How the EU's Carbon Border Levy Became Trade and Industrial Policy, and Who in Taiwan Feels It First

On 1 January 2026 the EU's Carbon Border Adjustment Mechanism (CBAM) entered its definitive phase. Importers of steel, aluminium, cement, fertilisers, electricity and hydrogen no longer just report emissions; they must buy CBAM certificates to cover the emissions embedded in those goods. For this year's imports, certificates go on sale only in February 2027, and the first annual declaration and surrender are due by 30 September 2027.

The meter is already running. The Commission publishes a certificate price every quarter, based on auctions in the EU carbon market, with one certificate covering a tonne of CO₂-equivalent: €75.36 for the first quarter, €75.28 for the second and €82.32 for the third, announced on 5 October.

Legally, CBAM is not a tariff: the importer pays, and the charge follows emissions rather than customs value. In practice it works much like one, which is why it is widely called a “carbon tariff” in Taiwan. Brussels justifies it as a guard against carbon leakage, in which carbon-intensive production moves to countries with laxer climate rules, or EU output is displaced by dirtier imports, cancelling out Europe's emissions cuts.

Since late 2025, however, amendments and new proposals have stretched the mechanism beyond climate policy, into industrial protection and trade bargaining. In Taiwan, the first to feel it are exporters of steel coil, aluminium, and screws and bolts.

From reporting to paying: what changed in 2026

CBAM began with a transitional period in October 2023, during which importers reported embedded emissions every quarter without paying anything. In the definitive phase, reporting becomes annual, and importers must first obtain the status of “authorised CBAM declarant” before bringing covered goods into the EU.

Before the switch, the EU simplified the rules. Regulation (EU) 2025/2083, in force since October 2025, introduced a single mass-based threshold: an importer whose combined net imports of steel, aluminium, fertilisers and cement stay at or below 50 tonnes in a calendar year is exempt from all obligations. The Commission estimates that this removes about 182,000 importers while keeping more than 99% of embedded emissions in scope. Importers that applied for authorisation by 31 March 2026 may keep importing while their application is processed.

The same amendment pushed back the calendar. The first annual declaration and surrender moved from 31 May to 30 September; certificates will be sold on a common central platform from 1 February 2027, priced at quarterly averages for 2026 imports and at weekly averages from 2027. From 2027, the certificates an importer holds at the end of each quarter must cover at least half of the emissions it has imported since the start of the year, down from the 80% originally planned.

Penalties are steep. For each certificate not surrendered on time, an importer pays the same penalty as an EU installation that falls short in the carbon market, and must still surrender the missing certificates. Importing without authorisation draws three to five times that amount.

The charge does not start at full strength. EU producers of the same goods still receive free allowances, and to keep things even, importers deduct a matching share. Under current law that share shrinks every year: EU producers keep 97.5% of their free allocation in 2026, 51.5% in 2030 and none from 2034. In the early years, the cost therefore falls mainly on imports whose emissions sit well above EU benchmarks. The carbon-market reform the Commission proposed in July 2026 would slow the phase-out and push the end date to 2038; the European Parliament and the Council have yet to agree.

How the certificate bill is calculated

The number of certificates depends on a product's embedded emissions: the direct emissions of its production process plus those embedded in its precursors, the other CBAM goods used as inputs. For steel and aluminium only direct emissions count; for cement and fertilisers, emissions from the electricity used are added.

The emissions figure can come from two places. One is the plant's actual data, which must be checked by a verifier accredited by a national accreditation body in the EU. The other is a default value set by the Commission: the average emission intensity of the exporting country's producers, plus a mark-up of 10% in 2026, 20% in 2027 and 30% from 2028 for steel, aluminium, cement and hydrogen, and 1% for fertilisers. Where reliable data for a country is lacking, the default is the average of the ten exporting countries with the highest emission intensities. The mark-up is there to stop default values understating emissions, and to make verified actual data the cheaper option.

Next comes the deduction for free allocation: the EU benchmark for the product, multiplied by that year's CBAM factor (the share of free allowances EU producers keep, 97.5% in 2026) and by a cross-sectoral correction factor, which the Commission set in July 2026 at 100% for every year from 2026 to 2030.

Take fasteners, the largest single item among Taiwan's CBAM goods. The EU default value for Taiwanese non-stainless bolts (CN 7318 15) is 2.707 tonnes of CO₂-equivalent per tonne of product, or 2.978 with the 2026 mark-up. The EU benchmark for the same goods is 1.364 tonnes, which at 97.5% allows a deduction of 1.330. An importer declaring on default values therefore needs about 1.65 certificates per tonne of Taiwanese bolts, roughly €136 at the third-quarter price. Taiwanese fasteners entered the EU at an average of about €3,300 a tonne in 2025, so the carbon cost comes to around 4% of their value.

