The Carbon Border Adjustment Mechanism (CBAM), operated by the EU, is a system that imposes additional costs on products imported into the EU from non-EU countries, based on the carbon emissions generated in their production.
This mechanism was designed to advance global carbon neutrality goals in line with the tightening of carbon emissions regulations within the EU. CBAM entered a transitional phase in October 2023 and is scheduled to come into full effect from 2026.
Covered Products and How It Works
[ⓒESG.ONL]
CBAM applies costs to six major product categories: steel, cement, fertilizers, aluminum, electricity, and hydrogen. Organic chemicals, plastics, and ammonia are also expected to be added to the scope, and further expansion into the petrochemical and transportation sectors is anticipated — meaning that companies in related industries must begin preparing their responses now. The cost mechanism works by requiring importers of covered products to purchase CBAM certificates in proportion to the carbon emissions embedded in those products. The aim is to level the playing field by ensuring that imported goods bear the same carbon-related costs as goods produced within the EU, thereby promoting both fair competition and shared environmental responsibility.
[ⓒESG.ONL]
Impact on Korean Companies
With full implementation approaching in 2026, CBAM is expected to have a significant impact on Korean companies. South Korean steel products are among the country's major exports to the EU, and given the carbon-intensive nature of the steel industry, CBAM compliance is likely to increase costs considerably. There is also a risk of penalties for companies that fail to meet the EU's carbon emissions calculation standards.
Responding to CBAM: A Call for Innovation in Carbon Emission Management
CBAM is not simply a regulatory burden — it is becoming a new standard in global markets. Korean companies must therefore move beyond passive compliance and drive genuine innovation in carbon emissions management across their entire supply chains. This will require building robust carbon data management systems, pursuing low-carbon transformation of production processes, and preparing thoroughly for the EU's reporting framework. Collaboration between businesses and government will also be essential: domestically, support mechanisms must be established to help companies navigate international regulations; internationally, strategic approaches must be secured to maintain the competitiveness of Korean products in overseas markets.
by Editor O