Aiming to reduce the impact of climate change while encouraging global partners to cut carbon emissions, the European Union (EU) approved the Carbon Border Adjustment Mechanism (CBAM) two years ago.
A two-year transition period was set for its implementation, and as of the 1st of January 2026, the mechanism has come into full effect. These significant changes have sparked wide-ranging discussions about who will benefit and who, conversely, will have to face additional costs.
There are differences
Climate change is a global problem that requires global solutions, emphasizes the European Commission (EC). The EU is raising its climate ambitions, but often many countries outside the EU have less stringent climate policies. As a result, there is a risk of carbon leakage. This leakage, as explained by the EC, occurs when EU-based companies relocate carbon-intensive production to countries with less stringent climate policies than the EU, or when EU products are replaced by more carbon-intensive imported products.
To prevent this from happening, the EU decided several years ago to introduce a new mechanism. This means that in future, importers of certain goods will have to declare the emissions directly linked to the production process and, if these exceed European standards, obtain a special emissions certificate at the EU CO2 price.
The CBAM regulation applies to the following goods:
- Cement;
- Aluminium;
- Fertilisers;
- Iron and steel;
- Hydrogen;
- Electricity.
How will it work?
Importers who bring more than 50 tonnes of CBAM goods into the EU (excluding electricity and hydrogen, for which no thresholds apply) will be required to apply for authorised CBAM declarant status.
Importers will have to purchase paid emission certificates (CBAM certificates). The number of CBAM certificates purchased must correspond to the volume of greenhouse gas emissions.
One certificate equals one tonne of emissions associated with the imported goods.
Member States will sell certificates via a central platform established by the European Commission. The price of CBAM certificates will be calculated weekly based on the average auction price of EU emission allowances (for example, in spring 2023 the price of one emission certificate was 85–90 euros).
Member States will be able to buy back surplus certificates; however, the number of certificates repurchased may not exceed one third of the total number of CBAM certificates purchased by the authorised CBAM declarant in the previous calendar year.
Source: European Commission, Sorainen
By setting a carbon price on imported goods and products, CBAM is intended to encourage relevant manufacturing sectors worldwide to invest in cleaner production technologies and reduce their carbon footprint, the European Commission explains. This is a direct response to the EU’s goal of becoming climate-neutral by 2050 and of reducing net greenhouse gas emissions by at least 55% by 2030 compared with 1990 levels.
It is expected that, from 2028 onwards, CBAM will generate on average around 1.5 billion euros per year.
Penalties will also be imposed
Approved declarants who fail to submit the required number of certificates by the 31st of May of each year will be subject to a penalty corresponding to the EU ETS penalty for exceeding emissions – 100 euros per ton of unreported emissions, in addition to the obligation to define the missing allowances.
However, without the status of an approved declarant who fails to comply with the obligations set out in the regulation, the penalty is 3-5 times higher than the above-mentioned fine. The amount of the penalty is determined considering the severity, duration and other circumstances of the violation. The competent authority may also impose administrative penalties.
Source: Sorainen
Big partners decide
According to EU trade data for 2024, CBAM could affect goods worth almost 90 billion euros. Even during the development and implementation of the mechanism, it has sparked widespread debate among manufacturers and other industry experts. For example, given that China, a giant in raw materials, exports large quantities of goods included in this list to Europe, questions have arisen about the future prospects of this trade.
Forecasts vary, but the cost of steel imported from China could increase by around 160 euros per ton by 2034. This could mean a 10-15% price increase, which could lead to a 15-25% decline in export value. Other countries are also assessing the impact, with some of the largest importers considering ways to reduce costs in the future by promoting more sustainable production, but there is still a lot of work to be done.
Initial data
As of the 7th of January 2026, more than 12,000 economic operators had submitted applications for CBAM authorisation.
CBAM imports declared during the first week, from the 1st to the 6th of January 2026, amounted to 1.66 million tonnes of goods, with the following sectoral breakdown:
- Iron and steel: 98% of the total volume;
- Aluminium: 0.3%;
- Fertilisers: 1.2%;
- Cement: 0.5%;
- Electricity and hydrogen: 0%.
The main countries of origin of CBAM-covered imports were:
- Turkey;
- China;
- India;
- Canada;
- Taiwan;
- Vietnam.
The largest volumes of CBAM declarations were recorded in the following Member States:
- Belgium;
- Spain;
- Romania;
- The Netherlands;
- France;
- Germany.
Source: European Commission
Industry experts believe that the introduction of such a levy could help reduce Europe’s dependence on raw materials from other countries, which until now have often been chosen due to their relatively low costs. EU producers, who are required to comply with high climate and other environmental standards, have frequently been unable to compete with countries where such standards were absent or significantly weaker. However, some countries have announced that they are considering responding with countermeasures, including the introduction of their own taxes.
