The Carbon Bill Is Coming: What CBAM And The EU ETS Mean For Your Business

What Is CBAM — And Why Should You Care?

Imagine you manufacture steel in Brazil. Your production costs are competitive, your quality is strong, and you sell to buyers across Europe. Now imagine that starting this year, your EU customer must pay a carbon toll on top of the product price — calculated on every ton of CO₂ emitted to make your steel.

That is CBAM: the EU Carbon Border Adjustment Mechanism. It is not a tariff in the traditional sense. It is a carbon price equalizer, designed to ensure that imported goods face the same carbon cost as goods produced inside the EU.

EU producers have operated under the EU Emissions Trading System (ETS) for years — they pay for their carbon emissions by purchasing allowances on an open market. The problem the EU sought to solve: competitors outside the EU had no equivalent cost, creating an uneven playing field and incentivizing the relocation of carbon-intensive production to countries with weaker climate rules. CBAM closes that gap.

Since January 1, 2026, CBAM has moved from a reporting obligation into a full financial obligation. Companies importing steel, aluminium, cement, fertilizers, electricity, and hydrogen into the EU must now purchase CBAM certificates — one certificate per ton of CO₂ embedded in the product. The price of those certificates is pegged weekly to the EU ETS allowance price.

The ETS Is Getting Stricter — And CBAM Follows

CBAM's price is not set independently: it mirrors the EU ETS, which is itself tightening on a legislated schedule. The EU is reducing the total number of carbon allowances in circulation at an accelerating pace — 4.3% per year through 2027, then 4.4% through 2030 — targeting a 62% reduction in covered emissions below 2005 levels by 2030.

For industries that previously received free ETS allowances — a transitional concession to avoid economic shock — that cushion is disappearing fast. Free allocations for the sectors covered by CBAM are being phased out on a fixed schedule: 2.5% eliminated in 2026, rising to 48.5% by 2029, 61% by 2030, and 100% by 2034. Full carbon pricing applies to all EU production from that point forward.

What does this mean in practice? For a company exporting 50,000 tons of steel per year to the EU — with an emission intensity of 1.8 tCO₂e per ton — the embedded carbon footprint is 90,000 tCO₂e. At approximately €75 per certificate, that is a carbon bill of roughly €6.75 million annually. As the ETS price rises and free allowances disappear, that number compounds every year.

How The Carbon Calculation Works

The financial obligation is calculated from a straightforward formula. The EU requires declarants to report the embedded emissions of every product imported, based on actual production data — or, in the absence of verified data, EU-defined default values.

Activity Data is the quantity of fuel or raw material consumed in production. The Emission Factor converts that quantity into CO₂ equivalent. The Oxidation Factor accounts for incomplete combustion. For downstream manufactured goods entering scope in 2028, the calculation applies only to the embedded emissions of the steel or aluminium precursor materials — not the energy consumed in fabrication, assembly, or finishing. A manufacturer of automotive parts will face a CBAM cost based on the steel content's embedded carbon, not the electricity used on the production line.

The critical point: if an exporting company cannot provide verified Monitoring, Reporting, and Verification (MRV) data, the EU applies conservative default values that are typically higher than the actual emissions of efficient producers. Companies without robust carbon accounting systems pay a penalty they may not actually owe — an invisible competitive disadvantage that proper data management can eliminate.

YS Analysis: What CBAM Means For LATAM Companies Exporting To The EU

Most of the global CBAM discussion has focused on European compliance mechanics. The exposure analysis that matters most for Latin American businesses has received far less attention. Based on World Bank Trade Exposure Index data updated in 2025, the picture is nuanced — but the risks for specific countries and sectors are concrete and quantifiable.

Steel and Aluminium: Brazil and Colombia at the Front of the Queue

Brazil is the most exposed Latin American country in the iron and steel sector. Approximately 12.5% of its iron and steel exports go to the EU, and its carbon payment rate reaches 10.76% per dollar of exports — more than three times the EU sector average of 3.21%. Its Trade Exposure Index is 0.942 out of 1.0.

The compounding problem: Brazil does not currently have a functioning national carbon price. Its emissions trading system is not expected to be fully operational until 2030. Without a domestic carbon price to offset against, Brazilian exporters receive no CBAM credit deduction — they bear the full cost.

Source: World Bank CBAM Exposure Indexes, updated July 2025 / OPIS, August 2025.

