Global Carbon Pricing Landscape
Why this lesson matters
CBAM does not exist in a vacuum. It is one instrument in a rapidly evolving global architecture of carbon pricing. Understanding where carbon prices exist, at what levels, and which trading partners have meaningful carbon costs shapes how CBAM liabilities are calculated, what deductions importers can claim, and how trading relationships may shift over time.
The Scale of Global Carbon Pricing
According to the World Bank's State and Trends of Carbon Pricing (2024), there are now over 75 carbon pricing instruments in operation globally - a combination of emissions trading systems (ETS) and carbon taxes. These instruments cover approximately 24% of global greenhouse gas emissions, up from roughly 7% in 2012. The pace of adoption has accelerated since the Paris Agreement (2015) and the Net Zero pledges made at COP26 (2021).
Despite this growth, the coverage and price levels remain highly uneven. Many carbon pricing systems operate at prices well below the ranges considered necessary to achieve Paris-aligned decarbonisation pathways (estimated by the International Monetary Fund at $50-100/tonne CO₂ by 2030). This gap between actual prices and the necessary price is precisely the gap that CBAM seeks to address at the EU's border.
| Region / Jurisdiction | Instrument Type | Approximate Price (2024) | Sectors Covered |
|---|---|---|---|
| European Union | ETS (cap-and-trade) | €60-80/tCO₂ | Power, heavy industry, aviation, maritime |
| UK | ETS (linked to EU ETS until Brexit, now separate) | £35-50/tCO₂ | Power, heavy industry, aviation |
| Switzerland | ETS + carbon tax | CHF 130/tCO₂ (tax) | Industry; fuel combustion |
| Canada | Federal carbon tax + provincial ETS | CAD 65-80/tCO₂ | Broad economy-wide coverage |
| China | National ETS | CNY 90-100/tCO₂ (approx. €12/tCO₂) | Power sector only (initially) |
| South Korea | ETS | KRW 10,000-15,000/tCO₂ (approx. €7/tCO₂) | Power, industry, transport |
| California / Quebec | Linked ETS | USD 30-40/tCO₂ | Broad economy-wide coverage |
| India | Perform, Achieve and Trade (energy intensity scheme) | Indirect / no explicit price | Energy-intensive industry |
| Russia, Turkey | None (as of 2024) | $0 | N/A |
Implications for CBAM Liability
The most commercially significant aspect of this landscape for CBAM purposes is the provision for deducting third-country carbon prices. Article 9 of the CBAM Regulation allows importers to reduce their certificate surrender obligation by the carbon price actually paid in the country of production - provided that price is not refunded or offset by export subsidies or other compensation schemes.
This means that a producer in Canada, Switzerland, or the UK - all of which operate meaningful carbon pricing - may have a significantly reduced CBAM liability compared to a producer from a country with no carbon price. In practical terms, the deduction creates a hierarchy of CBAM exposure across trading partners:
- Countries with carbon prices close to or exceeding the EU ETS level (e.g., Switzerland, which is linked to the EU ETS): CBAM liability approaches zero for goods where the domestic carbon price covers equivalent emissions.
- Countries with meaningful but lower carbon prices (e.g., Canada, UK): Significant partial deduction reduces but does not eliminate CBAM liability.
- Countries with nominal or sector-limited carbon prices (e.g., China, South Korea): Deductions are small relative to the EU ETS price differential.
- Countries with no carbon pricing (e.g., Russia, Turkey for CBAM-relevant sectors): No deduction available; full CBAM liability applies.
The "Carbon Toll Road" Analogy
Think of CBAM as a toll road into the EU single market for carbon-intensive goods. The toll is set by the EU ETS price. If you have already paid a portion of that toll in your home country (through a domestic carbon price), you get that amount deducted at the EU border. If you paid nothing at home, you pay the full toll. Countries with high domestic carbon prices effectively get a "frequent traveller" discount - their producers arrive at the border with most of the toll already paid.
The CBAM Incentive for Global Carbon Pricing
CBAM creates a novel international dynamic: it gives non-EU countries a financial incentive to implement or raise their own domestic carbon prices, because doing so reduces the CBAM burden on their export industries. Rather than simply imposing costs at the border, CBAM functions as a lever that encourages global carbon pricing convergence.
This effect has already been observed in early policy discussions in several major trading partners. Countries that are significant exporters of CBAM-covered goods - India, Brazil, and others - have begun to examine whether domestic carbon pricing could reduce their exporters' CBAM exposure, particularly as the definitive period (from 2026) requires actual financial payments rather than just reporting.
Who Pays CBAM? Major Exporter Profiles
The European Commission's Impact Assessment identified the largest potential CBAM-affected exporters to the EU in the initial six sectors. For iron and steel, China, Russia, Ukraine, and India are among the largest export sources. For aluminium, Russia and Norway are significant (Norway benefits from EEA membership and is exempt; Russia is not). For fertilisers, Russia is the dominant supplier and faces full CBAM liability. For cement, Turkey is a major exporter and faces full CBAM liability given the absence of an equivalent carbon price in the CBAM sectors. This geography explains much of the geopolitical sensitivity around CBAM's introduction.
Countries Exempt from CBAM
Not all countries face CBAM obligations. The regulation provides exemptions for:
- EU Member States - already within the EU ETS, so no border adjustment needed.
- Countries in the European Economic Area (EEA) - Iceland, Liechtenstein, and Norway are linked to the EU ETS and are therefore exempt from CBAM on goods traded with the EU.
- Switzerland - its ETS is formally linked to the EU ETS through a bilateral agreement, providing effective equivalence and exempting Swiss exports from CBAM.
- Countries listed in Annex III of the CBAM Regulation - primarily territories with special relationships with the EU, such as Büsingen, Helgoland, Livigno, Ceuta, and Melilla.
Key Takeaways
- 1Over 75 carbon pricing instruments operate globally as of 2024, covering approximately 24% of global GHG emissions, but price levels and sector coverage vary enormously
- 2Countries with carbon prices close to the EU ETS level can offer significant CBAM deductions for their exporters; countries with no carbon pricing face full CBAM liability
- 3CBAM functions as a global incentive for carbon pricing adoption: introducing or raising domestic carbon prices reduces the CBAM burden on a country's export industries
- 4The most affected trading partners in the initial CBAM sectors include Russia (steel, fertilisers), Turkey (cement), China and India (steel), with exposure varying by sector and domestic carbon price level
- 5EEA countries and Switzerland are exempt from CBAM due to their integration with or linkage to the EU ETS