Impact depends on the sector
The introduction of CBAM will affect businesses operating in Latvia in different ways. There are sectors in which a large share of raw materials is produced domestically, meaning that no significant changes are expected. However, there are also sectors that may feel the impact in a more intense way.
The construction sector uses both locally produced and imported raw materials in its day-to-day operations, explains Edijs Kupčs, Chairman of the Board of the Latvian Construction Contractors Association (LBA). At present, he notes, significant volumes of steel and aluminium products are imported from countries outside the EU. As a result, the new mechanism is most likely to affect metal structures, aluminium profiles for façades and windows, as well as certain concrete products containing imported components. According to Kupčs, this could influence final project costs, including in public procurement, although it is currently unclear how substantial the increase will be and whether the existing indexation mechanism will apply at all.
“The main objective of CBAM is to level the playing field. Latvian manufacturers that already operate under the EU Emissions Trading System (EU ETS) may benefit, as producers from third countries lose advantages based on lower emission costs,” Kupčs says.
“Importers’ costs will increase, which may encourage them to choose EU producers with lower emission intensity. Will this encourage investment in green technologies? There is no direct correlation — CBAM does not apply to EU manufacturers, as they already face their own requirements. It primarily affects producers in third countries and importers of their products. The question whether production facilities will be relocated to the EU to avoid additional costs remains open,” the construction sector representative adds.
He acknowledges that there are also significant challenges – short-term cost increases, complex emissions accounting and reporting, and the ability of smaller companies to adapt to these requirements. Latvia’s construction sector strategy for 2025–2030 already provides for the integration of sustainability, eco-design, and the circular economy, but the introduction of CBAM will accelerate the need for state support, clear regulatory solutions, and knowledge development so that companies can compete in the new circumstances.
He emphasises that CBAM will change the cost structure and supply chains in the construction sector. To ensure that it delivers maximum benefit to the Latvian economy, it is essential to provide state support during the adaptation process and to foster dialogue with the industry in order to mitigate negative impacts and make use of the opportunities offered by the development of sustainable construction.
There will be no immediate impact
Imports of cement and concrete products from countries outside the EU that are not covered by the EU ETS system are very limited or virtually non-existent in the Latvian market, Therefore, no direct and immediate impact on the industry is expected in this regard, says Rolands Cepurītis, Chairman of the Board of the Latvian Concrete Association and Technology Director at Primekss.
However, according to him, the sector is significantly affected by a parallel process – changes to the EU ETS. The aim of the EU ETS is to gradually reduce total emissions in the EU by setting stricter emission ceilings and reducing the allocation of free emission allowances to energy-intensive industries. These requirements are already being applied and will become even stricter in the coming years as the EU moves towards its climate neutrality goals.
In the cement and concrete industry, this means rising production costs and an increasing need to reduce the carbon footprint of products. Therefore, although CBAM does not directly affect the Latvian market at present, it is precisely the reduction of EU ETS quotas that is the main factor accelerating the transition to low-carbon cement and concrete solutions, says Cepurītis.
Cepurītis also believes that the introduction of CBAM should be seen as a logical step within the EU’s climate policy to reduce carbon leakage outside the EU and ensure fairer competition between local producers and importers.
At the same time, he says, it is important that the introduction of the regulation is gradual, predictable, and based on dialogue with industries that are already actively investing in reducing emissions.
Company opinion: Prevents the desire to relocate production facilities outside the EU
Evita Goša, Member of the Board, Environmental and Legal Director, Schwenk Latvia:
Schwenk Latvia fully supports the introduction, improvement, and expansion of CBAM. Its application is a necessary step both for achieving global climate goals and for ensuring the competitiveness of EU manufacturers.
Climate change is currently the greatest global challenge, and every country and region in the world has an significant role to play in mitigating it. Given the EU’s decisive action towards climate neutrality and the fact that the EU remains a net importer of carbon emissions, it cannot achieve its climate goals in isolation from other regions of the world.
CBAM levels the playing field between EU and other global producers, thereby strengthening the EU’s economic resilience and the competitiveness of its producers. Without the introduction of the OIM, the EU would risk carbon leakage, i.e., manufacturers deciding to relocate their operations outside its borders. We see that the EC continues to carefully analyse this mechanism and plans to extend the CBAM to downstream products in the coming years.
Just a few years ago, Schwenk Latvia, as a manufacturer operating within the framework of EU law, was forced to compete in conditions where imports of cement from third countries, mainly Russia and Belarus (now subject to sanctions), were increasing in Latvia. Given the significantly different production and sustainability standards, the production costs of such imported products were significantly lower than those possible in the EU. Such circumstances hinder the development of EU producers, their readiness to expand their activities and invest in new technologies, thereby negatively affecting the economies and economic growth of EU countries.
