KITA: "Impact of EU Carbon Border Adjustment Mechanism on Exports to Europe to Intensify from 2031"

Carbon Cost Burden on Exports to the EU Rises
Significant Financial Impact Begins in 2031
Proactive Supply Chain Management Required

As the impact of the European Union (EU)'s Carbon Border Adjustment Mechanism (CBAM) on exports to the EU is expected to become significant starting in 2031, there is an urgent need for the proactive establishment of low-carbon supply chains, according to recent analysis.

According to the report, "The Impact of the EU's CBAM Implementation on Exports to the EU," published on March 23 by the Korea International Trade Association (KITA) Institute for International Trade and Commerce, carbon costs for exports to the EU are expected to surge. This is due to the EU's planned expansion of CBAM-covered items in 2028 and the gradual phase-out of free allocation of carbon emission allowances within the EU by 2034.

In December of last year, the European Commission announced a CBAM revision that expands covered items from the existing steel and aluminum to include machinery, electrical equipment, transportation machinery, and precision, medical, and measuring devices—so-called downstream (front-end industry) products. This revision is scheduled to take effect from January 2028 after approval by the European Parliament. The report analyzes that 94% of the newly added downstream items are industrial goods with high steel and aluminum content, indicating that the scope of CBAM's impact could further increase.

Korea International Trade Association (KITA) building. KITA.

The report also points to 2031 as the critical turning point when the financial burden from CBAM will sharply rise. The EU’s free allocation rate for carbon emission allowances will be gradually reduced from 97.5% in 2026 to 0% by 2034. Specifically, from 2031, the free allocation rate will drop to 39%, below half, resulting in a relatively greater financial burden. The report explains that, given CBAM's basic intent to require both domestic and foreign companies to bear an equal level of carbon costs, the reduction in the intra-EU free allocation rate is a factor that increases the cost burden for non-EU companies.

Based on an analysis of these regulatory changes, the report found that without measures such as a corporate shift to low-carbon operations, a 1% increase in export prices due to CBAM would lead to a 0.98% decrease in export volume for the affected products. In particular, export volumes of CBAM-covered items to the EU are expected to decrease by only 0.9% to 5.3% through 2030; however, as free allocations sharply decrease from 2031 to 2034, the decline in export volume is projected to widen to between 7.7% and 17.9%.

Lee Gwanjae, a senior researcher at KITA, emphasized, "As the scope of CBAM will expand from 2028 and the carbon cost burden will become significant starting in 2031, Korean companies do not have much time to respond." He stressed, "To maintain export competitiveness, companies must proactively establish supply chain management systems by completing the transition to low-carbon facilities and process innovation by 2030."

This content was produced with the assistance of AI translation services.