In aluminium, the picture shifts. Mexico and Colombia produce low-carbon aluminium and actually benefit from CBAM relative to high-emission competitors from Mozambique, Kazakhstan, and Indonesia. Their lower carbon intensity positions them as preferred EU suppliers — but capturing that competitive advantage requires documented MRV data to prove it.

Fertilizers: Trinidad and Tobago — An Economy-Level Risk

Fertilizer is where CBAM exposure becomes acute. Trinidad and Tobago has a carbon cost intensity of 107.95% per dollar of fertilizer exports — nearly double the EU average of 52%. Fertilizer exports to the EU represent 20.8% of its sectoral exports and 20% of domestic output, producing a Trade Exposure Index of 11.6. Its Economic Exposure Index stands at 2% of GDP, the highest recorded globally.

Colombia and Mexico follow with carbon payment rates above 81% per dollar in fertilizers. For both countries, the agricultural supply chain implications extend beyond direct exporters to any industry that uses fertilizer as an input and sells to EU markets.

The 2028 Expansion: The Clock Is Running for Mexico's Industrial Sector

The current CBAM scope covers the first wave of primary commodities. In January 2028, the mechanism expands to at least 180 downstream metal products — and potentially more, depending on the outcome of EU Council–Parliament trialogue negotiations expected through 2027. Categories in confirmed scope include automotive body parts and components, compression-ignition engines, industrial machinery, fabricated metal products, domestic appliances, and construction equipment.

Mexico's manufacturing export base — which includes significant volumes of metal-intensive automotive components, machinery, and industrial parts destined for EU buyers — enters the calculation at this point. Any Mexican manufacturer exporting these goods to the EU, directly or through supply chains with EU OEM buyers, will need to document the embedded carbon of the steel and aluminium inputs in their final products.

For companies that have not yet established carbon accounting practices for their supply chain, 2028 is not a distant deadline. Implementing MRV systems, engaging suppliers on emissions data, and establishing baselines typically requires 18 to 24 months of preparation. The window to act before regulatory costs materialize is now.

The Strategic Response: Three Decisions Every CFO Should Make Now

CBAM is not a problem to defer to the sustainability team. The certificates are purchased by the EU importer — but the cost is invariably negotiated back to the exporter in purchase price reductions, lost contracts, or margin compression. The impact reaches the P&L regardless of where in the supply chain the formal obligation sits.

First: Quantify your exposure — and act before September 30, 2027. That date marks the first CBAM certificate surrender deadline for goods imported into the EU during 2026. If your products enter EU supply chains, your buyers are already calculating their certificate costs. Map which products, in what volumes, enter EU markets and model the carbon bill at current prices before the next commercial negotiation cycle.

Second: Build your MRV system. If you are using EU default values, you are almost certainly overpaying. Verified actual emissions data is the most direct lever to reduce CBAM cost — without changing a single production process. For Latin American companies that have invested in modern, cleaner production methods, the failure to document those improvements is a direct financial loss.

Third: Assess whether your country's carbon pricing mechanism qualifies for CBAM deduction. Under Article 9 of the CBAM Regulation, carbon prices effectively paid in the country of origin — whether through an ETS or a carbon tax — can be deducted from CBAM obligations, provided no rebate or exemption was received. Mexico operates an emissions trading system currently transitioning to full compliance; Colombia and Chile have carbon taxes that may partially apply to industrial emissions. In all three cases, the deductible amount is likely to be a fraction of the CBAM certificate price given the significant gap between local carbon prices and the EU ETS level. The analysis is worth conducting — but the offset potential should not be overstated.

Companies that treat CBAM as a compliance checkbox will bear its full cost. Companies that treat it as a pricing variable to optimize will convert regulatory pressure into commercial advantage.

About The Author

Nathalie Yabrudy González

Managing Consultant, Yabrudy Solutions

Nathalie Yabrudy González is Managing Consultant at Yabrudy Solutions, a boutique sustainability advisory firm that transforms regulatory complexity into strategic advantage. She advises companies across sectors — from energy and manufacturing to agribusiness and services — on ESG strategy, sustainability reporting aligned with GRI, ISSB, SASB, CSRD, and TNFD, carbon footprint measurement under the GHG Protocol and ISO standards, decarbonization pathways, life cycle and water footprint assessments, climate risk analysis, and environmental compliance. Her approach combines technical rigor with knowledge transfer, building self-sufficient teams that embed sustainability into their corporate DNA.

ny@yabrudysolutions.com  ·  yabrudysolutions.com