That is the floor. The mark-up rises to 30% from 2028, and under current law EU producers' free allocation drops to 51.5% in 2030 and to zero in 2034. If default values and the certificate price stayed where they are, the same tonne of bolts would need about 2.82 certificates in 2030 and 3.52 in 2034, more than twice the 2026 figure; if the Commission's proposal to slow the phase-out passes, the rise would be more gradual. The Commission must review default values by December 2027 at the latest, and benchmarks are being updated to the EU carbon market's final figures for goods imported from 2027, so the actual numbers will move.

From climate tool to industrial policy

The package the Commission unveiled on 17 December 2025 showed how far the aims had moved beyond emissions. Its centrepiece would extend CBAM from 1 January 2028 to about 180 steel- and aluminium-intensive downstream products, from machinery and car parts to household appliances. According to the Commission, 94% of them are industrial supply-chain goods, with an average steel and aluminium content of 79%.

The rationale is a gap that CBAM itself creates. Once imported steel and aluminium carry a carbon price, European makers of machinery and components pay more for their materials, while foreign rivals can turn the same metal into finished goods and ship those to Europe without paying. The proposal would also count scrap generated in processing, and let the Commission demand proof of where goods were made, or fall back on country default values, where it sees evidence of abuse.

The money tells the same story. A Temporary Decarbonisation Fund, proposed the same day, would channel 25% of CBAM certificate revenue for 2026 and 2027 to EU producers still exposed to carbon leakage, chiefly exporters competing in third markets against cheaper, more emission-intensive rivals; the other 75% would become an EU own resource. “Today, we are strengthening CBAM for competitiveness, climate, and independence,” said Wopke Hoekstra, the commissioner for climate. Stéphane Séjourné, the executive vice-president for industrial strategy, said the measures would secure European players' competitiveness on the world stage.

Brussels is also reaching for classic trade defence. Regulation (EU) 2026/1384, which replaced the steel safeguard on 1 July 2026, cuts duty-free quotas by about 47% from their 2024 level, imposes a 50% duty on steel above quota, and requires importers to prove where the steel was first melted and poured. Its title states its target: the effects of global overcapacity on the EU steel market. With a carbon price on one side and quotas on the other, European steel now enjoys layered protection rather than a single instrument.

The downstream extension is not yet law. The Council's position, agreed on 12 June 2026, widens the list to about 200 product types; Parliament's, adopted on 15 September, goes to 457 and would cut the threshold for aluminium products from 50 tonnes to 5. The first political trilogue was scheduled for 20 October, with a second provisionally set for 30 November and a deal targeted before the end of the year. As of late October, no agreement had been reported.

Pushback in Beijing and Delhi, imitation in London

China's commerce ministry responded on the day the definitive phase began. It said the EU had set default values for Chinese products well above China's actual levels and would raise them in each of the next three years, amounting to unfair and discriminatory treatment that may breach the WTO's most-favoured-nation and national-treatment principles. The rules in the downstream proposal, it said, went “beyond the scope of addressing climate change” and carried “clear overtones of unilateralism and trade protectionism”; China would take all necessary measures in response to any unfair trade restriction.

India negotiated instead. The EU and India concluded talks on a free trade agreement on 27 January 2026, and CBAM was one of the contentious issues. “CBAM is a difficult issue. It is a horizontal regulation without any flexibility for anyone,” an Indian commerce ministry official said. India won no exemption. What it secured was a commitment that any CBAM flexibility the EU grants another country in future will extend to India too, plus a technical working group to help Indian verifiers gain accreditation.

The dispute has also reached the WTO. Russia requested consultations with the EU over CBAM in May 2025 and was turned down; on 25 September 2026 the Dispute Settlement Body established a panel. Twenty-seven members, including China, India, the United States, the United Kingdom and Taiwan, have reserved third-party rights.

Britain is following suit. Under the Finance Act 2026, which received Royal Assent on 18 March 2026, the UK applies its own CBAM from 1 January 2027 to imports of aluminium, cement, fertiliser, hydrogen, and iron and steel, and runs it as a tax. Importers of more than £50,000 of covered goods over 12 months must register, the first year's liability is due by the end of May 2028, and indirect emissions will be added no earlier than 2029. In May 2025 the UK and the EU agreed to work towards linking their carbon markets, which would open the way to each exempting the other's goods from its CBAM.

