London School of Economics
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Reforming Carbon Border Adjustment Mechanisms: European industry perspectives on a path forward

Published 11 June, 2026 Brief Economic & fiscal policy
Authors Thibault Deletombe | Karsten Neuhoff | Misato Sato | Sini Matikainen | Fernanda Ballesteros | Nicolas Berghmans | Balázs Felsmann | Gábor Horváth | Neila Khelifi | Pedro Linares | Johan Rootzen | Aleksander Śniegocki | Aneta Stefańczyk | Lars Zetterberg
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Europe’s climate ambitions are increasingly shaped by a fragmenting economic and geopolitical environment. Against this backdrop, the shortcomings of the EU’s Carbon Border Adjustment Mechanism (CBAM) are becoming ever more apparent. The current design of the mechanism creates circumvention risks, lacks export coverage and is limited to upstream producers. These flaws delay the creation of a level playing field for export-oriented industries, posing significant challenges related to the leakage of carbon emissions and industrial production.

This policy brief explores several options for redesigning the CBAM, with a view to the EU’s upcoming market reform of the Emissions Trading System (ETS) in 2026 and the UK’s introduction of its own CBAM in 2027. The authors discuss their findings from a series of interviews on the CBAM conducted by DIW Berlin, CETEx and their research partners.

Core insights

The 27 industry stakeholders who participated in the interviews came from multiple EU countries and the UK, representing sectors ranging from cement, steel and aluminium to organic chemicals and manufacturing. Their insights include:

  • For climate policy to advance in the EU and in the UK, it needs to be aligned with broader industrial priorities.
  • The CBAM should cover imports, exports and the full supply chain, and should avoid creating incentives for resource shuffling.
  • Merely extending the free allocation of emission allowances is not a viable long-term solution, as this would weaken the carbon price signal and delay the transition to climate neutrality.
  • Green lead markets can be valuable in stimulating demand for low-carbon products, but they cannot replace carbon pricing mechanisms.
  • A CBAM reform based on standardised values could provide protection against carbon leakage and a clean investment framework for sectors with complex value chains.
  • However, this would reduce direct incentives for decarbonisation in third countries.