The CBAM, EU ETS and European competitiveness debate is entering a crucial phase as the European Union’s carbon border mechanism moves into its definitive regime.
A new report from EPICO and the Konrad-Adenauer-Stiftung argues that CBAM can protect European industry from carbon leakage, but cannot by itself solve the bloc’s investment, competitiveness and international cooperation challenges.
CBAM became definitive on Jan. 1, 2026, covering imports of cement, iron and steel, aluminum, fertilizers, electricity and hydrogen. Importers above the 50-tonne threshold must obtain authorized status, while certificates linked to embedded emissions will become part of the compliance system.
The European Commission has also moved to strengthen the mechanism, with the Council agreeing in June to extend CBAM to additional downstream products and reinforce anti-circumvention rules.
But the report warns against expecting the border mechanism to do too much.
“CBAM can protect European carbon pricing against carbon leakage, but it cannot on its own mobilize investment, lower the cost of capital, transfer technology or create durable international partnerships,” the authors write.
Europe has an investment problem
The report points to a striking gap between Europe’s clean-industrial ambitions and actual investment decisions. Europe accounts for roughly a quarter of the global pipeline of clean industrial projects, yet more than 90% are still awaiting final investment decisions.
That makes financing, energy costs, permitting and investment certainty just as important as carbon pricing.
The Commission’s July 2026 ETS proposal reflects that broader challenge, with plans including an Industrial Decarbonization Bank and additional investment support alongside changes to free allocation and CBAM.
From CBAM to partnerships
The report argues that Europe needs to complement CBAM with finance, guarantees, technology cooperation and compatible emissions-monitoring systems.
It describes the external problem bluntly: the EU approach can look like a “‘stick without a carrot’” to trading partners.
The CEO and founder of EPICO Bernd Weber also adds: “The CO2 border adjustment is intended to protect European industry from carbon leakage and at the same time provide incentives for decarbonisation outside Europe. But from the point of view of many third countries, CBAM acts above all as a new trade barrier. Their perspective has so far been neglected in the European debate.”
One proposal is to recycle part of CBAM’s economic value into decarbonization projects abroad. The report argues this could turn a source of trade friction into an incentive for cooperation.
The broader message is that carbon pricing can change incentives, but it cannot automatically make clean projects financially viable. Europe’s next challenge is therefore not simply expanding CBAM, but building the investment and international partnerships needed to make decarbonization happen.
You can download the full 22-page report here.
Read more: EU Expands CBAM To Fight Carbon Leakage
