Is the Chemical Industry Ready for Carbon Border Adjustment Mechanism?
- CBAM is soon likely to become applicable to industrial chemicals.
- EU importers need to revisit their sourcing strategies and map carbon emissions at the supplier level.
- Likewise, non-EU suppliers should take steps to decarbonize production routes and launch green-certified product lines.
January 20, 2026 | Procurement Strategy 5 minutes read
The European Union’s Carbon Border Adjustment Mechanism (CBAM) is designed (in 2023) to prevent carbon leakage by imposing carbon costs on imports equivalent to those faced by EU producers under the Emissions Trading System (ETS).
Initially, the CBAM policy was applied to high-volume industrial materials such as iron and steel, cement, aluminum, fertilizers, electricity, and hydrogen. Starting from 2030, this policy is likely to extend to industrial chemicals.
For a sector that represents €322 billion in EU imports and nearly 18% of industrial CO₂ emissions, the implications are profound. Based on current CBAM cost projections for existing sectors and the emission intensity of key chemical processes, the total carbon cost burden for imported chemicals could reach several billion euros annually.
Why Chemicals Are Next
Here is why CBAM is likely to extend to chemicals:
• Chemicals are a Major Untapped Source of Carbon Leakage
The chemicals industry accounts for nearly one-fifth (18%) of industrial CO₂ emissions, yet most chemical products remain outside carbon border controls. Chemical processes such as ammonia production (2.4 tCO₂/t), and methanol production (1.6 tCO₂/t) are among the most carbon emitting in industry.
• High Carbon Leakage Risk
Many EU chemical producers already face rising costs under the EU Emissions Trading System (ETS); while competing imports are produced in regions with weaker or no carbon pricing. This imbalance creates a clear carbon leakage risk, which is exactly the problem CBAM was designed to address.
• Globalized Supply Chains
The EU’s chemical consumption depends heavily on imports (31% in 2023). Majority of these imports are from high-carbon emitting regions in Asia and the Middle East.
• Strategic Importance
Chemicals are the backbone of sectors like automotive, pharmaceuticals, packaging, and construction. Any sustained carbon leakage in this sector could ripple across multiple EU value chains.
• Direct Link to Existing CBAM Sectors
Many chemicals are upstream inputs to sectors already under CBAM, including fertilizers, hydrogen, steel, and aluminum. Excluding chemicals creates loopholes, allowing embedded emissions to re-enter the EU indirectly through downstream products. Expanding CBAM to chemicals closes these gaps and strengthens policy consistency.
Real Business Impacts of CBAM on Chemicals Sector
1. Rising Costs
Once chemicals are included, importers must buy CBAM certificates reflecting the EU ETS carbon price (around €80 – 85 /tCO₂; projected €120–140 by 2030).
For example – methanol.
| Parameter | Value |
| Baseline price | €535/tonne |
| Emission intensity | 1.6 tCO₂ per tonne |
| Carbon price | €80/tCO₂ |
| Extra cost per tonne | €128 |
| Cost increase | ≈ 20% |
Result: Importers will face 5-20% cost premiums on high carbon emitting chemicals, translating into significant additional annual costs across EU trade.
2. Supply Chain Restructuring
CBAM is expected to accelerate a shift toward more regional, lower-carbon sourcing – a key trend in chemical procurement highlighted by GEP experts. EU buyers are already evaluating suppliers in lower-emission markets such as Norway, Canada, and parts of the Middle East. This will strengthen intra-EU trade in bulk chemicals. Early signs are visible. The imports of chemicals dropped by around 11% in the last two years to €322 billion, while exports increased by around 1% to €560 billion.
3. Innovation Acceleration
CBAM, green-hydrogen incentives, and net-zero commitments are accelerating low-carbon investments in the chemical sector. In April 2024, BASF, SABIC, and Linde launched the world’s first demonstration plant for large-scale electrically heated steam cracking furnaces. Green hydrogen projects are underway at BASF, Dow (Terneuzen), and BP (Teesside). These efforts signal a rapid shift toward electrified and lower-carbon production routes across the industry.
4. Carbon Transparency
CBAM is driving tighter emissions reporting, with verified data becoming essential from 2026 onward. Several chemical producers are already piloting digital tools such as carbon passports and blockchain-based tracking to improve traceability. Although still in the early stages, these solutions are expected to become increasingly important as transparency requirements grow.
