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The Carbon Border Adjustment Mechanism (CBAM) will be effective from January 1, 2026, targeting imports of steel, aluminum, cement, fertilizers, electricity, and hydrogen. The mechanism, initially tested in a 'soft launch' since October 2023, aims to ensure that non-EU CO2 emitters pay similar costs as EU producers.

Importers must register with CBAM and purchase 'CBAM certificates' based on the ETS carbon price, starting in February 2027 for 2026 emissions. The EU plans to gradually phase out free quotas for high-emission sectors by 2034.

A list of 180 products potentially subject to CBAM has been published, with discussions ongoing for further applications by 2028. CBAM certificates will vary based on the source's carbon footprint, and benchmarks for free quotas will adjust over time, impacting costs significantly. The mechanism incentivizes data collection by exporters to reflect actual emissions.