Taken together, these reactions show CBAM becoming a rule other governments must answer: some protest and threaten countermeasures, some trade concessions for assurances, and some build carbon borders and carbon markets of their own. A country's carbon price is turning from a domestic matter into a condition of access to major markets.

Taiwan's exposure: fasteners and steel coil

According to Eurostat, the EU imported about €3.43 billion of CBAM-covered goods from Taiwan in 2025, only 7.6% of its imports from the island. But the sum is concentrated in a few industries: about €1.22 billion of screws, bolts, nuts and other fasteners, €570 million of flat-rolled stainless steel, €550 million of plated or coated flat steel, €510 million of hot- and cold-rolled flat steel, and €120 million of aluminium and aluminium products.

Fasteners are the most direct exposure. Screws, nuts and washers (CN 7318) have been in scope since the transitional period. In 2025 Taiwan supplied 18.6% of the EU's fastener imports from outside the bloc by value and 20.3% by weight, second only to China on both measures; its shipments came to about 371,000 tonnes, at an average of roughly €3,300 a tonne.

Steel coil makers are squeezed from two sides. Most of their stainless, coated and rolled flat products also fall under the new steel quotas in force since July, with a 50% duty once a quota runs out. Fasteners sit outside the quota regime, so their burden comes mainly from CBAM.

If the downstream extension passes in the Commission's form, more Taiwanese goods will follow. In 2025 the EU imported about €115 million of road wheels and their parts (CN 8708 70) and about €36 million of suspension systems (8708 80) from Taiwan; both headings are on the proposed list in full.

Fastener makers do not make steel; they buy wire rod from steelmakers. What CBAM asks of them is not only money but an emissions record that can be traced from the furnace to the finished bolt.

The default-value gap between Taiwanese and Chinese fasteners

Default values look like a technicality, but they shape competition. The EU's default for Chinese non-stainless bolts is 6.375 tonnes of CO₂-equivalent per tonne, more than twice Taiwan's 2.707; the fallback for “other countries and territories” is 4.801. On the arithmetic above, an importer declaring on default values in 2026 needs about 5.68 certificates for a tonne of Chinese bolts, against about 1.65 for Taiwanese ones.

Chinese fasteners already carry anti-dumping duties in Europe: since February 2022 the EU has charged 22.1% to 86.5% on certain Chinese iron and steel fasteners. Those duties are due to expire on 18 February 2027 unless EU producers request an expiry review by 18 November. Even with the duties, China remained the EU's largest fastener supplier in 2025, with more than 40% of extra-EU imports by weight. CBAM's default values add a carbon-cost gap on top of the existing price gap.

The advantage is not secure. First, default values are a fallback: Chinese producers that submit verified actual emissions escape the 6.375 figure, and plants using electric-arc or lower-carbon steel may well come in below it. Second, defaults get revised. In July 2026 the Commission corrected transcription errors in Taiwan's defaults for stainless steel (CN 7218 to 7223); those products now take the “other countries and territories” values, so cold-rolled stainless sheet between 1 and 3 mm thick, for instance, went from 8.69 to 5.02 tonnes per tonne. Third, Taiwanese firms that cannot produce verified data of their own are left with marked-up defaults whose cost climbs as the mark-up rises and free allocation is withdrawn.

The gap in default values will ultimately push competition towards data. For Taiwan's fastener makers, whether they can obtain verified emissions for the wire rod they buy will matter more to their costs over the next few years than any head start on default values.

What Taiwanese producers have to hand over

The legal obligation sits with the EU importer, but the data comes from plants in Taiwan. The Commission's August 2026 guidance for operators outside the EU is blunt: if your goods end up in the EU, an importer or a downstream producer will at some point ask for their embedded emissions, and you must be ready to provide them.

That means a written monitoring plan, available in English; direct emissions calculated for each production process; the quantity and verified embedded emissions of every precursor; the production route; the data needed to calculate the free-allocation deduction; and any carbon price paid in Taiwan. Reports must follow the EU template, and actual values count only if checked by a verifier accredited by a national accreditation body in the EU. Plants can register in the CBAM Registry, upload their data once and share it with every importer; registration is voluntary for now, but the Commission strongly recommends it.

Verification is the immediate bottleneck. The Commission expected the first CBAM verifiers to be accredited around September 2026 and able to issue reports only from January 2027, while declarations covering 2026 imports are due by the end of September 2027. As of 21 October 2026, 24 national accreditation bodies in the EU and EEA had agreed to offer CBAM accreditation, but only seven would take applications from verifiers based outside the EU. In January an Indian official noted that all the verifiers accredited so far were in Europe.