5. Market Divide
A new divide will emerge between carbon-competitive and carbon-exposed players. CBAM will not only protect EU industries but also redefine the global market leadership based on carbon intensity.
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Who Bears the Extra Cost: Importers vs Suppliers
Strategic Pathways
For EU Importers
| Action | Rationale |
| 1. Map supplier emissions | Most of the importers lack visibility into supplier-level CO₂ data. Improving transparency helps identify high-carbon suppliers and reduce future CBAM exposure. |
| 2. Use the pre-CBAM window for preparation | This window allows companies to refine emissions tracking before reporting and financial obligations begin. Many firms are adopting digital MRV (Monitoring, Reporting, and Verification) tools to get ready. |
| 3. Revisit sourcing strategies | Adjusting sourcing toward lower-carbon producers can meaningfully reduce future CBAM-related charges. This is one of the most effective mitigation levers identified by industry advisors. |
| 4. Co-invest in supplier decarbonization | Collaborative investments in technologies like green hydrogen or carbon capture can significantly lower lifecycle emissions. These partnerships help secure long-term competitiveness under CBAM. |
| 5. Embed carbon in procurement decisions | Many companies are using internal carbon pricing to guide supplier selection. Integrating CO₂ criteria aligns sourcing decisions with future compliance needs. |
For Non-EU Suppliers
| Action | Rationale |
| 1. Decarbonize production routes | Transitioning to renewables or green hydrogen can lower emission intensity in manufacturing high carbon emitting products (40-70% for ammonia and methanol). Producers in Oman and Saudi Arabia are piloting such projects with export orientation to the EU. |
| 2. Launch green-certified product lines | CBAM-ready or green-certified chemicals are already commanding price premiums in early contracts, especially in specialty segments. |
| 3. Strengthen EU compliance capabilities | By 2026, every shipment will require verified CO₂ data; suppliers with dedicated EU CBAM teams or facilities are likely to reduce administrative penalties. |
| 4. Form regional clean-tech alliances | Shared infrastructure for hydrogen, CCS, and renewables can cut decarbonization CAPEX per companies |
| 5. Diversify exports | Redirecting significant percentage of high carbon emitting exports to non-EU markets could offset early CBAM costs, particularly in Asia and Africa where carbon border fees are yet to emerge. |
Outlook: 2030 and Beyond
- High carbon emitting chemical imports to the EU may decline significantly and will be replaced by low-carbon alternatives.
- Green certified chemicals could capture 5-15% market premiums, reshaping pricing structures.
- Countries like the UK, Canada, and Japan are exploring CBAM-like mechanisms, extending the carbon accountability framework globally.
- By 2030, carbon intensity will rival cost and quality as a defining metric of competitiveness in the chemicals industry.
- New trade frictions may emerge as more regions adopt carbon-adjustment policies. Differences in carbon pricing systems, exemptions, or reporting requirements could trigger disputes or “carbon-linked tariff tensions,” particularly between high-carbon exporting regions and markets implementing strict border measures.
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Prepare for Carbon Competitiveness
CBAM isn’t just likely to increase costs, but it can trigger a wider transformation. In the chemicals industry, it makes carbon competitiveness as vital as cost efficiency.
Today, CO₂ emission factors vary widely between countries and companies, with no mandatory auditing system to verify calculation methods. Establishing standardized guidelines and certifying products for their CO₂ emissions will be crucial to ensure fair competition. Companies that act early by improving emissions transparency, investing in clean technologies, and strengthening supplier partnerships will not only reduce risk but also position themselves as leaders in the global shift toward low-carbon chemical value chains.
In practice, some companies are already going beyond the current CBAM scope. Based on GEP’s experience supporting organizations with CBAM compliance for in-scope categories, leading firms are proactively extending emissions-data collection and reporting capabilities to adjacent categories such as chemicals. This forward-looking approach reduces future implementation risk and avoids last-minute compliance gaps. With emissions-management capabilities, GEP is well positioned to help companies build scalable CBAM-ready processes today that can seamlessly accommodate chemicals as and when they are formally included under the regulation.
Author: Bakorlang Myrthong
