Climate and Competitiveness Border Carbon Adjustments in Action 2025

The first major operational BCA, the EU CBAM, has been designed in coordination with the EU ETS to ensure that Paris climate goals10 and EU economic objectives are met. Importers report embedded emissions of covered products and purchase “CBAM certificates” at a price that mirrors the EU ETS allowances.11 Until the end of 2025, CBAM is in a transitional phase that requires importers to submit quarterly reports on their emissions without incurring a fee, allowing time to establish a rigorous MRV procedure structure. From 2026 onwards, full obligations will take effect in parallel with the gradual phase-out of free carbon allowances for EU industries.12 The EU has expressed its intention to expand the CBAM’s scope by 2030 to include all sectors covered by the EU ETS.13 Several countries outside the EU are also exploring BCAs and advancing carbon-pricing initiatives, as summarized in Table 1. The evolution of BCAs remains highly dynamic and context-specific, with emerging frameworks reflecting differing national priorities and creating uncertainty for globally integrated value chains. Further, the introduction of the EU CBAM may create incentives for domestic jurisdictions to strengthen or expand their own carbon-pricing systems in order to preserve competitiveness and ensure domestic revenues are retained rather than flowing abroad, potentially resulting in increased carbon costs for companies across all products, not just those exported to jurisdictions implementing BCAs.1.2 Global evolution of BCAs and carbon- pricing frameworks Global developments in BCAs and carbon-pricing frameworks in BASIC countries TABLE 1 Country Status/plans on BCA development Canada Exploring bilateral solutions (e.g. Joint EU-US Statement on a Global Arrangement on Sustainable Steel and Aluminium14) Initiated consultations on a possible BCA to complement domestic carbon pricing15 The programme of the 2025 Liberal-led government includes plans for a national BCA16 United States Multiple versions of BCA frameworks have been presented in recent years, with one BCA legislation re-introduced in Congress in April 2025 (Foreign Pollution Fee Act17); the FPFA sits with the Congressional Committee on Finance at time of publication Australia Safeguard mechanism in place; ongoing review on carbon leakage may lead to BCA development, with unclear timeline18 United Kingdom Adopted a UK CBAM, set for implementation beginning January 2027, with discussions ongoing with the EU about possible links with the EU CBAM19 Türkiye Included provisions for a BCA in its 2025 climate law20 Japan Plans to introduce a carbon levy on fossil fuel importers in the financial year 2028–202921 Developing carbon markets under the Green Transformation (GX) strategy Has had a carbon tax on fossil fuels since 201222 Carbon-pricing mechanisms in BASIC countries BrazilApproved a national-level ETS in 2024, with a phase-in period through 203023 South Africa Implemented a stand-alone carbon tax in 2019,24 with a more stringent Phase 2 beginning in 202625 India Established a national-level ETS (the Carbon Credit Trading Scheme) in 2024,26 with a gradual phase-in period starting in 2025 China National ETS covering the power sector operational since 2021; in March 2025, the State Council formally approved the inclusion of the iron and steel, cement and aluminium smelting industries in China’s national ETS27 The ETS will be expanded gradually across numerous additional emissions-intensive industries by 2030 From 2026 onwards, full obligations will take effect in parallel with the gradual phase-out of free carbon allowances for EU industries. Climate and Competitiveness: Border Carbon Adjustments in Action 8