The EU's Carbon Border Adjustment Mechanism entered its pricing phase on January 1, 2026. Within weeks, ArcelorMittal Kryvyi Rih — one of Ukraine's largest steelmakers — reported that European customers had canceled roughly 300,000 tons of first-quarter orders. The CEO put the math plainly: once buyers learned about the additional CBAM duty of $60 to $90 per ton, they walked. One mill shut down. At least 3,400 jobs gone.
That's not a policy failure. That's the mechanism working as designed — making carbon-intensive imports more expensive so EU producers can compete on equal footing. The question worth asking is whether "working as designed" and "good climate policy" are actually the same thing.
The Competitiveness Argument Is Real, But So Is the Selectivity Problem
The logic behind CBAM is defensible. The EU's Emissions Trading System already forces domestic producers to pay for their carbon. Without a border adjustment, cheaper imports from countries with weaker pollution rules would undercut them — effectively offshoring emissions while destroying European industrial jobs. Steel and cement lobbies in Europe have largely applauded the mechanism for exactly this reason.
But the mechanism covers only six sectors: iron and steel, aluminum, cement, fertilizers, hydrogen, and electricity. That's not the full carbon footprint of EU imports — it's the slice where European industry lobbied hardest for protection. The correlation between "sectors covered by CBAM" and "sectors where EU producers face the most foreign competition" is not a coincidence. Calling that pure climate policy requires some generosity of interpretation.
The cost structure also creates a hierarchy that has little to do with actual emissions performance. According to BloombergNEF, importers who cannot verify their own emissions data get charged at default values set by the European Commission — values that can run as high as 1.3 times the current import value for goods like cement and clinker. India, which supplied roughly 15% of EU hot-rolled steel imports in 2024, faces default obligations up to €293 per metric ton in 2026. A genuinely low-carbon Indian producer with poor documentation pays the same rate as a high-carbon one. The policy rewards paperwork compliance as much as actual decarbonization.
Ukraine Is the Stress Test Nobody Wanted
The Ukraine case makes the tension impossible to ignore. Ukrainian steelmakers are operating under active shelling, with disrupted energy supply and workforce losses from four years of full-scale war. Metinvest, the country's largest steelmaker, put it directly: "Formally, CBAM pursues environmental objectives, but in practice it also functions as a tool to protect the European market."
Ukraine is also a candidate for EU membership — meaning it's being asked to align with EU environmental standards while simultaneously being taxed for failing to meet them, in the middle of a war. The EU has not announced a CBAM exemption for Ukraine. Metals exports were worth nearly $4 billion in 2023, with Poland alone absorbing a third of Ukrainian metal exports. That revenue matters for a country financing its own defense.
I'd argue this is where the "legitimate climate tool" framing starts to strain. A well-designed carbon border adjustment would account for the difference between a country that chooses not to price carbon and one that can't build functioning industrial policy because its factories are being bombed. CBAM currently makes no such distinction.
What the Numbers Actually Prove
Brookings estimates CBAM will raise nearly €15 billion annually. That's real money — and it's already reshaping trade flows before most of the phase-in is complete. The mechanism is clearly effective at changing import economics. Whether those changed economics translate into global emissions reductions is a different question, and one the EU has not answered with much rigor.
The honest accounting would track whether CBAM-affected production actually decarbonizes, relocates to third countries outside EU reach, or simply shifts to product categories not covered by the mechanism. None of those outcomes are equivalent from a climate standpoint, but CBAM's design doesn't distinguish between them. Revenue collected is measurable. Emissions avoided globally is much harder — and so far, largely unmeasured.
The US is watching closely. Bipartisan proposals — Senator Cassidy's Foreign Pollution Fee Act and Senator Whitehouse's Clean Competition Act — both draw on the CBAM model, suggesting the template is spreading regardless of whether the original version gets the climate math right.
Watch for the European Commission's first full CBAM compliance reporting cycle, due later this year, which will be the first real test of whether verified emissions data is actually flowing — or whether the default-value penalty structure is doing most of the work.