Climate and Competitiveness Border Carbon Adjustments in Action 2025

Overview and industry responses to BCAs1 How are BCAs around the world designed and implemented, and how are companies in emissions-intensive sectors responding? Under border carbon adjustments, charges are levied on embedded emissions of imported goods at a carbon price equivalent to what would have been applicable if the goods were produced under the policies of the importing country.2,3 BCAs can be structured in different ways, either as border taxes linked to domestic carbon taxes or as certificate systems tied to emissions trading schemes, and different jurisdictions developing BCAs may take divergent approaches. The EU CBAM, the first operational BCA globally, follows the latter approach, requiring importers to purchase certificates priced in line with the EU ETS, ensuring imported goods face similar carbon costs to domestic products. Critical implementation elements on the ground include the development of rigorous yet pragmatic measurement, reporting and verification (MRV) systems, enforcement mechanisms across customs and climate agencies and phased rollout timelines.4 Moreover, accurate MRV necessitates independent verification, with EU regulations mandating that importers have emissions certified by accredited verifiers.5,6 Once MRV data is collected, BCAs must be enforced to ensure compliance. Authorities verify whether goods fall within the scope of a BCA using tariff codes and importer registration.7 Compliance involves periodic declarations of import volumes and embedded emissions, with importers surrendering certificates or paying carbon dioxide (CO2) costs. The EU’s CBAM (following the Omnibus package8) and the UK’s CBAM also allow default values as an alternative to actual emissions, although these can entail higher costs than actual emissions as they are based on average emissions intensity by country or region. Penalties for non- compliance are enforced nationally, while verifying overseas data remains challenging.9 For companies, these design choices translate into compliance strategies and competitive positioning. Companies in energy-intensive industries face the most immediate reporting and cost pressures but also the greatest incentives to decarbonize, adopt cleaner production methods and/or certify lower emissions intensity. Multinationals with global supply chains are adapting by improving emissions data collection, engaging suppliers to meet uniform benchmarks and using transparency as a signal to investors and consumers. In practice, corporate responses are increasingly going beyond compliance: some companies (see Section 1.5) are adapting to BCAs by adjusting supply chains and exploring opportunities in low-carbon markets.1.1 Design and implementation of BCAs Climate and Competitiveness: Border Carbon Adjustments in Action 7