The transitional phase of the Carbon Border Adjustment Mechanism ran from 1 October 2023 to 31 December 2025. During that period, importers were required to report embedded emissions quarterly but faced no financial obligations. That period is over. From 1 January 2026, the definitive phase is active. From 1 April 2026, following a short grace period, only authorised CBAM declarants are permitted to bring in-scope goods into the European Union. On 7 April 2026, the European Commission published the first quarterly CBAM certificate price: €75.36 per tonne of CO2. That number is not an estimate. It is the operative price, based on the average EU Emissions Trading System allowance price over the preceding three months, against which every covered import into the EU is now assessed.

Under Regulation (EU) 2023/956, as amended by Regulation 2025/2083, the definitive phase imposes three simultaneous obligations on importers. First, annual declaration of the embedded emissions of all covered imports. Second, third-party verification of those emissions by an accredited verifier. Third, the purchase and surrender of CBAM certificates corresponding to the verified embedded emissions, adjusted for any carbon price already paid in the country of production.

The certificate purchase obligation is postponed to 1 February 2027 for emissions embedded in 2026 imports, with the annual declaration deadline set at 30 September 2027. The certificate price for the 2026 compliance year will reflect the quarterly average of 2026 EU ETS allowance prices. From 2027 onwards, certificates can be purchased at any time and prices will reflect the weekly average of EU ETS auction closing prices, introducing a continuous mark-to-market pricing dynamic into the cost base of every covered supply chain.

The European Commission has also proposed, in December 2025, an extension of CBAM scope to downstream products -- goods manufactured using CBAM-covered inputs. This proposal, if adopted, would substantially widen the compliance perimeter beyond primary industrial exporters to include processed and manufactured goods across a far larger range of supply chains. The default values mechanism remains in force: importers who cannot provide verified emissions data for their goods are assessed against the emissions intensity of the worst-performing installations in the EU, which in practice means the highest possible certificate cost.

The World Bank has estimated that CBAM could affect exports worth $16 billion annually from developing countries. UNCTAD has separately estimated that India, Brazil, South Africa, and Indonesia alone could face export losses of up to $5.6 billion per year from increased carbon tariffs on their goods. For Africa specifically, the joint analysis by the London School of Economics and the African Climate Foundation, which remains the most comprehensive sector-level study, produced the following findings on the impact of CBAM on African exports to the EU.

These figures are not worst-case projections. They are mid-range estimates from peer-reviewed modelling. The South African Reserve Bank's own analysis, using a carbon price assumption of $75 per tonne applied from 2026, projects that South Africa's total exports to the EU could fall by 4 per cent by 2030, with cement and iron and steel sectors each experiencing declines of more than 30 per cent. South Africa has formally described CBAM as "coercive" and a threat to its domestic climate policy consensus. That characterisation reflects a structural reality: the mechanism transfers the cost of European climate ambition onto producers in economies that contributed a small fraction of historical emissions and have limited capacity to absorb the compliance cost.

The default values mechanism is the central compliance risk for exporters who have not invested in carbon measurement and verification infrastructure. Where an importer cannot provide embedded emissions data verified by an accredited third party, the EU applies default values based on the emissions intensity of the least-efficient producers in the EU for that sector. This is a deliberate design feature, not an administrative oversight. It creates a strong financial incentive to invest in emissions measurement, because the penalty for not doing so is a certificate cost calculated on the assumption that the goods were produced as inefficiently as the worst European plant in the same category.

For firms in the Global South with high coal-intensity in their energy mix, the gap between their actual embedded emissions and the EU default value may be relatively narrow. For firms with access to lower-carbon energy, the gap between their actual embedded emissions and the default value may be substantial, meaning the default-value route involves paying significantly more than their actual carbon exposure would require. Both scenarios create an identical strategic imperative: invest in verified emissions data, or accept a structural competitive disadvantage on every tonne exported to the EU.

The capital implications of CBAM extend well beyond the certificate purchase obligation. Institutional investors are beginning to apply CBAM exposure as a valuation input for industrial exporters. A firm with verified low embedded emissions and an authorised declarant status carries a different risk profile, and a different cost of capital, from a firm relying on default values with no emissions verification infrastructure in place. The bifurcation between compliant and non-compliant industrial exporters is a structural investment theme, not a transient regulatory adjustment.

Trade flows are already responding. Some portion of African industrial exports that previously entered the EU are being redirected toward markets without comparable border carbon pricing, primarily China, India, and intra-African trade channels. This redirection typically occurs at lower unit prices, since the markets absorbing the redirected volumes do not place the same premium on verified low-carbon supply. The net effect for the exporting firm is a revenue reduction that may partially offset the avoided CBAM certificate cost, leaving the underlying competitive position weaker than before the mechanism was introduced.

The medium-term strategic response for industrial exporters with European market exposure is clear but capital-intensive. It involves investment in real-time carbon monitoring and third-party verification systems, transition of energy inputs toward lower-carbon sources where economically viable, engagement with the EU authorised declarant registration process, and modelling of the downstream scope extension scenario to quantify the potential future compliance perimeter.

CBAM has been challenged on World Trade Organisation principles of non-discrimination and most-favoured-nation treatment since its design phase. As of June 2026, no formal WTO dispute has been concluded on the mechanism, but the legal arguments remain live. The African Group at the WTO and individual members including South Africa have placed CBAM on the multilateral trade agenda. The EU's position is that CBAM is consistent with WTO law as a domestic environmental measure applied equivalently to imports. The counter-position, advanced by developing country members, is that the mechanism constitutes a form of trade discrimination because it applies a compliance cost that only developed country producers have the institutional and financial capacity to manage effectively.

For institutional allocators and industrial firms, the WTO dimension does not alter the immediate compliance obligation. CBAM is operative law as of 1 April 2026. A future WTO ruling adverse to the EU would create a legal basis for renegotiation, but would not provide a compliance exemption in the interim. The practical planning horizon for CBAM compliance is the 2027 certificate surrender deadline, regardless of the multilateral legal outcome.