We are pleased that the CBAM both promotes more climate-friendly production in third countries and levels the playing field between EU and third-country producers.
Concerns about costs
One of the sectors influenced by CBAM is agriculture, and, as explained by representatives of the Ministry of Agriculture (MoA), an increase in costs and, possibly, changes in supply chains are expected in the area of nitrogen fertiliser imports, as the market may reorient itself towards EU producers or lower-emission suppliers.
According to information from Copa-Cogeca, the joint organization of EU farmers and agricultural cooperatives, the introduction of CBAM could increase the price of nitrogen fertilisers by an additional 40-140 euros per ton, according to the MoA. The price increase will depend on the price of CO2 emission allowances in the EU. The CBAM is expected to be introduced gradually and reach 100% in 2034.
According to the Ministry of Agriculture, the main impact will be on farmers who use nitrogen fertilisers imported from third countries. The price of nitrogen fertilisers produced in the EU is also expected to increase, as the introduction of the CBAM tax will gradually eliminate free CO2 emission allowances for producers.
As fertilisers are a significant cost item, accounting for 15-30% of agricultural crop production costs, the CBAM will have a significant negative direct impact on the total production costs of farmers operating in the grain, oilseed, horticulture, vegetable, potato and fodder sectors.
The MoA believes that the current market and sector situation is not suitable for the introduction of such a mechanism, as it would place an additional financial burden on the agricultural sector, which is dependent on mineral fertiliser imports.
“The introduction of CBAM for mineral fertilisers will increase production costs and reduce the ability to compete both within the EU and on the external market with agricultural products from third countries, as CBAM tax will not be applied to mineral fertilisers. Several important circumstances in which the agricultural sector currently has to operate must also be considered, such as unfavourable weather conditions and their consequences, as well as a significant decline in grain prices. This combination of factors makes the grain sector particularly vulnerable, and any additional payments for mineral fertilisers are currently viewed very unfavourably,” the MoA emphasises.
Several EU Member States, including Latvia, have prepared a letter to the EC proposing to postpone or suspend the application of CBAM to nitrogen fertilizers. The EC has indicated that it plans to temporarily suspend the application of CBAM to fertilisers as soon as the regulation is adopted.
The situation will change
Industry experts predict that the introduction of CBAM will gradually change the market in several ways in the future.
In order to promote more sustainable practices, CBAM may in the future force companies to review their operations, for example, when choosing a supply chain, predicts Jānis Taukačs, partner and attorney-at-law at Sorainen. Companies that have previously faced new carbon tariffs due to imports are likely to look for suppliers with a lower emissions profile.
He also predicts that companies will likely increase their investments in energy-efficient and green technologies to reduce their emissions in the country of origin and, consequently, their OIM costs. The introduction of OIM encourages global manufacturers to invest in cleaner technologies, thereby promoting more sustainable production.
In the long term, companies may reassess the geographical location of their production or procurement – for example, by moving to countries with more progressive climate policies, or importers may seek suppliers in countries where carbon pricing mechanisms are already in place (e.g., the United Kingdom, Switzerland), as the carbon tax paid, there could reduce the OIM payment. It should be noted that even if production took place outside the EU, when exporting back to the EU, the company would still have to pay the OIM, so in such cases it would be more advantageous to increase production within the EU using cleaner energy sources, Taukačs emphasises.
Kupčs, on the other hand, predicts that procurement policy will change, with an increasing emphasis on sustainable materials, CO2 footprint calculations, and Environmental Product Declaration (EPD) certificates.
“It is essential to develop an approach that allows for efficient and simple emission accounting and reporting so that it does not become an unnecessary administrative burden for companies. The State Revenue Service has already announced the requirements for the transition period until the end of 2025, and it is important that these are clear and practical to implement. The EC continues to analyze the extension of the CBAM to additional products, which means that the impact of the mechanism will be broader in the future, so a timely simplified approach is particularly significant”, Kupčs emphasises.
Cepurītis also agrees with the predictions that, in the long term, both the CBAM and the EU ETS will promote a strategic reorientation of companies.
“Companies will increasingly evaluate their supply chains, cooperation partners, and the origin of raw materials, giving preference to solutions with a lower carbon footprint. Investment in new products, technologies, and production process optimisation will also increase in order to reduce emissions and remain competitive,” the expert predicts.
In the concrete industry, he says, this means focusing on innovative materials, alternative binding solutions, and more efficient use of resources. The industry in Latvia is already actively working on the development and introduction of cement and concrete with a reduced climate footprint, recognising that these solutions will be crucial for future competitiveness.