For fastener makers, the hardest part is precursor data. The EU benchmark for the bolt-making process itself is 0.038 tonnes of CO₂-equivalent per tonne; including the upstream steel, it is 1.364. Nearly all of a bolt's embedded emissions come from the wire rod, and actual values for that rod have to come, verified, from the steelmaker. If the mill cannot supply them, the fastener maker falls back on defaults. This is how EU rules cross borders: Brussels has no jurisdiction over a Taiwanese factory, yet through the importer it carries monitoring, verification and data formats all the way onto the shop floor. On how foreign rules reach companies abroad, see the explainer How Can a Law From a Country I Do Not Live In Reach Me?

How much can Taiwan's carbon fee offset?

CBAM allows a deduction for carbon prices already paid at origin, and Taiwan began collecting its carbon fee in 2026. Under the Climate Change Response Act, the Ministry of Environment charges power and gas suppliers and manufacturers emitting at least 25,000 tonnes of CO₂-equivalent a year. The standard rate is NT$300 a tonne; companies with an approved voluntary reduction plan pay a preferential NT$50 or NT$100. The first collection, on 2025 emissions, was completed on 1 June 2026: 240 companies operating 461 plants paid NT$4.97 billion in all, 338 of those plants at the NT$100 rate, with the steel industry paying about NT$400 million.

What counts is what is actually paid. CBAM allows a deduction only for a carbon price effectively paid at origin, net of any rebate or other form of compensation. Taiwan's fee has several layers of relief: firms not classed as at high risk of leakage first deduct a 25,000-tonne threshold, while those classed as high risk are initially charged on only 20% of their emissions, rising to 40% and then 60% in later phases. At the Commission's October 2026 accounting rate of NT$36.15 to the euro, the standard NT$300 rate comes to about €8.30, less than a tenth of the third-quarter CBAM price; the NT$100 preferential rate is about €2.80. Spread across all their emissions, high-risk firms pay roughly a fifth of their nominal rate.

The deduction rules are not final either. The Commission published a draft implementing act on 13 May 2026 and closed feedback on 10 June; by late October it had not been adopted. Importers that declare on default values can deduct only by reference to default carbon prices for each country, which the Commission may publish from 2027. In January, Taiwan's environment minister Peng Chi-ming said the EU recognised Taiwan's carbon fee and that a deduction looked unproblematic, with working-level technical talks under way and confirmation expected after the Lunar New Year. He added that Taiwan would model a CBAM of its own on the EU's, starting with imported cement and steel.

There is a structural gap as well. The fee applies only to emitters above 25,000 tonnes, and just 461 plants paid in the first round, so most smaller fastener plants are likely to be outside it. The Taiwanese carbon price they can claim will mainly be the fee paid by the steelmakers upstream, which has to travel down the chain together with the wire rod's emissions data. As for the rate, Taiwan's fee-rate review committee suggested back in 2024 that it rise in two-year steps, with the standard rate after 2030 set somewhere between NT$1,200 and NT$1,800 a tonne; in February 2026 it again recommended following that path, but the next rates have not been announced. Even NT$1,800, about €50, would sit below this year's CBAM certificate prices. For the carbon fee to count under CBAM, a clear rate path will matter as much as the data trail.

Three things to watch

Three decisions over the coming year will shape what Taiwanese exporters pay. The first is the downstream list: the trilogue will decide whether car parts and similar goods come in from 2028. The second is the deduction rules: how the implementing act and the default carbon prices are set will decide what Taiwan's carbon fee is worth. The third is verification capacity: reports on 2026 imports must be ready before September 2027, the routes to accreditation for verifiers outside the EU are few, and those who prepare late will struggle to get a slot.

Taiwan has no free trade agreement through which to obtain the kind of assurance India secured. What the government can do is set out a clear path for carbon-fee rates, make sure steelmakers' emissions and fee data can travel down the supply chain, and seek technical cooperation with the EU on verification and accreditation. For companies, CBAM is already part of the price: a supplier that can hand over verified data is, in a European buyer's eyes, a cheaper supplier.

Brussels presents CBAM as climate policy, but each of its settings, from default values and the pace at which free allowances are withdrawn to the downstream list and the deduction rules, is an industrial-policy choice. For Taiwan's exporters, carbon has joined exchange rates and freight as a line on the quote.