Market Insight | Week 50

As 2025 draws to a close, the transitional period for the EU’s Carbon Border Adjustment Mechanism (CBAM) is coming to an end. From January 1st, 2026, CBAM enters its definitive phase, with reporting and financial obligations taking effect. However, while importers will be liable for emissions embedded in goods imported during 2026, the actual obligation to purchase CBAM certificates has been postponed to February 2027.
CBAM imposes a duty on emission-intensive products at the EU border, with its scope covering the high carbon intensity sectors of aluminium, iron and steel, cement, electricity, fertilizers, and hydrogen. Importantly, CBAM targets the middle of the value chain rather than its extremes: it applies to precursors, primary forms, and semi-finished products such as pig iron, clinker, steel slabs, bars, and tubes, as well as some simple finished goods like bolts and screws. However, it excludes both raw materials, such as unprocessed iron ore, and complex finished goods like vehicles and appliances.
At its core, CBAM has a dual aim: to reduce global GHG emissions by incentivizing non-EU producers to adopt greener practices, while simultaneously protecting EU manufacturers from competitive disadvantages arising from the bloc’s carbon pricing under the EU ETS, ensuring that all products sold in the EU, whether domestically produced or imported, compete under a common environmental cost structure.
Notably, the EU has introduced provisions to reduce CBAM pricing for countries that implement their own carbon pricing systems. Turkey, for instance, has recently adopted its first Climate Law, establishing the legal basis for a national emissions trading system to align with EU standards and potentially avoid in the future CBAM charges, given Turkey’s close trade ties with the EU in steel, cement, and aluminium segments.
For non-EU exporters, CBAM translates into higher administrative, compliance, and import costs, which could squeeze profit margins or be passed on to end consumers. Producers of high-emitting commodities face a strategic choice: invest in greener production methods or redirect export volumes toward markets outside the EU. Moreover, some importers may pivot toward complex finished goods that fall outside CBAM scope to avoid additional costs, for example, substituting steel imports with manufactured vehicle bodywork. Products originating from countries with high emission intensities and no domestic carbon pricing will face a greater loss of competitiveness, likely shifting EU sourcing preferences toward suppliers with cleaner production profiles.
Regarding dry bulk seaborne transportation, these dynamics are expected to bring some reshuffling of dry bulk trade flows into the EU, as the bloc currently imports CBAM-covered goods from a range of non-EU suppliers: indicatively cement and clinker from Turkey, Algeria, and Egypt, steel from China and India and fertilizers from Morocco, among others. Over time, certain non-EU exporters, particularly those not employing green production practices, may reduce or cease trade with the EU and seek alternative markets, with India offering a case in point. Having expressed opposition to the new regulation, the country is expected to see its steel exports to Europe decline, as the carbon levy significantly raises costs for mills relying on higher-emission blast furnaces. Indian producers are exploring shifts toward lower-emission electric arc furnaces as a potential solution. At the same time, to compensate for shrinking margins in the EU market, they are looking to redirect volumes to alternative markets, such as the Middle East and Africa. Overall, Asia-Europe trade is estimated to be affected by CBAM’s implementation, with the Asian Development Bank projecting that the mechanism will reduce total exports from Asia to the EU by around 1.1%.
However, the net impact on dry bulk ton-miles will depend on how markets adapt to CBAM and sourcing patterns evolve. While some trade routes may shorten as the EU shifts toward suppliers with lower emission intensities, others could lengthen if cleaner producers are located further afield. Steel imports from Brazil, for instance, could rise given the country’s growing green steel production capacity. In any case the effect, in whichever direction, on total dry bulk demand is expected to be limited, given the portion of these trades relative to total dry bulk volumes and mostly concentrated in mid to smaller sizes operating these routes, Panamaxes, Supramaxes, and Handies. Overall, CBAM marks another stride toward a lower-emission industrial landscape, reflecting environmental regulation’s growing influence on global trade.