment planning.
There is a window of opportunity for companies to engage with governments and shape the design of their CBAM regulations. The devil is in the detail, with small changes in design having an outsized commercial impact.
Key policy debates to engage with
EU: The EU CBAM is currently in its transition phase and will apply gradually from January 2026 to cement, iron and steel, aluminium, fertilisers, electricity and hydrogen. Discussions are under way about expanding the mechanism to downstream products while introducing export exemptions, opening up new opportunities for industry to engage on the design of a CBAM 2.0.
UK: The UK has confirmed that it will introduce its own CBAM from January 2027. Sectors in scope mirror the ones under the EU CBAM, except for electricity. Draft primary legislation was published on April 24, along with the launch of a public consultation open for input until July 3, 2025. In the meantime, greater alignment of the UK and EU CBAMs is under active diplomatic discussion.
Canada: Newly elected Prime Minister Mark Carney has committed to introduce a CBAM as part of his platform to boost growth and reshape the country’s carbon pricing regime. A long-term leader of international climate cooperation, he is likely to advocate for CBAM interoperability and closer alignment with like-minded partners like the EU and the UK, as part of his wider strategy to support Canada’s trade diversification and accelerate the pace of decarbonisation worldwide.
USA: Discussions around a US carbon tax are resurfacing under the Trump Administration, with two Republican Senators re-introducing a bill to establish a US CBAM in early April. Despite the government’s strong pushback on climate-related policies, a CBAM could be appealing due to its emphasis on ensuring a level playing field for domestic manufactures and its positioning as an anti-China measure.
We can help you break down the complexity and unlock business value
We have been advising companies in a variety of sectors on carbon pricing policy, including carbon tariffs like the EU CBAM. Our work is informed by FGS Global’s sectoral and policy expertise in key markets, complemented by direct engagement with key stakeholders and experts.
Scenario planning and impact analysis: We can help you horizon scan and build policy scenarios to help you assess how current and future tariff schemes can affect your production lines and investment plans.
Strategy and narrative development: We help clients understand how the political and policy debate on these mechanisms is evolving and how best to win support. CBAMs touch on security, industrial and climate policy – and we use conversation analysis, stakeholder research and message-testing to help clients understand where to focus their efforts and the positions most likely to change the conversation.
Advocacy and engagement: Based this work, we can develop and implement tailored strategies to engage with policy makers and shape the wider debate through coalition building, media and digital campaigns.
If you would like to hear more about how FGS Global can support you, please contact any of the team below.
