The EU Carbon Border Adjustment Mechanism (CBAM) will enter into force on January 1, 2026 after a transition period starting in October 2023. The CBAM covers iron and steel, aluminum, cement, fertilizer and electricity, and requires the purchase of CBAM certificates that report direct and indirect carbon emissions of these goods. The CBAM could have a significant impact on the competitiveness of developing countries that mainly export these goods to the EU.
The Relative CBAM Exposure Index is designed to identify countries with a high exposure to the EU CBAM, using carbon emissions intensity and exports of CBAM products to the EU. Assuming the carbon price ($100 per metric ton), the index measures the additional cost of CBAM certificates for exporters compared to the average EU producer, adjusted by the proportion of exports to the EU market. It recognizes cost changes in the EU market, where EU producers also bear emissions costs, enabling relatively clean exporters to gain competitiveness despite the requirement to purchase certificates. In the index, green signifies an increase in relative competitiveness while red implies a decrease. The aggregate relative index represents the trade-weighted relative exposure across all CBAM products.