Brussels has the choice to bring the whole world a large step closer to global carbon pricing and set industrial sectors responsible for half of global emissions on a 2 °C-aligned pathway.
EU policymakers can not only make CBAM simpler and more trustworthy, but also kickstart global carbon pricing with one key move. The proposal is simple yet effective: if a CBAM-affected product comes from a country without an absolute-cap Emission Trading System (ETS), the importer would use EU default emissions – not actual ones as calculated during the Transitional Period – until that country runs a robust cap-and-trade with credible monitoring, reporting, and verification (MRV). The climate and economic logic is strong:
- Paving the way to global carbon pricing. Denying producers in countries without a solid carbon pricing & MRV scheme the right to report real emissions under CBAM forces them to lobby their governments to create an ETS aligned with the EU’s. CBAM thus becomes a driver of stronger national climate policies worldwide.
- CBAM 2.0 prevents “climate-neutral” resource shuffling. Until now, a green (and often cheaper) Chinese product could still replace a green EU one, entering the EU CBAM-tax-free. Penalising default values for countries of origin lacking a serious carbon price automatically raises CBAM costs, removing the incentive to redirect only the cleanest batches to Europe while selling dirtier output elsewhere. Think tanks like Sandbag and ERCST have highlighted this loophole.
- Making CBAM simpler and more trustworthy. Verifying the seriousness of thousands of foreign “carbon prices” (taxes, rebates, free allocations, levies, fuel taxes, etc.) is unrealistic – let alone ensuring that those governments don’t refund industries through rebates or other remedies. Defaults should apply, and no deduction should be possible until a non-EU country has an EU-aligned ETS. This means CBAM regulation must change: no “effectively paid” carbon price should allow global suppliers to report real values or deduct that cost from CBAM. The EU should enforce its own standards — with all humility, it remains the group of nations with by far the most experience in running a functioning carbon market (20+ years of ETS).
- CBAM 2.0 creates many win-wins. Climate advocates should support it because it strengthens incentives for global carbon pricing. Industry already supports it because it closes loopholes and simplifies CBAM in the short term, while protecting competitiveness.
2) Country-specific default values don’t make sense for steel & aluminium – they must be tied to production methods
Emissions become country-specific only when indirect emissions are counted, since these depend on national grid emission factors. Differences in direct emissions result from production methods, not geography. True, certain production methods are more common in some regions (e.g. DRI-EAF steel in India). However, industrial supply chains and their footprints shift quickly, making country-specific defaults unreasonable for the current metal sector.
In the current CBAM design:
- Steel and aluminium are taxed only on direct (scope 1) emissions.
- Cement and fertilisers are taxed on both direct and indirect.
- Hydrogen and electricity have no indirect emissions by definition.
Why indirect emissions almost certainly won’t be taxed for steel and aluminium is a more complex topic, which deserves a dedicated future blog.
Default value options: crude steel can be produced via several different methods, each with different average emission intensities. The EU must decide whether to:
- Use an average of these values, more consistent with WTO principles of fair trade, or
- Assume the highest (e.g. BOF route), which functions as a hidden but climate-justifiable tariff.
The higher the default, the stronger the incentive for global suppliers to lobby their governments for an EU-aligned ETS – and the sooner defaults will disappear.
3) China’s move toward an absolute-cap ETS – fluff or real shift?
Recent policy signals suggest Beijing is getting serious about turning its ETS from intensity-based into absolute caps.
What’s new: In August 2025, China’s State Council announced pilots for absolute caps in some industries by 2027, aiming to make caps the national foundation by 2030. Sectoral expansion (steel, cement, aluminium) is already underway (Reuters).
Trade maths: An EU-style ETS lowers CBAM bills for Chinese exporters: defaults won’t apply, and “effectively paid” carbon prices can be deducted.
Industrial reality: With weaker domestic demand, capping output can be cheaper than squeezing marginal efficiency in heavy industry (S&P Global).
Geo-strategy: With the US still lacking a federal carbon price, a capped ETS helps China claim climate leadership while anchoring its green-tech ambitions among other BRICS countries too (Carbon Brief).
Domestic pressure: Younger generations are increasingly climate-aware, and Beijing sees this as an opportunti to lead green industries (EVs, solar, green hydrogen-based steel).
Is it real? We think yes. Timelines can slip, but CBAM pressure, domestic industrial needs, and prestige incentives all point to a more EU-like ETS emerging between 2027–2030.
The open question: who will ensure these caps align with a 2 °C pathway, hitting zero before 2040? The EU could make this a requirement for recognising real emission reporting.
4) From patchwork to parity: make a 2°C-aligned ETS the global standart
Important clarity: the EU has not said foreign ETSs must be 2 °C-aligned — this is our Climease advocacy. We believe CBAM would work best if the EU only credits foreign systems that match the ambition and structure of the EU ETS:
Why raise the bar? Today CBAM credits a wide set of “carbon prices” if they are effectively paid (taxes, levies, ETS allowances). This is administratively complex and prone to loopholes (rebates, export-only taxes, ultra-low ETS prices). A single benchmark requiring:
- Absolute cap,
- Paris-consistent trajectory, and
- Solid MRV
– would be cleaner and fairer.
Lead with what works. The EU is by far the global climate policy leader. Its ETS has already driven the EU electricity grid’s emission intensity ~60% lower than in 1990 and 30-40% lower than in 2020 (EEA). From 2026, heavy industry will also begin deep decarbonisation.
Simpler and stronger. A clear benchmark means fewer bespoke audits of foreign schemes, a stronger climate signal, and a powerful incentive for countries to build credible ETS systems.